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Australia and Germany both have highly developed economies that rank among the top 20 in the world,
which is why I chose this topic/indicator. Both nations have strong employment rates (AUS: 74.6%, DEU:
68.3%). I decided to use the GDP and the inflation of these two countries to find out some different
points since I am inquisitive about what makes these two similar economic systems different from one
another.
Why I chose GDP and inflation is I am attracted to the relationship between inflation and economic
output(GDP). Annual GDP growth is essential for stock market investors. Most businesses can not to
improve their cash flow income if general economic activity is dropping significantly. Yet, excessive GDP
growth is also risky because it almost certainly results in higher inflation. Aggregate demand for goods
and service will increase lead to prices will rise. Due to the competitive labour market, some companies
may have to increase wages. The corporation typically passes on this rise to customers in the form of
higher prices in an effort to enhance profits. Overtime, the growth in the GDP relate to inflation. Many
people think it happens when there is an excess of money and an inadequate supply of products and
services. This idea holds that when there is fierce competition for a small number of goods, prices rise.
In other words, for those who want to use economic jargon, a rise in GDP, or growth in the quantity of
products and services, should translate into a decline in the level of those goods and services' prices, or
that deflation should take place.
I will collect secondary data for Australia and Germany gross domestic product and inflation rates from
1972 to 2021 from World Bank (Appendix 1).
I will draw the table showing two sets of data for Australia and Germany.
I will plot scatter diagram to represent the change in GDP and inflation over years in both Australia and
Germany.
I will calculate the mean, standard deviation, correlation coefficient and regression line of GDP and
inflation for both countries.
I will compare the countries based on the data I collected.
Scatter Diagram
Graph 1 illustrates the GDP and the inflation rates(Australia) it appears that there is a moderate
negative correlation, the inflation seems to decrease as the GDP decrease.
GDP per capita (current US$)
80000
70000
60000
50000
40000 f(x) = − 3172.278700887 x + 44107.6608194446
30000 R² = 0.412524694382433
20000
10000
0
0 2 4 6 8 10 12 14 16 18
Graph 2 shows the GDP and the inflation rates ( Germany), the data demonstrates a moderate
negative correlation, it appears that the inflation as the the GDP decrease.
60000
50000
40000
f(x) = − 4839.96079630048 x + 39027.666483855
30000 R² = 0.365488303902293
20000
10000
0
-1 0 1 2 3 4 5 6 7 8
Calculation:
X: Inflation
Y: GDP
1. Mean
The mean is the sum of all the numbers divided by the total number of numbers; to get the mean,
add all the numbers together and divide by the entire number of numbers.
∑ x /n = 254.06074/50 = 5.0812148
∑ y/n =1399432/50=27988.64
2. Median
The median is the midpoint of a range of values; to determine the median, sort the numbers and
look for the middle one.
X Y
1. 0.2 3949.46
248 2
88 4770.71
2. 0.8 4
469 6482.83
06 1
3. 0.8 7003.84
601 2
35 7487.07
4. 1.0 9
122 7775.57
31 8
5. 1.2 8252.91
769 7
91 9294.35
6. 1.4 9
831 10208.5
29 8
7. 1.5 11853.4
083 4
67 12778.8
8. 1.6 6
107 11515.7
68 4
9. 1.7 12421.4
536 9
53 11440.9
10. 1.7 7
627 11391.4
8 4
11. 1.7 11650.8
711 4
17 14284.5
12. 1.9 2
114 17834.5
01 7
13. 1.9 18249.7
486 1
47 18860.5
14. 1.9 8
696 18624.5
35 6
15. 2.3 17700.1
276 2
11 18129.7
16. 2.3 9
432 20446.7
55 2
17. 2.4 22020.0
498 9
89 23645.0
18. 2.4 9
879 21478.3
23 9
19. 2.6 20698.7
153 1
85 21853.7
20. 2.6 8
918 19681.6
32 6
21. 2.7 20291.1
325 8
96 23705.9
22. 2.8 1
639 30819.9
1 9
23. 2.9 34461.7
183 1
4 36570.7
24. 2.9 2
815 41023.7
75 5
25. 3.1 49679.1
766 8
75 42810.3
26. 3.3 3
038 52134.3
5 1
27. 3.5 62596.4
552 3
88 68044.7
28. 3.9 1
603 68158.5
96 8
29. 4.3 62513.4
502 1
99 56710.4
30. 4.4 5
071 49875.5
35 7
31. 4.4 53936.1
574 4
35 57207.8
32. 4.6 7
277 54941.4
67 3
33. 6.0 51720.3
240 7
96 60443.1
34. 6.7 1
346
94
35. 7.2
159
4
36. 7.3
330
22
37. 7.5
339
03
38. 8.0
049
26
39. 8.5
330
22
40. 9.0
503
51
41. 9.0
909
09
42. 9.1
220
07
43. 9.4
876
66
44. 10.
