1. Table 1.

1 gives data on the Consumer Price Index (CPI) for seven industrialized countries

Table 1.1
year CANADA FRANCE GERMANY ITALY JAPAN UK US
1973 40.8 34.6 62.8 20.6 47.9 27.9 44.4
1974 45.2 39.3 67.1 24.6 59 32.3 49.3
1975 50.1 43.9 71.1 28.8 65.9 40.2 53.8
1976 53.9 48.1 74.2 33.6 72.2 46.8 56.9
1977 58.1 52.7 76.9 40.1 78.1 54.2 60.6
1978 63.3 57.5 79 45.1 81.4 58.7 65.2
1979 69.2 63.6 82.2 52.1 84.4 66.6 72.6
1980 76.1 72.3 86.7 63.2 90.9 78.5 82.4
1981 85.6 81.9 92.2 75.4 95.3 87.9 90.9
1982 94.9 91.7 97.1 87.7 98.1 95.4 96.5
1983 100.4 100.4 100.3 100.8 99.8 99.8 99.6
1984 104.7 108.1 102.7 111.5 102.1 104.8 103.9
1985 109 114.4 104.8 121.1 104.1 111.1 107.6
1986 113.5 117.3 104.7 128.5 104.8 114.9 109.6
1987 118.4 121.1 104.9 134.4 104.8 119.7 113.6
1988 123.2 124.4 106.3 141.1 105.6 125.6 118.3
1989 129.3 128.7 109.2 150.4 108.1 135.3 124
1990 135.5 133 112.2 159.6 111.4 148.2 130.7
1991 143.1 137.2 116.3 169.8 115 156.9 136.2
1992 145.3 140.5 122.1 178.8 116.9 162.7 140.3
1993 147.9 143.5 127.6 186.4 118.4 165.3 144.5
1994 148.2 145.8 131.1 193.7 119.3 169.4 148.2
1995 151.4 148.4 133.5 204.1 119.1 175.1 152.4
1996 153.8 151.4 135.5 212 119.3 179.4 156.9
1997 156.3 153.2 137.8 215.7 121.3 185 160.5

a) For the given data, compute the inflation rate for each country.
command:
genr inf_can = @pcy(canada)
genr inf_fra = @pcy(france)
genr inf_ger = @pcy(germany)
genr inf_ita= @pcy(italy)
genr inf_jap = @pcy(japan)
genr inf_uk = @pcy(uk)
genr inf_us = @pcy(us)
 INF_CAN INF_FRA INF_GER INF_ITA INF_JAP INF_UK INF_US
1973 NA NA NA NA NA NA NA
1974 10.78431 13.58382 6.847134 19.41748 23.17328 15.77061 11.03604
1975 10.84071 11.70483 5.961252 17.07317 11.69492 24.45820 9.127789
1976 7.584830 9.567198 4.360056 16.66667 9.559939 16.41791 5.762082
1977 7.792208 9.563410 3.638814 19.34524 8.171745 15.81197 6.502636
1978 8.950086 9.108159 2.730819 12.46883 4.225352 8.302583 7.590759
1979 9.320695 10.60870 4.050633 15.52106 3.685504 13.45826 11.34969
1980 9.971098 13.67925 5.474453 21.30518 7.701422 17.86787 13.49862
1981 12.48357 13.27801 6.343714 19.30380 4.840484 11.97452 10.31553
1982 10.86449 11.96581 5.314534 16.31300 2.938090 8.532423 6.160616
1983 5.795574 9.487459 3.295572 14.93729 1.732926 4.612159 3.212435
1984 4.282869 7.669323 2.392822 10.61508 2.304609 5.010020 4.317269
1985 4.106972 5.827937 2.044791 8.609865 1.958864 6.011450 3.561116
1986 4.128440 2.534965 -0.095420 6.110652 0.672430 3.420342 1.858736
1987 4.317181 3.239557 0.191022 4.591440 0.000000 4.177546 3.649635
1988 4.054054 2.725021 1.334604 4.985119 0.763359 4.928989 4.137324
1989 4.951299 3.456592 2.728128 6.591070 2.367424 7.722930 4.818259
1990 4.795050 3.341103 2.747253 6.117021 3.052729 9.534368 5.403226
1991 5.608856 3.157895 3.654189 6.390977 3.231598 5.870445 4.208110
1992 1.537386 2.405248 4.987102 5.300353 1.652174 3.696622 3.010279
1993 1.789401 2.135231 4.504505 4.250559 1.283148 1.598033 2.993585
1994 0.202840 1.602787 2.742947 3.916309 0.760135 2.480339 2.560554
1995 2.159244 1.783265 1.830664 5.369128 -0.167645 3.364817 2.834008
1996 1.585205 2.021563 1.498127 3.870652 0.167926 2.455740 2.952756
1997 1.625488 1.188904 1.697417 1.745283 1.676446 3.121516 2.294455
b) Plot the line graph of inflation rate for each country against year (i.e., use the
horizontal axis for year and the vertical axis for the inflation rate).
25

20

15

10

-5
74 76 78 80 82 84 86 88 90 92 94 96

INF_CAN INF_FRA INF_GER

INF_ITA INF_JAP INF_UK
INF_US
c) Plot the line graph of inflation rate of Canada, France, Germany, Italy, Japan and
the United Kingdom against the United States inflation rate.
Move us inflation to top in group member. Graph xny line

25

20

INF_CAN 15
INF_FRA
INF_GER 10
INF_ITA
INF_JAP 5
INF_UK
0

-5
1 2 3 4 5 6 7 8 9 10 11 12 13 14

INF_US

d) Plot the inflation rate of United Kingdom against the United States inflation rate
and comment generally about it.
Us up (xy line), +ve relationship move in same direction
If -ve relationship move in opposite direction.
25

20

15
INF_UK

10

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14

INF_US
e) If you find that the United Kingdom inflation rates move in the same direction as
the U.S. inflation rate, would that suggest that U.S. inflation “causes” inflation in
the United Kingdom? Why or why not?
Incident in A and B having the same trend.
For example, an ice cream seller in rainy day sells hot milo. Causation vs
correlation.