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Introduction
livings. The Gross Domestic Product (GDP) indicates a countries economic growth. A higher
GDP indicates higher economic growth. Several factors affect the GDP of a country. Some of the
factors that influence the growth of the economy include inflation and the unemployment rate
(Alisa 90). Inflation is the increase in the prices of goods and services of a country. Inflation is as
a result of the decrease in the value of the currency hence an increase in inflation leads to a
decrease in the economic growth. An increase in the unemployment rate leads to a decrease in
the economic growth of a country. The unemployment rate decreases the purchasing power of
individuals hence shrink the economy. This paper investigates the correlation between economic
growth and inflation and the unemployment rate of the United States. A linear regression
analysis will be used to analyze the data with GDP as the response variable and unemployment
The data used in the analysis involves the GDP, the unemployment rate, and the inflation
of the population of interest which is the United States from the year 1985 to 2018 (Amadeo para
3). The data was obtained from the website The Balance. The website provides reliable data
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concerning the economic status of the United States. It provides the economic statistics and
Data Analysis
Scatter plot diagrams were used to show the graphical representation of the relationship
between the response variable and the explanatory variables. The scatter plot diagram of GDP
against unemployment shows a negative relationship between the variables. The scatterplot
indicates a decrease in economic growth with the increase in the unemployment rate. The
StatKey analysis also indicates the coefficient of correlation between the two variables. The
coefficient of correlation indicates the direction and strength of the relationship. The coefficient
of correlation of the relation between GDP and inflation is -0.576. The negative sign indicates a
negative direction of the relationship. The figure also indicates a relationship of moderate
strength. The coefficient of determination can be obtained by finding the square of the
coefficient of correlation. The coefficient of determination is 0.332. This means that the
regression model represents 33.2% of the sample. The regression model is obtained in the
summary statistics of the StatKey analysis. The following is the regression model of the graph of
y = -0.588x + 6.139
Where,
6.139 = y-intercept
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The second scatterplot diagram gives the graphical representation of the relationship
between GDP and inflation. The diagram shows a slightly inclined slope which indicates an
relationship is 0.186. This shows that there is a weak or no relationship between the variables.
The coefficient of determination is 0.035. This indicates that the regression model represents
only 3.5% of the sample. The following is the regression model of the relationship:
y = 0.225x + 2.08
The null hypothesis of the relationship between GDP and unemployment is that changes
in the rate of unemployment have no significant effect on the GDP of the United States. The
randomized test in StatKey is used to test the null hypothesis. The p-value of the test is indicated
as 0. This shows that there is enough evidence to reject the null hypothesis. We can, therefore,
conclude that changes in the unemployment rate have a significant effect on the GDP of the
United States. This means that an increase in the rate of unemployment leads to a significant
Conclusion
The purpose of the study was to determine how the response variable GDP relates to the
explanatory variables inflation and unemployment rate. The population of interest was the
United States. Data of the three variables was collected from 1985 to 2018. The first step of data
analysis involved the creation of scatterplot diagrams followed by regression analysis. It was
determined that there exists a negative and moderate relationship between GDP and
unemployment rate. This means that an increase in the unemployment rate leads to a significant
reduction in the GDP. It was also determined that there exists a weak relationship between
inflation and GDP. This means that an increase in inflation does not bring about a significant
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change in GDP. The final analysis involved a randomized test for correlation to measure the null
hypothesis of the relationship between unemployment and GDP. The null hypothesis was
rejected since the p-value of the test was 0. This means that the changes in the rate of
unemployment bring about a significant effect on the GDP. In conclusion, the unemployment
rate should be as low as possible for the United States to realize Economic growth.
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Works Cited
Amadeo, Kimberly. “US real GDP growth rate by year compared to inflation and