038
91
45. 10.
135
84
46. 11.
351
82
47. 12.
309
82
48. 13.
322
88
49. 15.
162
45
50. 15.
416
67
X=n+1/2=50+1/2=25.5
Y=n+1/2=50+1/2=25.5
3. Mode
The number that appears most frequently is the mode; to identify the mode, sort the numbers
from lowest to highest and note which number does so. But in this case, based on the data, we
easily see that it is different data, they don’t have mode data.
X= does not exist
Y= does not exist
4. Standard deviation
The standard deviation is a measure of how far a group's members deviate from the mean value
for the group. Besides that, standard deviation is a useful of spread for normal distributions.
To find out standard deviation, we need calculate:
Step 1: Calculate the mean
Step 2: Get the square of the distance between each data point and the mean for each.
Step 3: Calculate the sum of results get from previous step.
= 39403.74271/50 – (254.0607/50) = (9.61236x10^11)/50 – (1399432/50)
= 15.761497 =3.92x10*8 σ =√ variance
σ =√ variance σ =√ 3.92 x 10∗8
σ =√ 15.761497 σ =¿ 19798.98987
σ =3.970075188
5. Outliers
X Y
Upper fence Q3+(IQRx1.5) Q3+(IQRx1.5)
= 7.88717+(5.933276x1.5) = 47961.97+(36260.48x1.5)
= 16.78708 = 102352.69
Lower fence Q1-(IQRx1.5) Q1-(IQRx1.5)
= 1.953894-(5.933276x1.5) = 11701.49-(36260.48x1.5)
= -6.94602 = -42689.23
6. IQR
Interquartile Range is what we can use to determine if an extreme value is indeed an outlier.
To find out the IQR values, we basically Q3 minus Q1, the result value which is the IQR.
7. Regression line
There is a linear relationship between the independent variables on the x-axis and the
dependent variables on the y-axis, as shown by the regression line. By examining the pattern of
data created by the variables, the correlation is established..
We already have the equation of regression line:
Y=ax+b
Based on the scatter diagram, we can easily see that Australia equation is:
Y=-3172.3x+44108 ( a=-3172.3,b=44108)
And we need to find out the value of b and a, and then sumarize them with the excel data.
a= Sxy/Sxx= -124999654/39403.74271= -3172.3
b= y(mean)-b(mean)x=( ∑ ny-a∑ nx) /n= 44108
Y=-3172.3x+44108. The gradient is -3172.3, which shows the trend is downwards
R^2= 0.4125
Hence r=√ 0.4125 = 0.6422
So we certainly two data above is similar with the excel data.
8. Correlation coefficient
A value between +1 and -1 known as the correlation coefficient is calculated to show the linear
dependency of two variables or sets of data. To find out the correlation coefficient, we need to
calculate the values of Sxy, Sxx and Syy under the formula in here:
Based on the formula, we easily to find out the values of Sxx,Syy and Sxy.
Syy=50x1167858033-(1399431.6)^2= 9.61236x10^11
Sxy= 50x4610819-(254.06074x1399431.6)=-124999662.4
After calculating the Syy,Sxy,Sxx, we directly calculate the values of correlation coefficient(r)
which based on this formula:
= -0.6422810398
So, I suggest there is a negative correlation between Aus’s GDP and inflation.
