The Following Regression Analysis Was Conducted for the Inflation Rate

question 35

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 = 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:

Moderate Incomes

Earnings that are neither too high nor too low, often associated with the middle class in a given society.

Interest Rates

The cost of borrowing money or the return for investing, expressed as a percentage of the principal, influencing consumer and business spending.

Interest-sensitive Goods

Products or services whose demand is heavily influenced by changes in interest rates, such as housing and automobiles.

Housing Prices

The cost assigned to purchasing residential properties, which can fluctuate based on market conditions, location, and property features.