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 (LPM)

The coefficient of independent variable X in LPM (let's say coefficient is b) reflects the increase in probability of dependent variable (Y) for each unit change in X

X = individual’s income in dollars

Y = Made a Political Campaign Contributions to a Candidate During the Last Election

b = coefficient on income = 0.00015.

X increase by $1000.

Increase in probability of Y = b * change in X

Increase in probability of Y = 0.00015 * 1000.

Increase in probability of Y = 0.15

Increase in probabilty of Y = 15 percentage points.

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

Answer:Option (A)