Data Summary
X - Inflation Y - GDP
Mean = 5.081215 Mean = 27988.63
Median = 3.240263 Median = 20368.95
Standard Deviation = 3.970075 Standard Deviation = 19608.53
IQR = 5.933276 IQR = 36260.48
∑ x /n = 127.535/50 = 2.5507
∑ y/n =1334120.7/50=26682.414
2. Median
The median is the midpoint of a range of values; to determine the median, sort the numbers
and look for the middle one.
Data set in numerical order (smallest to largest) :
1. 5 3809.98
. 1
4 5046.75
8 5
4 5639.07
9 8
3 6236.35
7 9
2. 7 6634.85
. 7
0 7682.95
3 4
2 9482.04
0 3
2 11281.0
6 2
3. 6 12138.3
. 1
9 10209.0
8 7
6 9913.73
4 8
3 9864.34
2 5
4. 5 9313.16
. 9
9 9429.56
1 9
0 13461.8
3 3
2 16677.5
9 1
5. 4 17931.2
. 8
2 17764.3
4 8
6 22303.9
6 6
3 23357.7
5 6
6. 3 26438.2
. 3
7 25522.6
3 3
4 27076.6
1 1
6 31658.3
8 5
7. 2 30485.8
. 7
7 26964.0
1 5
8 27289.0
6 6
9 26734.9
1 4
8. 4 23694.7
. 6
0 23628.3
4 3
3 25197.2
6 7
2 30310.3
2 6
9. 5 34106.6
. 6
4 34520.2
4 4
1 36353.8
0 8
5 41640.0
6 8
10. 6 45612.7
. 1
3 41650.3
4 7
4 41572.4
2 6
4 46705.9
1 43855.8
11. 5 5
. 46298.9
2 2
4 48023.8
1 7
0 41103.2
4 6
7 42136.1
12. 3 2
. 44652.5
2 9
9 47939.2
3 8
4 46793.6
1 9
5 46772.8
13. 2 3
. 51203.5
4 5
0
5
7
9
5
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6
6
2
3
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X=n+1/2=50+1/2=25.5
4. Standard deviation
The standard deviation is a measure of how far a group's members deviate from the mean value
for the group. Besides that, standard deviation is a useful of spread for normal distributions.
Step 2: Get the square of the distance between each data point and the mean for each.
5. Outliers
X Y
Upper fence Q3+(IQRx1.5) Q3+(IQRx1.5)
= 3.293415+(1.852609x1.5) = 41623.175+(30127.83x1.5)
= 6.0723285 = 86914.92
6. IQR
Interquartile Range is what we can use to determine if an extreme values is indeed an outlier.
To find out the IQR values, we basically Q3 minus Q1, the result value which is the IQR.
Based on the formula, we easily to find out the values of Sxx,Syy and Sxy.
Sxy=50x2592250.164-(127.555x1334120.7)=-40534091
= -0.6045561159
So, I suggest there is a negative correlation between Germany’s GDP and inflation.
Data Summary:
X - Inflation Y - GDP
Mean = 2.550693 Mean = 26682.413
Median = 1.983857 Median = 26586.586
Standard Deviation = 1.818379 Standard Deviation = 14801.692
IQR = 1.872609 IQR = 30127.83
Data Analysis and Conclusion
Result table:
From my graph , GDP in Australia and Germany keep its downward trend. In contrast, Australia’s
GDP had a more dramatic decrease compare to Germany. In conclusion, there is a negative correlation
between GDP and inflation, because the tendency for slower GDP growth to be caused by higher
inflation. The "inflation-growth trade-off" is another name for this relationship. And which means the
total national income will be lower. GDP (Gross Domestic Product) and inflation are closely related
economic variables. Generally, when inflation increase, GDP also tends to decrease.
