Introduction

In this report we have tried to find out how Income belonging to a certain time period can be
said to have an association with factors such as GDP, Population, Inflation, Literacy Rate,
earning population, demography, etc. The time interval considered for this study is between
1960-2018. The scope of this study covers statistical methods of ascertaining association
between one dependent variable and several other independent variables such as correlation
and multiple regression using IBM SPSS tool. Furthermore, individual mean, standard
deviation among the independent variable is also ascertained using IBM SPSS Tool.

INFLATION
Inflation is a quantitative measure of the rate at which the average price level of a basket of
selected goods and services in an economy increases over a period of time. It is the constant
rise in the general level of prices where a unit of currency buys less than it did in prior
periods. Often expressed as a percentage, inflation indicates a decrease in the purchasing
power of a nation’s currency.
The rise in Inflation = (Final CPI Index Value/Initial CPI Value)
Types of Inflation Indexes
Depending upon the selected set of goods and services used, multiple types of inflation
values are calculated and tracked as inflation indexes. Most commonly used inflation indexes
are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).
The Consumer Price Index
The CPI is a measure that examines the weighted average of prices of a basket of goods and
services which are of primary consumer needs. They include transportation, food and medical
care. CPI is calculated by taking price changes for each item in the predetermined basket of
goods and averaging them based on their relative weight in the whole basket. The prices in
consideration are the retail prices of each item, as available for purchase by the individual
citizens. Changes in the CPI are used to assess price changes associated with the cost of
living, making it one of the most frequently used statistics for identifying periods of inflation
or deflation. The U.S. Bureau of Labour Statistics reports the CPI monthly and has calculated
it as far back as 1913.
The Wholesale Price Index
The WPI is another popular measure of inflation, which measures and tracks the changes in
the price of goods in the stages before the retail level. While WPI items vary from one
country to other, they mostly include items at the producer or wholesale level. For example, it
includes cotton prices for raw cotton, cotton yarn, cotton grey goods, and cotton clothing.
Although many countries and organizations use WPI, many other countries, including the
U.S., use a similar variant called the producer price index (PPI).
The Producer Price Index
The producer price index is a family of indexes that measures the average change in selling
prices received by domestic producers of goods and services over time. The
PPI measures price changes from the perspective of the seller and differs from the CPI
which measures price changes from the perspective of the buyer.
In all such variants, it is possible that the rise in the price of one component (say oil) cancels
out the price decline in another (say wheat) to a certain extent. Overall, each index represents
the average weighted cost of inflation for the given constituents which may apply at the
overall economy, sector or commodity level.

Inflation.xlsx

DEMOGRAPHIC
Demographics is the study of a population based on factors such as age, race and sex.
Governments, corporations and nongovernment organizations use demographics to learn
more about a population's characteristics for many purposes, including policy development
and economic market research. For example, a company that sells high-end RVs wants to
know roughly how many people are at or nearing retirement age and what percentage are able
to afford the product.

Types of Demographic Information

For corporate marketing goals, demographic data is collected in order to build a profile for
the organization's customer base. The common variables that are gathered in demographic
research include age, sex, income level, race, employment, location, homeownership and
level of education. Demographics make certain generalizations about groups to identify
customers. Additional demographic factors include gathering data on preferences, hobbies,
lifestyle and more. Governmental agencies collect data when conducting a national census
and may use that demographic data to forecast economic patterns and population growth in
order to better manage resources.

Demography.xlsx
GDP
Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods
and services produced within a country's borders in a specific time. As a broad measure of
overall domestic production, it functions as a comprehensive scorecard of the country’s
economic health.

Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis
as well. In the United States, for example, the government releases an annualized GDP
estimate for each quarter and for an entire year. Most of the individual data sets will also be
given in real terms, meaning that the data is adjusted for price changes, and is, therefore, net
of inflation.

There are several types of GDP measurements:

 Nominal GDP is the measurement of the raw data.

 Real GDP considers the impact of inflation and allows comparisons of economic
output from one year to the next and other comparisons over periods of time.
 GDP growth rate is the increase in GDP from quarter to quarter.
 GDP per capita measures GDP per person in the national populace; it is a useful
way to compare GDP data between various countries.

