We are analyzing the effects of regime type on corruption rates with the following model: Corruption = 10 - 0.1 GDP (per capita) - 2.0 Democracy
Where Corruption is an index of corruption, GDP (per capita) is measured in thousands of dollars, and Democracy is a dummy variable that is equal to one if a country is a democracy and 0 otherwise. Suppose we want to know the estimated effect on corruption of an extra thousand dollars per capita for a democratic country. Our estimate implies the change in predicted corruption will be

Question

Quizplus · Accepted Answer

The coefficient for GDP (per capita) is -0.1, so an extra thousand dollars per capita would result in a decrease in corruption by 0.1(1,000) = 100. However, since the country is democratic, the Democracy variable is equal to 1, which means that the coefficient for Democracy (-2.0) also applies. Therefore, the predicted change in corruption would be a decrease of 100 + (-2.0) = -102. This implies a decrease in predicted corruption, so the answer is B: 0.1 lower.

We Are Analyzing the Effects of Regime Type on Corruption