Besides that, these graphs illustrate from 1972 to 2021, both GDP of Australia and Germany rose
year after year. There are few years that GDP has a slight decrease but still remains stable. The highest
GDP (AUS) is 68158.58 compare to the highest GDP(DEU) is 51203.554, we can clearly see that the GDP
of Australia tends to decrease, and in Germany is contrast which was increase year after year. And the
inflation of Australia from 1974 to 1977, on this period, Australia had the highest inflation during the
period of 50 years with over 12%, it led to the lowest national income in Australia. For Germany, the
period from 1972 to 1994, Germany has an unstable percentage of inflation, often erratic in the range of
2-7%. But from 1994 onwards, the percentage of German inflation fell to 0-2% and this made German
GDP tend to increase gradually.
We can easily saw both Australia and Germany have a nearly similar correlation coefficient. A
pattern or relationship between two variables that describes the degree to which two variables move in
opposition to one another is referred to as a negative correlation. In this instance, Australia's GDP and
Germany's inflation rate are inversely correlated. It denotes a relationship between an decrease in
inflation and an increase in GDP for two variables, X and Y. Scatterplots are used to visualise correlation
relationships.
Comment on Gradient
The rate of change for GDP and inflation in both countries is 'a,' as shown by the gradient, according
to the regression lines. For Australia, the regression line's gradient is -3172.3. This implies that the
national income or GDP will fall by 3172.3 units for every percentage increase in inflation. This indicates
that there was a sizable change in GDP and inflation from 1972 and 2021. At the same moment,
Germany's value of an is -4840. Unlike Australia, where inflation fell between 1994 and 2021, their GDP
increased every year.
Interpretation:
The mean of inflation rate in Australia is 5.0812148 percent, which is twice the inflation rate in
Germany (2.55069). It is obvious that Germany has performed better economically during the past 50
years. Germany's economy is more stable than Australia's because it has a lower rate of inflation. For
Australia, the high inflation rates were caused by rising prices for groceries, electricity, and housing.
Inflation increased in Germany and Australia in 2021, respectively, at 3.14297 and 2.8639104. This is a
result of the COVID-19 epidemic, which made all goods and services more expensive and difficult to find.
The data readily reveals that the average GDP of two nations closely resembles Australia's data (DEU:
26682.413, AUS: 27988.631). Similarly, Australia's median inflation rate (3.2402628) is significantly
greater than Germany's (1.98386), while Australia's GDP (20368.949) is lower than Germany's
(26586.586). Australia's GDP (36260.478) and interquartile range of inflation (5.933276) are both larger
than those of Germany's GDP and interquartile range of inflation (1.87261). (30127.83). When looking at
standard deviation, Australia's two indices (3.9700752 and 19608.533, respectively) are similarly higher
than Germany's (1.81838 and 14801.692 respectively).
Conclusion
In general, a growing economy tends to generate higher demand for goods and services, which can
lead to price increases (i.e., inflation) as suppliers and producers compete for scarce resources.
Additionally, an expanding economy often creates higher employment levels and wages, which can also
contribute to inflation. However, there are other factors that can influence inflation beyond GDP
growth, such as changes in interest rates, exchange rates, and government policies. For example, if a
central bank increases interest rates to combat inflation, it could potentially slow down economic
growth and reduce GDP. It's important to note that inflation can also have an impact on GDP. High
inflation rates can lead to lower purchasing power and reduced consumer and business spending, which
can ultimately reduce economic growth. Germany, which is still the fifth-largest nation in the world, is a
significant exporter of machinery, cars, chemicals, and home furnishings and has a highly skilled labor
force. Germany accomplished a great deal because over a 50-year period, they kept their country stable
and its inflation rate low. Australia, a nation with a low unemployment rate, little public debt, and a
robust financial sector, tries extremely hard to stabilize its market despite the fact that inflation there
has remained high for the past 50 years. Moreover, the GDP per capita in the two countries is almost
identical. In summary, two indicators are present negative correlation but does not mean that they have
a causal relationship.
Validity
I have collected the data of GDP and inflation from the World Bank World Development
Indicators Online Databases. The World Bank provided for me official statistic, so they have
guarantee that the information/data is high-quality. So, I believe this resource is reliable.
Appendix 1