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 = 2. Therefore:

Question

Quizplus · Accepted Answer

The coefficient of 2 on inflation rate indicates that for every 1% increase in inflation, the exchange rate of the British pound increased by 2%. Since the coefficient is positive and greater than 1, it suggests that purchasing power parity underestimated the exchange rate change during the period under examination. Therefore, the best choice is C.

The Following Regression Analysis Was Conducted for the Inflation Rate