Year Real GDP Growth Rate Yt Inflation Rate Yt’

Xt
2015 4.7 2.5 ?
2016 5.5 3.7 ?
2017 5.7 4.0 ?
2018 5.4 5.0 ?
2019 3.3 7.0 ?
n=5 ∑Yt = 24.6 ∑Xt = 22.2
Y’ = 4.92 X’ = 4.44
ASSIGNMENT ECO404 Spring 2020
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First of all to find Yt’

Formula of Yt’ = a^ + b^Xt
Year (Xt-X’) (Xt-X’)2 (Yt-Y’) (Yt-Y’)2
2015 -1.9 3.76 -0.22 0.0484
2016 -0.7 0.49 0.58 0.3364
2017 -0.4 0.16 0.78 0.6084
2018 0.6 0.36 0.48 0.2304
2019 2.6 6.76 -1.62 2.6244
n=5 ∑(Xt-X’) = 0.2 ∑(Xt-X’)2 = 11.53 ∑(Yt-Y’) = 0 ∑(Yt-Y’)2 = 3.848

∑(Xt-X’)2 = 11.53
∑ (Xt-X’)(Yt-Y’)= -4.224

b^= ∑ (Xt-X’)(Yt-Y’)
∑(Xt-X’)2

Year Real GDP Growth Rate Yt Inflation Rate Yt’

Xt
2015 4.7 2.5 5.63
2016 5.5 3.7 5.19
2017 5.7 4.0 5.08
2018 5.4 5.0 4.72
 2019 3.3 7.0 3.98
^
b = -4.224
11.53
b^= -0.366
a^ = Y’ - b^X’
a^ = 4.92 – (-0.366)(4.44)
a^ = 4.92 + 1.62504
a^ = 6.545

Part B

If the calculated value of t exceeds the tabulated value of t, we reject the null hypothesis that
there is no relationship between and accept the alternative hypothesis that there is in fact a
significant relationship between X (Inflation Rate) and Y (Real GDP Growth Rate). Normally we
do it on 5% level of significance which means that we are 95% confident that the relation exists.

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