A Regression Model Was Applied to Explain Movements in the Canadian

question 41

Multiple Choice

A regression model was applied to explain movements in the Canadian dollar's value over time. The coefficient for the inflation differential between the U.S. and Canada was -0.2. The coefficient of the interest rate differential between the U.S. and Canada produced a coefficient of 0.8. Thus, the Canadian dollar depreciates when the inflation differential ____ and the interest rate differential ____.

• A) increases; increases
• B) decreases; increases
• C) increases; decreases
• D) Increases; decreases

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