Interpret the results of this correlation G Group: UNTITLED Workfile: UNTITLED::

Question

Interpret the results of this correlation

G Group: UNTITLED Workfile: UNTITLED::Untitled View Proc Object Print Name FreezeSample Sheet Stats Spec Correlation GOVERNME INFLATION PRIVATECO.. PRIVATEINV 0.9747210.318189 0.9794480.727106 NA NA NA NA NA NA GDP 1.000000 NA NA NA NA NA GOVERNME.. 0.974721 INFLATION 0.318189 PRIVATECO. 0.979448 PRIVATEINV. 0.727106 1.000000 0.270200 0.969875 0.701479 0.270200 1.0000000.213630 0.332338 0.969875 0.213630 1.000000 0.692062 0.7014790.332338 0692062 1.000000

Explanation / Answer

This is a correlation matrix of GDP, Government Spending, Inflation, Private consumption and private investment.

It is observed that Government Spending has very strong positive correlation with GDP and Private Consumption (0.97). A strong positive correlation also exists between Govt spending and Private consumption (0.96). If a regression is run then it suggests there will be a multicollinearity problem between Govt Spending and GDP and Govt Spending and Private Consumption. A positive relationship also exists between govt spending and private spending (0.70). However, a positive correlation exists between govt spending and inflation (0.27).

Looking at inflation’s relationship between other variables, we notice that inflation is positively correlated with GDP (0.32). The same relationship is also observed between inflation and Private consumption and private investment.

Private consumption is positively correlated with GDP. The relationship is very strong. A positive relationship is observed between private consumption and private investment.

Lastly, we observe a positive correlation between GDP and private Investment which is approximately 0.73.

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