Part II) Consider a challenging problem in banking and the lending industry in general:

understanding the causal impact of loan amount or credit card limit on default rate. Naturally,

increasing someone's credit limit will increase (or at least not decrease) the odds of them

defaulting on a credit card bill. But banking data show that if you regress credit line (a continous

variable) on default, results find that the effect of credit line on default is negative.

Answer the following questions:

1. Can you explain this conflciting result?

2. Suggest ways to resolve this conflict? Justify your prefered method.