F I L E You collect data on 26 metropolitan areas to analyze average monthly debt payments in terms of income and the unemployment rate. A portion of the data is shown in the accompanying table; the complete data set can be found on the text website, labeled Debt Payments.

Metropolitan Area Income

(in $1,000s) Unemployment Debt Washington, D.C. $103.50 6.3% $1,285 Seattle 81.70 8.5 1,135 Pittsburgh 63.00 8.3 763 SOURCE: e F a n n ie M a e .c o m : b ls .c o m : a n d E x p e ria n .c o m .

a. Estimate the model Debt = β 0 + β1 lnc + β 2Unemp + ε.

Is unemployment significant at the 5% level?

b. You are told that the unemployment rate m ight have a quadratic influence on monthly debt payments. Provide an intuitive justification for this claim.

c. Estimate Debt = β 0 + β1 lnc + β 2Unemp + β 3Unemp2 + ε

to determine if Unemp and Unemp2 are jointly significant at the 5% level.