The balance of trade is one of the key components of a country's (GDP) formula. GDP
increases when the total value of goods and services that domestic producers sell to
foreigners exceeds the total value of foreign goods and services that domestic consumers buy,
otherwise known as a trade surplus.

This approach can be calculated using the following formula: GDP = C + G + I + NX, or
(consumption + government spending + investment + net exports).

Statistical Concepts and Analysis

Data for Analysis of

Income for India (1960-2018).xls

Correlation
Correlation is a bivariate analysis that measures the strength of association between two
variables and the direction of the relationship. In terms of the strength of relationship, the
value of the correlation coefficient varies between +1 and -1. A value of ± 1 indicates a
perfect degree of association between the two variables. As the correlation coefficient value
goes towards 0, the relationship between the two variables will be weaker. The direction of
the relationship is indicated by the sign of the coefficient; a + sign indicates a positive
relationship and a – sign indicates a negative relationship. Usually, in statistics, we measure
four types of correlations: Pearson correlation, Kendall rank correlation, Spearman
correlation, and the Point-Biserial correlation. The software below allows you to very easily
conduct a correlation.

Coefficient of determination (denoted by R^2)

The coefficient of determination is a measure used in statistical analysis that assesses how
well a model explains and predicts future outcomes. It is indicative of the level of explained
variability in the data set. The coefficient of determination, also commonly known as "R-
squared," is used as a guideline to measure the accuracy of the model.
One way of interpreting this figure is to say that the variables included in a given model
explain approximately x% of the observed variation. So, if the R2 = 0.50, then approximately
half of the observed variation can be explained by the model.

Multiple Regression
Multiple regression generally explains the relationship between multiple independent or
predictor variables and one dependent or criterion variable. A dependent variable is modeled
as a function of several independent variables with corresponding coefficients, along with the
constant term. Multiple regression requires two or more predictor variables, and therefore it
is called multiple regression.
The multiple regression equation explained above takes the following form:
y = b1x1 + b2x2 + … + bnxn + c.
Here, bi’s (i=1,2…n) are the regression coefficients, which represent the value at which the
criterion variable changes when the predictor variable changes.

Regression equation of six variables can be written as:

Y=b0 + b1X1 + b2X2 + b3X3 + b4X4 + b5X5 + b6X6
Where dependent and independent variables are as defined: -
Y is Income for India in time series 1960-2018
X1 is GDP
X2 is Population
X3 is Inflation
X4 is Demography
X5 is literacy rate
X6 is Earning Population

Income = b0 + b1(GDP) + b2(Population) + b3(Inflation) + b4(Demography) + b5(literacy rate)

+ b6(Earning Population)

b0= 223.01
b1= 6.12
b2= -1.29
b3= 2.91
b4= -9.53
b5= -2.22
b6= 26.45

Substituting the value of constant and coefficients, the regression equation is given as: -

Income = 223.01 + 6.12 (GDP) -1.29(Population) + 2.91(Inflation) -9.53(Demography) -2.22

(literacy rate) + 26.45(Earning Population)
The regression coefficient associated with GDP is 6.12; each one unit increase in GDP is associated
with a 6.12 unit increase in Income. Similarly, each one unit increase in Population is associated with
a -1.29 unit decrease in Income, each one unit increase in Inflation is associated with a 2.91unit
increase in Income, each one unit increase in Demography is associated with a -9.53 unit decrease in
Income, each one unit increase in literacy rate is associated with a -2.22 unit decrease in Income and
each one unit increase in Earning Population is associated with a 26.45 unit decrease in Income

Coefficient of Determination (r2)

r2 = 0.996
The coefficient of determination is a key output of regression analysis. It is interpreted as the
proportion of the variance in the dependent variable that is predictable from the independent
variable.
This means that the r2 explains the dependence of unemployment on Inflation, GDP, Population
Growth and FDI
r2 of 99.6% shows that the dependence of income on GDP, Population, Inflation, Demography,
literacy rate, Earning Population. The rest 0.4% of the variance in income depends on some
other variables which can be ascertained by some other factors.
References

www.worldbank.org
http://sphweb.bumc.bu.edu/otlt/MPH-Modules/BS/BS704-EP713_MultivariableMethods/BS704-
EP713_MultivariableMethods2.html