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If There Are Three Variables That Are Being Tested for Cointegration

question 9

Multiple Choice

If there are three variables that are being tested for cointegration, what is the maximum number of linearly independent cointegrating relationships that there could be?


Definitions:

Long-Run Equilibrium

A state in which all inputs and outputs in a market are fully adjusted and there is no tendency for change, often associated with perfect competition markets.

Marginal Revenue

The extra revenue obtained by selling an additional unit of a product or service.

Marginal Cost

The cost increase from producing a further unit of a product or service.

Long-Run Equilibrium

Long-run equilibrium occurs in a market when all firms earn normal profits, and no new firms have an incentive to enter or exit, resulting in market stability over time.

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