Suppose you estimate a population regression function where Y represents the hom

Question

Suppose you estimate a population regression function

where Y represents the home mortgage interest rate in percent (values like 6.2),
X1 represents the income of the homeowner in thousands of dollars,
2 represents the down payment on the home in thousands of dollars and
X3, X4 and X5 represent the region of the country in which the homeowner resides (X3 = 1 if homeowner is from Northeast; X4 = 1 if homeowner is from South, X5 = 1 if homeowner is from Midwest (the omitted region is West)).

Estimating this regression you obtain:

From the regression above, comparing Midwest and Northeast home mortgage interest rates and holding all else constant:

A) Expect Midwest to be 0.1% below Northeast

B) Expect Midwest to be 0.3% below Northeast

C) Expect Midwest to be 0.3% above Northeast

D) Expect Midwest to be 0.1% above Northeast

E) Cannot be determined with the information given

Regression Table Coefficient Constant 12 X1 -0.05 X2 -0.01 X3 0.2 X4 -0.3 X5 -0.1

Explanation / Answer

From the regression above, comparing Midwest and Northeast home mortgage interest rates and holding all else constant

See here X5 is midwest and X3 is northwest so corresponding Coefficient of X 3 and X5

X3 : 0.2

and

X5 : -0.1

so we can see that the coeficient of X5 is below 0.3 than X3

So that is  Midwest to be 0.3% below Northeast

So the our Answer is B)

B) Expect Midwest to be 0.3% below Northeast

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