Compute the predicted consumption expenditures

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Reference no: EM131798628

A sociologist is looking at the relationship between consumption expenditures y of families in the United States, family income x, and w h ether or not the family lives in an urban or rural com m unity (Urban = 1 if urban, 0 otherwise). She collects data on 50 families across the United States, a portion of which is shown in the accompanying table. The full data set can be found on the text website, labeled Urban.

Consumption ($)	Income ($)	Urban
62336	87534	0
60076	94796	1
.....	.....	.....
59055	100908	1

a. Estimate a linear model without a dummy, y = β₀ + β₁x + ε. Compute the predicted consumption expenditures of a family with income of $75,000.

b. Include a dummy d to predict consumption for Income = $75,000 in urban and rural com m unities.

c. Include a dummy d and an interaction xd variable to predict consumption for Income = $75,000 in urban and rural com m unities.

d. Which of the above models is most suitable for the data? Explain.

Reference no: EM131798628

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