The Following Regression Analysis Was Conducted for the Inflation Rate

question 49

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 = 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.

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Definitions:

Net Income

The amount of money a company retains after subtracting all expenses and taxes from its gross revenue.

Retained Earnings

The portion of net income left over for the business after it has paid out dividends to its shareholders.

Fiscal Year

A 12-month period used for accounting purposes and preparing financial statements.

Depreciation Expense

The allocation of the cost of tangible assets over their useful lives, reflecting the reduction in value over time.