The Following Regression Model Was Estimated to Forecast the Percentage $\mu$

question 27

Multiple Choice

The following regression model was estimated to forecast the percentage change in the Australian dollar (AUD) : ​
AUD_t = a₀ + a₁INT_t + a₂INF_{t - 1} + $\mu$ _t,
​
Where AUD is the quarterly change in the Australian dollar, INT is the real interest rate differential in period t between the United States and Australia, and INF is the inflation rate differential between the United States and Australia in the previous period. Regression results indicate coefficients of a₀ = .001; a₁ = -.8; and a₂ = .5. Assume that INF_{t - 1} = 4%. However, the interest rate differential is not known at the beginning of period t and must be estimated. You have developed the following probability distribution:
​
Probability
Possible Outcome
20%
-3%
80%
-4%
​
There is a 20 percent probability that the Australian dollar will change by ____, and an 80 percent probability it will change by ____.

• A) 4.5 percent; 6.1 percent
• B) 6.1 percent; 4.5 percent
• C) 4.5 percent; 5.3 percent
• D) None of these are correct.

Differentiate between direct and indirect taxes and their implications on taxpayers.

Grasp the concept and examples of transfer payments in the context of government spending.

Recognize the historical changes in taxation and government spending policies.

Understand the difference between sales and excise taxes and their economic implications.

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Definitions:

Evaluate

To calculate the value of an algebraic expression by substituting variables with numerical values.

Expression

A combination of symbols that represent a value or relationship, often including numbers, variables, and operation symbols.

Y

Typically represents the dependent variable in a mathematical equation or function, often plotted on the vertical axis in a graph.

Positive Exponents

Exponents that are greater than zero, representing multiplication of the base number by itself a specified number of times.