Financial Risk Manager Part 1

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An FRM exam candidate studies labor participation rate for males 18 years and over, and obtains the following linear model:

p_t = \beta_0 + \beta_1 t

Where $p_t$ stands for participation rate and $t =$ time in years.

The fact that $\beta_1$ (the regression slope) is positive means:

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NNikitesh

Last updated: February 2, 2026 at 10:22

Participation rate decreases with increase in time

Participation rate increases with time

Time is the only explanatory variable

As males grow older, less and less of them engage in labor

Explanation:

$\beta_1$ is the regression slope and represents the change in $p_t$ for every unit change in $t$ . The regression slope is always positive if the trend is increasing and negative if the trend is decreasing. Therefore, a positive $\beta_1$ means that as time increases, the participation rate increases.

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