1980 – 2011
April 24, 2010
The goal of this paper is to estimate the relationship between personal consumption and personal income among all Americans over the past 30 years. The data includes annual records for the four variables between the years 1980 and 2011. I have analyzed this data using the Ordinary Least Squares Method and ran a regression analysis in order to observe the relationship between my variables. In my model, I have used Real Personal Consumption Expenditures (PCE) as my independent variable, while the dependent variable is Real Disposable Personal Income Per-Capita. As well, I included two explanatory variables in my model which are the Consumer Price Index (CPI) and a Coincident Index. The model finds a positive relationship between personal consumption expenditures and personal income. It also shows that inflation is positively related to the independent variable of personal consumption. However the model demonstrates that there is an insignificant relationship between personal consumption and the Coincident Index. We can conclude that personal income has an effect on personal consumption and that there is a positive correlation between these two variables. Therefore, in general, we can assume according to this model that as personal income increases, personal consumption also increases.
Our economy is an ever-changing system that is affected by an infinite number of factors. Some of these factors include personal consumption, personal income, and inflation. I have chosen to look at how these factors may influence one another within the American economy. More specifically, I have chosen to research the influence of income, inflation, and the Coincidence Index on Americans’ consumption expenditures. I believe that individuals’ consumption expenditures may vary based on two main factors: A change in these individuals’ income and a...