ANALYSIS OF US GDP PERFORMANCE AND IT’S RELATION WITH GOVERNMENT CURRENT EXPENDITURE

1. ANALYSIS OF US GDP PERFORMANCE
AND
IT’S RELATION WITH
GOVERNMENT CURRENT EXPENDITURE
STATISTICS PROJECT
Submitted to
PROFESSOR LARRY CANTWELL
By
CHIRAG DESAI
PMAc: 2013-15

2. DATA
• Source:
• US Bureau of Economic Analysis.
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3. DATA ANALYSIS
• General Understanding:
• The higher the Government Current Expenditure the higher the GDP.
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4. US GDP PERFORMANCE: INCREASING TREND
(in billions)
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5. GDP & GOVERNMENT CURRENT EXPENDITURE
TREND
• US GDP & Govt. Current
Expenditure shows both are
increasing.
• Does Govt. current
expenditure has positive
influence on GDP
performance?
• Let us do further analysis.
(in billions)
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6. GDP & CURRENT EXPENDITURE YOY % GROWTH
RATE
• Till 2009 the current
expenditure is closer to the
GDP line showing that there is
some influence of current
expenditure on GDP.
• Trend from 2010 to 2012 shows
abnormal trend which requires
further investigation and is out
of scope of this project.
• Let us understand the impact
of abnormal trend on their
relationship.
(in billions)
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7. GDP & CURRENT EXPENDITURE YOY
% GROWTH RATE
• Due to abnormal trend the
current expenditure shows
declining trend which does
not allow us to understand the
initial increasing trend in
current expenditure.
• Let us modify our sample data
set from 1999 to 2009.
(in billions)
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8. GDP & CURRENT EXPENDITURE YOY % GROWTH
RATE
• Great trend!!!
• Govt.’s current expenditure and
GDP performance together shows
increasing trend.
• We could believe that Govt.’s
current expenditure has some
relationship with GDP.
• Let us test this belief and also
understand how valid is this
relationship through statistical
tools.
(in billions)
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9. REGRESSION ANALYSIS
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10. MAJOR TERMINOLOGY
Data Term Statistical Term
GDP y
Government Current Expenditure x
Data period (1999 to 2009) n
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11. DATA
Period (n)
Current
expenditures $ (x) GDP $ (y)
1999 2,828 11,104
2000 2,967 11,559
2001 3,170 11,668
2002 3,359 11,876
2003 3,568 12,207
2004 3,773 12,671
2005 4,036 13,095
2006 4,269 13,444
2007 4,542 13,685
2008 4,844 13,645
2009 5,213 13,263
(in billions)
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12. LEAST SQUARES LINE
(in billions)
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13. REGRESSION ANALYSIS: OUTPUT
Regression Analysis
r² 0.854 n 11
r 0.924 k 1
Std. Error 371.688 Dep. Var. GDP $
ANOVA table
Source SS df MS F p-value
Regression 7,284,736.2038 1 7,284,736.2038 52.73 4.76E-05
Residual 1,243,369.3851 9 138,152.1539
Total 8,528,105.5890 10
Regression output confidence interval
variables coefficients std. error t (df=9) p-value 95% lower 95% upper
Intercept 8,351.6002 590.9836 14.132 1.89E-07 7,014.7025 9,688.4979
Current expenditures $ 1.0888 0.1499 7.262 4.76E-05 0.7496 1.4280
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14. TEST SIGNIFICANCE OF THE SLOPE
• H0: β1 = 0
• Ha: β1 ≠ 0
• Test statistics of 7.262 is greater than critical value of 2.262 at 0.05 level of
significance.
• p-value is extremely small (0.0000476) compared to the 0.05 level of
significance.
Interpretation:
• Based on underlying data, we are 95% confident that the true population
slope lies between the range of [0.7496, 1.4280].
• Considering the comparison of test statistics value and p-value, we have
extremely strong evidence that there is a strong relationship between current
govt. expenditure & GDP.
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15. The F test
• To test the significance of the overall regression relationship
between current expenditure and GDP.
• F (model) = 52.73
• Fa = 5.12 (based on 1 numerator and 9 denominator degrees of
freedom.
Interpretation:
• We reject H0 at 0.05 level of significance, since F (model) is higher
than Fa and;
• p-value is extremely small (0.0000476) compared to the 0.05 level of
significance.
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16. COEFFICIENT OF DETERMINATION – r2
• r2 = Explained Variation / Total Variation
• = 7,284,736 / 8,528,106
• = 0.854 or 85.4%
Interpretation:
• 85.4% of the total variation in the n observed values between
1999 & 2009 of the GDP is explained by the variation in Govt.
current expenditure.
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17. CORRELATION COEFFICENT – r
• r = 0.924
• Interpretation:
• 0.924 is very close to 1, which indicates there is very strong
relationship between GDP & Current Govt. Expenditure.
• 0.924 is positive, which indicates there is positive relationship
between GDP & Current Govt. Expenditure.
• Overall, 0.924 indicates there is strong positive relation between
the two variables.
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18. OVERALL CONCLUSION
• The Regression Analysis allows us to conclude that the
Government Current Expenditure and GDP tend to move together
in linear fashion.
• Abnormal trend from 2010 to 2012 requires further detail analysis.
• Scientific theory is required to understand cause and effect
relationship.
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19. THANK YOU!!!
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