The Following Regression Analysis Was Conducted for the Inflation Rate

question 26

Multiple Choice

The following regression analysis was conducted for the inflation rate information and exchange rate of the US dollar: ​
E_BP = a₀ + a₁ * [(1 + I _US) /(1 + I_B) -1] + μ
​
Regression results indicate that a₀ = 0 and a₁ = 2. 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.

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Definitions:

Nucleus

In biology, the membrane-bound organelle in a cell that contains genetic material; in physics, the positively charged center of an atom composed of neutrons and protons.

Red Blood Cells

Cells in the blood that transport oxygen from the lungs to body tissues and carbon dioxide from tissues back to the lungs.

Assimilation

The process by which individuals integrate new information into existing cognitive schemas, perceptions, and understanding.

Schema

A cognitive framework or concept that helps organize and interpret information in the world around us.