Question: You collect data on 26 metropolitan areas to analyze average monthly debt payments in terms of income and the unemployment rate. A portion of the

You collect data on 26 metropolitan areas to analyze average monthly debt payments in terms of income and the unemployment rate. A portion of the data is shown in the accompanying table.

a. Estimate the model Debt = Î²0 + Î²1Inc + Î²2Unemp + Îµ. Is unemployment significant at the 5% level?
b. You are told that the unemployment rate might have a quadratic influence on monthly debt payments. Provide an intuitive justification for this claim.
c. Estimate Debt = Î²0 + Î²1 Inc + Î²2Unemp + Î²3Unemp2 + Îµ to determine if Unemp and Unemp2 are jointly significant at the 5% level.

Income in $1,000s) Unemployment Debt Area Washington, D.C $103.50 Seattle 6.3% $1,285 1,135 81.70 8.5 Pittsburgh 63.00 8.3 763

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a The estimated linear model is 1989956 105122 Inc 06186 Unemp Unemployment is not significant at th... View full answer

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