Statistics of Inflation, GDP, and Unemployment

GDP vs. Inflation

GDP is calculated through a number of measures. One of the most important is the rate of consumption. According to the research, "Consumption often makes up more than 50% of the GDP calculations of most nations. In some places, consumption makes up more than 70% of the GDP calculations" (Conjecture Corporation, 2014). Thus, increases in consumption can be tied to rising GDP reports. Thus, "the main relationship between GDP and consumption is the fact that a rise in the level of consumption translates to a corresponding rise in the level of the GDP" (Conjecture Corporation, 2014). It is thus an appropriate variable to use to represent the overall GDP of an economy.

In order to understand the relationship between inflation and GDP, interest rates will be examined alongside rates of consumption in millions. When there are lower interest rates, consumers spend more because it cost less to use credit and purchase larger purchases (Roos, 2013). This then increases levels of inflation according to the research. Thus, as rates are lower, it can be assumed that the inflation rate is growing. The hypothesis here is that when interest rates are low, and thus inflation is on the rise, consumption should also be on the rise.

X

Y

X2

Y2

X, Y

na

108408

na

Two-Sample Assuming Unequal Variances

Variable 1

Variable 2

Mean

5.199342

149966.7

Variance

0.973734

6.3E+08

Observations

65

65

Hypothesized Mean Difference

0

df

64

t Stat

-48.1558

P (T

2.7E-52

t Critical one-tail

1.669013

P (T

5.4E-52

t Critical two-tail

1.99773

The hypothesis here was that increasing interest rates would signify a decrease in inflation and decreasing interest rates would suggest increasing inflation. It was assumed that there was a negative correlative relationship between the two variables. The statistical analysis does confirm this assertion. In fact, there is an obvious negative correlation between inflation and consumption. The slope of the tread line in the regression analysis shows a clear declining relationship. Based on the regression analysis, it is clear that as interest rates rise, consumptions decrease. As interest rates increase, which are indicative of decreasing inflation, rates of overall consumption decrease alongside. Thus, the T. Stat -48.1558 < T Critical two-tail 1.99773 shows that the hull hypothesis is rejected. When the T. Stat is less that the Critical two-tail test, it is clear that the two variables being analyzed are in fact related. This means that there is enough of a statistical correlation between the two variables to assume that one changes, it impacts the other. Clearly, this demonstrates that rising inflation correlates with higher spending and thus consumption. When interest rates rise, noting decreasing inflation, consumption also decreases. Thus, there is a positive relationship between inflation and consumption. Ultimately, economic professionals can thus use interest rates as a predictor of future inflation increases and decreases. Using regression analysis can also help provide a forecast if conditions stay similar to what they have been in the past.

GDP and Unemployment

Understanding GDP is a complicated process because of the multi-faceted nature of what goes in to calculating the GDP of the country. One method to do this is to look at gross fixed income. Gross fixed capital is indicative of GDP because it represents a percentage of the overall GDP from a private sector perspective. Thus, gross fixed capital can suggest increases and decreases in GDP. In fact, the research suggests that it is a "component of expenditure approach to calculating the GDP" (Lexicon, 2014). Thus, it is an appropriate data set to use to compare the GDP with unemployment rates. Change in gross fixed income then impacts the overall GDP as well. Here, the research suggests that "the higher GDP growth, the lower unemployment" (Spagnoli, 2012). Thus, the hypothesis of this research is that as the gross fixed capital increases, so does the GDP and thus unemployment lowers. Ultimately, it is hypothesized that there is a relationship between the two, a negative relationship where when one rises, the other

Two-Sample Assuming Unequal Variances

Variable 1

Variable 2

Mean

50690.85

6.06

Variance

3.19E+08

1.814625

Observations

65

65

Hypothesized Mean Difference

0

df

64

t Stat

22.86807

P (T

8.37E-33

t Critical one-tail

1.669013

P (T

1.67E-32

t Critical two-tail

1.99773