
Algebra and Trigonometry (6th Edition)
6th Edition
ISBN: 9780134463216
Author: Robert F. Blitzer
Publisher: PEARSON
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Transcribed Image Text:Research suggests that macroeconomic factors can explain the dynamics of interest rates (i) in the economy.
Suppose we are interested in understanding whether inflation (7) plays a role in explaining interest rates. The
following levels of interest rate and inflation were recorded during two years
2010
2020
Inflation
3%
7%
If we wish to use a linear model for explaining interest rates, such that
i= a + bxπ
The values for a and b would be
a) a = -0.0125 and b = 0.75
b) a = -0.03 and b = 1.33
c) a= 0.01 and b = 0.03
d) a = 0.0005 and b = -0.25
Interest Rates
1%
4%
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