Which of the Following Problems Would Lead an Economist to Use

question 3

Multiple Choice

Which of the following problems would lead an economist to use instrument variable methods?

• A)The dependent variable has an impact on the independent variable.
• B)There are too few quarters of data.
• C)There are too many independent variables.
• D)The R² is too high.
• E) The residuals are too small.

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Definitions:

Exchange Rates

The value of one currency expressed in terms of another currency, used in international transactions and foreign exchange markets.

Foreign Exchange Loss

A decrease in domestic currency value due to holding foreign currency or financial instruments as they depreciate against the home currency.

Forward Contract

A financial instrument agreement to buy or sell an asset at a predetermined future date and price.

Spot Rate

The present going rate for a specific currency to be purchased or exchanged, available for prompt delivery.