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The topic I chose for my project is “What effect does the inflation rate have on the gross domestic product (GDP) of the United States of America? ” I would like to study the relationship between the inflation rate and the GDP and decide whether or not the GDP mimics the inflation rate. 2. This topic is interesting and important because it affects the monetary policy of the United States of America. The inflation rate affects everything from wages to the price of a cheeseburger.
The GDP is the measure of a country’s economic output. How the inflation rate affects the GDP has a significant impact on the United States’ economy. GDP and standard of living are positively correlated so if, for example, a higher inflation rate causes a lower GDP it would be in the country’s best interests to lower the inflation rate in order to increase the standard of living. It has farther reaching implications in issues such as whether or not to switch back to a gold standard in order to virtually eliminate inflation. . The population I am studying with this topic is the GDP of the United States economy from 1913 to today. The sample I am using is monthly and quarterly data from the fiscal years 2007-2009. The sample I used is three years out of ninety-seven years of data so it is not very representative of how inflation has affected GDP since the United States switched from the gold standard in 1913 and started measuring inflation.
The years chosen are not very representative of the population because of the way the United States’ economy has grown exponentially since World War II, the Great Depression, the current recession, and any number of economic occurrences since 1913 that would affect how inflation affects the population. This is also the problem with the sample; it is not very representative of the population. I could have taken a sample from any other years from 1913 to today, but I chose the fiscal years 2007-2009 because they are the three most recent fiscal years with complete, revised data. . The source for the GDP and gross private domestic investment (GPDI) is the Bureau of Economic Analysis’s website, http://www. bea. gov/. In order to get the data on this website I went to the “Gross Domestic Product” link on the home page, then I went to the “GDP and the National Income and Product Account Historical Tables” link on the next page, then I went to the “Frequently Requested NIPA Tables” link, I clicked on the “Table 1. 1. 5. Gross Domestic Product (A) (Q)” link, then I changed the first year to “2007-A&Q” and the last year to “2009-A&Q”.
This will give you both the GDP and GPDI. The source for the inflation rate, unemployment rate, and consumer confidence index (CCI) is http://tradingeconomics. com/. In order to get the data on this website I went to the “Indicators” link on the home page, then I went to the “United States” link on the next page, then I clicked on the “Inflation Rate” link for the inflation rate, the “Jobless Rate” link for the unemployment rate, and the “Consumer Confidence” link for the CCI. Once I was on each of these pages I adjusted the time periods to match my sample.
The source for the productivity data came from the Bureau of Labor Statistics’s website, http://www. bls. gov/. In order to get the data on this website I went to the “Productivity” link on the home page, I then went to the ” Labor Productivity” link, then I went to the “Productivity and Costs” link under the word “Archived”, from here I clicked on the PDF format of the revised data for each quarter and recorded the productivity in the nonfarm business sector. The post-Bush variable is a dummy variable. 5.
I am using time-series data for this project. The GDP is the dependent variable measured in billions of current United States dollars. The inflation rate, unemployment rate, and productivity in the nonfarm business sector are independent variables measured in percent inflation, percent unemployed, and percent change in productivity in the nonfarm business sector respectively. The CCI is an independent variable measured by comparing the average monthly consumer confidence to the base year of 1985 (CCI in 1985=100).
The post-Bush variable is an independent, dummy variable. Each variable is continuous and neither cardinal nor ordinal. The post-Bush variable is categorical and the coding scheme to turn it into a dummy variable is a zero for months with Bush in office, and a one for months after the November 2008 election. 6. The dependent variable for my topic is the GDP and the primary independent variable is the inflation rate. I included the unemployment rate as an independent variable because I wanted to find out the correlation between unemployment rate and GDP.
I included productivity in the nonfarm business sector because I hypothesized that an increase in the productivity in the nonfarm business sector would result in an increase in GDP. I included GPDI because it is a part of GDP and I hypothesized that they are positively related. I included the CCI because I was curious to find out if consumer confidence would have an effect on the GDP and if it did have an effect, to what extend is that effect represented in the GDP.
I included the post-Bush dummy variable in order to make the data unbiased. Approximately the first half of the data occurs during the Bush Administration, a Republican style of government, and the second half of the data occurs during the Obama Administration, a Democratic style of government. By dividing the data into these categories it provides a way of making the data unbiased. 7. (see table)