Question

Consider a Linear Probability Model where the dependent variable is Made a Political Campaign Contributions to a Candidate During the Last Election. One independent variable is the individual’s income in dollars. The coefficient on income is 0.00015. What do the results of the Linear Probability Model suggest?

Group of answer choices

On average, a $1,000 increase in income results in a 15 percentage point increase in the probability of making a campaign contribution

On average, a $1,000 increase in income results in a $0.15 increase in the amount of political campaign contributions

On average, a 10% increase in income results in a 0.0015 percentage point increase in the probability of making a campaign contribution

On average, a 10% increase in income results in a $0.0015 increase in the amount of political campaign contributions

Answer 1

Linear Probability model is given by :

P = a + bY(We are considering only one independent variable Y(income) and if we increase number of independent variable then interpretation will still remain same).

here P = Probability of making a campaign contribution and Y = income, b = 0.00015 and a = constant

Thus we have P = a + 0.00015Y

Now if income increases by 1000, then we have :

This suggest that as average income increases by $1000, then probability of making contributions will increase by 0.15 i.e. 15%

Hence, the correct answer is (a) On average, a $1,000 increase in income results in a 15 percentage point increase in the probability of making a campaign contribution