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Mini-Case Study 3: Debt Spending

A study found that American consumers are making average monthlydebt payments of $983 (Experian.com- November 11th, 2010). However,the study of 26 metropolitan areas reveals quite a bit of variationin debt payments, depending on where consumers live. For example,the Washington, DC, residents pay the most ($1,285 per month),while Pittsburghers pay the least ($763 per month). Madelyn Davis,an economist at a large bank, believes that income differencesbetween cities are the primary reason for the disparate debtpayments. For example, the Washington, DC, area’s high incomes havelikely contributed to its placement at the top of the list. Madelynalso wonders about the likely effect of unemployment on consumerdebt payments. She wonders areas with higher unemployment rateswill leave consumers struggling to pay their bills and thus lowerdebt payments. On the other hand, higher unemployment rates mayreduce consumer debt payments, as consumers forgo making majorpurchases such as homes and cars. In order to analyze therelationship between income, the unemployment rate, and consumerdebt payments, Madelyn gathers data from the same 26 metropolitanareas used in the debt payment study. Specifically, she collectseach area’s 2010-2011 median household income as well as themonthly unemployment rate and average consumer debt for August2010.

Metropolitan area	Debt	Inc	Unemp
Washington, D.C.	1,285	103.5	6.3
Seattle	1,135	81.7	8.5
Baltimore	1,133	82.2	8.1
Boston	1,133	89.5	7.6
Denver	1,104	75.9	8.1
San Francisco	1,098	93.4	9.3
San Diego	1,076	75.5	10.6
Sacramento	1,045	73.1	12.4
Los Angeles	1,024	68.2	12.9
Chicago	1,017	75.1	9.7
Philadelphia	1,011	78.3	9.2
Minneapolis	1,011	84	7
New York	989	78.3	9.3
Atlanta	986	71.8	10.3
Dallas	970	68.3	8.4
Phoenix	957	66.6	9.1
Portland	948	71.2	10.2
Cincinnati	920	69.5	9.3
Houston	889	65.1	8.7
Columbus	888	68.6	8.3
St. Louis	886	68.3	9.9
Miami	867	60.2	14.5
Detroit	832	69.8	15.7
Cleveland	812	64.8	9.6
Tampa	791	59.4	12.6
Pittsburgh	763	63	8.3

Madelyn asks for your group’s help to:

1. Use the ‘Data Analysis Toolpack’ to fit a regression. Be sure toinclude all steps including interpreting the model. Be thorough indescribing your process. (20 points)

2. Use your final equation to predict the average debt payment of ametropolitan area whose median income is $41,203 and whoseunemployment rate is 8.04%. (3 points)

3. Does the intercept have meaning? (3 points)