Because inflation reduces the purchasing power of the dollar, investors seek investments that will provide higher returns

Question:

Because inflation reduces the purchasing power of the dollar, investors seek investments that will provide higher returns when inflation is higher. It is frequently stated that common stocks provide just such a hedge against inflation. The annual percentage rates of return on common stock and annual inflation rates for a recent 10-year period are listed here.

a. Use a graphical technique to depict the relationship between the two variables.

b. Does it appear that the returns on common stocks and inflation are linearly related?

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