Suppose wish to explain violent crime as a function of city type and unemployment rate and you are concerned that the marginal effect of the unemployment rate might differ for cities and suburbs.You could control for this possibility by
A)including the binary dummy variable Suburb in you regression.
B)interacting the binary dummy variable with the unemployment rate in you regression.
C)including the square of the unemployment rate in you regression.
D)including the binary dummy variable City in your regression.

Question

Quizplus · Accepted Answer

By interacting the binary dummy variable with the unemployment rate, we are able to test whether the effect of unemployment rate on violent crime differs between cities and suburbs. This allows us to control for the potential difference in marginal effect between city type and unemployment rate. Including binary dummy variables for city and suburb does not address this concern, and adding the square of the unemployment rate would not be relevant for testing this specific question.

Suppose Wish to Explain Violent Crime as a Function of City