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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Definitions:

MPC (Marginal Propensity To Consume)

The proportion of an additional income that an individual tends to spend on consumption rather than saving.

GDP

Gross Domestic Product refers to the total monetary value of all goods and services produced within a country's borders in a given time frame, serving as an indicator of its economic performance.

Public Debt

The total amount of money that a government has borrowed and still owes.

Federal Budget Deficit

The financial shortfall when a government's expenditures exceed its revenues in a given fiscal year.