A Researcher Wants to Examine How the Remaining Balance on $100,000

question 63

Multiple Choice

A researcher wants to examine how the remaining balance on $100,000 loans taken 10 to 20 years ago depends on whether the loan was a prime or subprime loan. He collected a sample of 25 prime loans and 25 subprime loans and recorded the data in the following variables: Balance = the remaining amount of loan to be paid off (in $) ,
Time = the time elapsed from taking the loan,
Prime = a dummy variable assuming 1 for prime loans, and 0 for subprime loans.
The regression results obtained for the models:
Model A: Balance = β₀ + β₁Prime + ε
Model B: Balance = β₀ + β₁Time + β₂Prime + β₃Time × Prime + ε
Model C: Balance = β₀ + β₁Prime + β₂Time × Prime + ε,
Are summarized in the following table. Note: The values of relevant test statistics are shown in parentheses below the estimated coefficients.
Suppose that at the 5% significance level you do not reject the null hypothesis, H₀: β₁ = β₃ = 0, when testing the joint significance of Time and Time × Prime in Model B. Should you delete both Time and Time × Prime from Model B?

• A) No, because Model B has the highest R².
• B) No, because Model B reduces then to Model A with a lower adjusted R².
• C) No, because Model B reduces than to Model A with lower R².
• D) Yes, because Model B reduces than to Model C with higher adjusted R².

---

Definitions:

Sexual Harassment

Unwanted or unwelcome sexual advances, remarks, or physical contact, which can create a hostile work environment and is considered illegal and unethical.

Pay Discrimination

The unequal treatment of employees, where individuals performing the same work are paid differently based on gender, race, age, or other non-job-related factors.

Job Discrimination

What occurs when someone is denied a job or work assignment, or treated differently from other employees, for reasons that are not job relevant. Laws in Canada protect workers from discrimination on the grounds of race, national or ethnic origin, colour, religion, sex, age, mental or physical disability, pregnancy, marital status, and gender identity.

Consumer Surplus

The disparity between what consumers are prepared and capable of paying for a product or service and the actual amount they end up paying.