Sulsa Inc Uses Fundamental Forecasting

Multiple Choice

Sulsa Inc. uses fundamental forecasting. Using regression analysis, it has determined the following equation for the euro: euro_t
= b₀ + b₁INF_{t - 1} + b₂INC_{t - 1}
​
= ) 005 + .9INF_{t - 1} + 1.1INC_{t - 1}
​
The most recent quarterly percentage change in the inflation differential between the United States and Europe was 2 percent, while the most recent quarterly percentage change in the income growth differential between the United States and Europe was -1 percent. Based on this information, the forecast for the euro is a(n) ____ of ____ percent.

A) appreciation; 3.4
B) depreciation; 3.4
C) appreciation; 0.7
D) appreciation; 1.2