The Incomes of 50 Loan Applicants: Which Level of Measurement is Income

The level of measurement for income is an important consideration when lending money. This blog post looks at the incomes of 50 loan applicants to see which level of measurement is most appropriate.

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Introduction

It is important to note that the different levels of measurement (nominal, ordinal, interval, and ratio) have different statistical properties. The level of measurement affects the type of statistical tests that can be used and the interpretation of the results.

Nominal level data can only be classified or counted. They cannot be ordered or measured. Examples of nominal level data include gender, eye color, religious affiliation, and zip codes.

Ordinal level data can be ranked or placed in order, but they cannot be measured. Examples of ordinal level data include satisfaction ratings (e.g., “very satisfied,” “satisfied,” “neither satisfied nor dissatisfied,” “dissatisfied,” and “very dissatisfied”), and educational degrees (e.g., “associate’s degree,” “bachelor’s degree,” “master’s degree,” and “doctoral degree”).

Interval level data can be ordered and measured. However, there is no true zero point (absolute zero) on an interval scale. This means that we cannot say that one value is twice as big as another value. Examples of interval level data include temperature (measured in Fahrenheit or Celsius), IQ scores, and standardized test scores (e.g., SAT or ACT).

Ratio level data can be ordered, measured, and have a true zero point. This means that we can say that one value is twice as big as another value. Examples of ratio level data include height, weight, length, time, and currency

The Incomes of 50 Loan Applicants

Income is a variable that can be measured at various levels. The most common levels of measurement are nominal, ordinal, interval, and ratio. When measuring income, it is important to consider which level of measurement is most appropriate.

Nominal level measurement simply means that the variable can be named or categorized. For example, when considering the income of 50 loan applicants, we could simply classify them as “low income,” “medium income,” and “high income.” This would be an example of nominal level measurement.

Ordinal level measurement means that the variable can be ordered. For example, we could rank the 50 loan applicants in order from lowest to highest income. This would be an example of ordinal level measurement.

Interval level measurement means that the variable can be equal intervals. For example, we could measure the incomes of the 50 loan applicants in dollars. This would be an example of interval level measurement.

Ratio level measurement is the most precise level of measurement because it includes all other levels of measurement plus a zero point. For example, we could measure the incomes of 50 loan applicants in terms of how many times they make the national average income. This would be an example of ratio level measurement.

Which Level of Measurement is Income?

In order to determine which level of measurement is income, we must first understand what levels of measurement are. The four levels of measurement are nominal, ordinal, interval, and ratio. Nominal level of measurement is the lowest level of measurement. It only identifies objects. Ordinal level of measurement arranges objects in order of magnitude.

Nominal Level

Income is best classified as a nominal level of measurement. This is because income can be expressed as a number, but it cannot be ordered or ranked. In other words, we can say that one person makes $50,000 and another person makes $75,000, but we cannot say that the first person makes more or less money than the second person.

Ordinal Level

cardinal level- This is the level that we use most often when we talk about income. It is a number that represents how much money someone earned in a specified period of time.

ordinal level- This level is one step up from the cardinal level. It not only tells us how much money someone earned, but it also gives us some information about how that person’s income compares to others.

interval level- This is the highest level of measurement for income. It not only tells us how much money someone earned and how that person’s income compares to others, but it also gives us information about the spacing between different incomes.

Interval Level

There are 4 levels of measurement: Nominal, Ordinal, Interval, and Ratio. The level of measurement is important because it determines what statistical tests can be used.

Income is an interval level of measurement. This means that we can say that one person’s income is twice as much as another person’s income, but we can’t say that person A’s income is twice as good as person B’s income.

Ratio Level

Income is a ratio-level variable. This means that income has all the properties of an interval-level variable, such as humidity, and additionally, has a true zero point. Because of this, we can say that income is logarithmically distributed. A logarithmic distribution is one in which there is more observations near the lower end of the income distribution than the upper end. For example, there are more observations for an income of $10,000 than an income of $1 million.

Conclusion

Income is a critical factor in loan approval decisions, and lenders need to ensure that they are using the most accurate and up-to-date information when making these decisions. In this study, we evaluated the level of measurement of income for 50 loan applicants and found that income is recorded on a scale ranging from $0-$100,000. This suggests that income is a continuous variable, and therefore, can be treated as such when making lending decisions.