Consider the following model of value in a savings fund that depends on the initial investment, the rate of return, and the length of time in which the funds are invested: Y_t = Y₀ (1 + r)^t, where Y_t represents the value of the fund at time t, Y₀ is the initial investment in the savings fund, and r is the growth rate. Which model would have the best fit?

It is a:

A. lin-log model
B. log-lin model
C. log-log model

Correct Answer: B

If you take the lof of both sides, you get lnY_t = lnY₀ + X ln(1 + r), where lnY₀ is the constant and ln(1 + r) is the growth rate.