If Variable X Causes Variable Y

question 18

Multiple Choice

If Variable X causes Variable Y,

• A)the correlation between X and Y should not change over time.
• B)the correlation between X at Time 1 and Y at Time 2 should be greater than the correlation between Y at Time 1 and X at Time 2.
• C)X and Y should be correlated more strongly between Time 1 and Time 2 than they are at Time 2.
• D)the correlation between X and Y should approach 1.00 over time.

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Definitions:

Common-Size Statement

A financial analysis tool that displays line items as a percentage of one selected or common figure, facilitating comparisons across different financial periods or companies.

Total Sales

The entirety of a company's revenues generated from the sale of goods or services before any expenses are subtracted.

Du Pont Identity

A financial analysis framework that breaks down return on equity into three components: profit margin, asset turnover, and financial leverage, highlighting how these factors affect a company's overall financial performance.

Return On Equity

An assessment of a firm's efficiency in producing profit from its shareholders' investments.