The Following Regression Analysis Was Conducted for the Inflation Rate $e _ { B P } = a _ { 0 } + a _ { 1 } \left( \frac { \left( 1 + I _ { U S } \right) } { \left( 1 + I _ { B } \right) } - 1 \right) + \mu$

question 52

Multiple Choice

The following regression analysis was conducted for the inflation rate information and exchange rate of the British pound:
$e _ { B P } = a _ { 0 } + a _ { 1 } \left( \frac { \left( 1 + I _ { U S } \right) } { \left( 1 + I _ { B } \right) } - 1 \right) + \mu$
Regression results indicate that a₀ = 0 and a₁ = 0.4. 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.

Use the operating leverage to estimate the effect of sales changes on net operating income.

Understand the basic concepts and application of the high-low method in cost analysis.

Comprehend the principles of scattergraph method and the role of activity as an independent variable in cost behavior analysis.

Grasp the concept and application of least-squares regression in minimizing errors and estimating cost behavior.

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Definitions:

Lowest Price

The minimum price at which a product or service is offered in the market.

Levied

The act of imposing or collecting a charge, tax, or fee by authority or law.

Highest Price

the maximum price at which a good or service is sold in the market or the highest price a buyer is willing to pay.

Unconsummated Transaction

A transaction that is proposed but not finalized or completed.