Econometrics on income and consumption

By Sagar Navlani (0918123) Moin Bhiriya()

introduction
Econometrics means economic measurements it consists of the application of mathematical statistics to economic data to lend empirical support to the models constructed by mathematical economics and to obtain numerical results

Application
We have taken the data on income and consumption of United States of America from 1982-1996 and we have applied Regression. correlation. Time series.

Regression table

Regression equation
In our case if we want to calculate the mean consumption expenditure (Y) of future given that we have the X (GDP) which is assumed then we can calculate the Y by putting the X in the Equation: Y= 0.668X+44.423 The above equation is derived by the income and consumption of United States of America from 1982- 1996. Similarly if we want to calculate the GDP(X) of future given that we have the mean consumption expenditure (Y) of future which is assumed then we can calculate the (X) by putting it in the equation: X=1.498Y+2044.4 The above equation is derived by the income and consumption of United States of America from 1982- 1996.

Correlation table

Correlation Analysis
The above equation shows that income and consumption are highly correlated with other.

Time Series Data

Time Series Graph

Time Series Analysis

The above graph shows that there is a link between the GDP and PCE of United States of America, as we can see that as the GDP is normal from 1982 -1989 the PCE is also normal and as there is a curve in the GDP of 1990 the PCE also curves in the same year and as the GDP increases in 1991 the PCE also increases but. This tells u that as the income level changes the consumption level also changes BUT it changes slowly and gradually, and the GDP in every year is grater than the PCE of every year which tells us that every thing produced in a country in a given year is not consumed in the same year by its inhabitants / individuals.

Conclusion
Keynesian hypothesis is valid which states that as there is a change in income level the consumption level also changes this proves that income and consumption are correlated to each other and they have a positive relationship, and as the independent variable (X) which is income changes the dependent (Y) variable which is consumption also changes this means that there is regression between them. The time series shows that individuals respond to consumption smoothly if the income is smooth but as there is a change in the level of income the consumption level changes but slowly.