​The Following Regression Analysis Was Conducted for the Inflation Rate

question 13

Multiple Choice

​The following regression analysis was conducted for the inflation rate information and exchange rate of the British pound: Regression results indicate that a₀ = 0 and a₁ = 1. Therefore:

• A) ​purchasing power parity holds.
• B) ​purchasing power parity overestimated the exchange rate change during the period under examination.
• C) ​purchasing power parity underestimated the exchange rate change during the period under examination.
• D) ​purchasing power parity will overestimate the exchange rate change of the British pound in the future.

---

Definitions:

Factor Market

A marketplace for the services of a factor of production, such as labor, capital, or land, essential for production processes.

Equilibrium Value

The price or value at which the quantity supplied is equal to the quantity demanded in a market.

Marginal Productivity

The increase in output resulting from a one-unit increase in the input, holding all other inputs constant.

Income Distribution

The way in which total income is shared among the population or different groups within the society.