Business Degree Certification Practice Test

What level of measurement is associated with the income of a group of loan applicants?

1. Nominal

2. Ordinal

3. Interval

4. Ratio

The correct answer is: Ratio

The measurement of income falls under the ratio level of measurement. This is because ratio levels possess a true zero point, which allows for the clear interpretation of statements about the magnitude of differences. In this case, the income of loan applicants can be quantified in absolute terms, meaning one can say that someone with an income of $50,000 has twice the income of someone with $25,000. Additionally, the income data allows for meaningful arithmetic operations like addition, subtraction, multiplication, and division, reinforcing its classification as a ratio scale. The other levels of measurement do not apply here due to their characteristics. Nominal levels categorize data without a specific order or value, such as labeling applicants into groups without quantitative measures. Ordinal levels involve rankings that show order but do not establish the magnitude of differences, meaning you couldn't say one income is "more" than another based on that ranking alone. Interval levels have ordered values with consistent differences between them, but they lack a true zero point, making it impossible to express ratios or assess values like income in this way.