Estonia’s Gross Domestic Product and Consumption Report

Exclusively available on IvyPanda Available only on IvyPanda

The real GDP and household consumptions are critical elements in computing consumption function. To illustrate real GDP and real household consumption of Estonia GDP, GDP deflator, household consumption, and CPI has to be collected as independent variables. Reflectively, real GDP measures the output of an economy at a constant price. Thus, in order to obtain this measure, nominal GDP has to be divided by the GDP deflator and multiplied by a constant 100 (Mankiw, 2010, p. 25). This is illustrated in the formulae; GDP of Estonia / GDP deflator of Estonia) × 100.

We will write a custom essay on your topic a custom Report on Estonia’s Gross Domestic Product and Consumption
808 writers online

For instance, in 2010, the real GDP of Estonia was 174262.67 derived from the above formulae. Numerically, this can be illustrated as follows;).

(226,890/130,2)*100≈174162,67

The equation to compute the real household consumption consists of dividing household consumption by CPI and multiplying the result by 100; Household Consumption of Estonia / CPI of Estonia) × 100. Besides, following the same formulae, the real household consumption in Estonia in the year of 2010 was 89088.61 derived as indicated below;).

(112,608/126,4)*100≈89088.61

The formula was used to calculate the real household consumption and real GDP of Estonia over the other years and their results can be seen in the table below.

Table 1: Data of Real Household Consumption and Real GDP in Estonia

1 hour!
The minimum time our certified writers need to deliver a 100% original paper
YearReal Household Consumption in million of KrooniReal GDP in million of Krooni
199959179.46108603.63
200063639.29119429.99
200168488.74128468.79
200274920.65138579.73
200382020.39149093.99
200488848.07159854.43
200597130.00174956.00
2006111086.21193462.60
2007121645.10206888.89
2008113266.88196273.36
200991632.74169037.41
201089088.61174262.67

Note: Data computed by authors using information from International Monetary Fund 2011 (“International Monetary Fund Annual Report 2011”, p.310).

Analysis

To visualize this data a scatter graph was used to represent the correlation between Estonia’s Real GDP and real household consumption. Notwithstanding, the results were used to estimate the linear relationship between these variables. As a result, a line of best fit was plotted in line with the responsive relationship between them as indicated in the following graph.

Scatter Plot with line of best fit
Figure 1: Scatter Plot with line of best fit

Note: Graph computed by authors using the information from the Monetary International Monetary Fund 2011 (“International Monetary Fund Annual Report 2011”, p.310).

The line of best fit (r) of a scatter plot estimates the linear relationship between the variable on the x-axis and that of the variables on the y-axis: y = ax + b; where variable a is the slope and b is the y-intercept. The slope measures the degree of change if x variable increases by one unit. This can be computed by deriving the coefficient of correlation using statistical software such as SPSS among others. Besides, the same results can be obtained via using scientific calculator or spreadsheet programs such as Excel. Reflectively, the R script shows how to compute and plot the line of best fit (Kirk, 2007).

Discussion

From the results obtained, the linear relationship indicates moderate dependency since r is greater than 0.5 and smaller than 0.8. When the real GDP increases by 1 million, the Estonia’s households will consume approximately 0.63 millions of each additional Krooni. In addition they will save approximately 0.37 millions in kroonis.

The equation for the line of best fit therefore represents the consumption function as y= 0.626 x – 11,612.625. This function was calculated using the Excel Sheet. The results are represented below.

Household consumption expenditure converted into real terms

  • 1999 – (47,817/80,8)*100=59179.46
  • 2000 – (53,457/84.0)*100=63639.29
  • 2001 – (60,818/88,8)*100≈68488,74
  • 2002 – (68,927/92)*100≈74920,65
  • 2003 – (76,443/93,2)*100≈82020.39
  • 2004 – (85,383/96,1)*100≈88848,07
  • 2005 – (97,130/100)*100≈97130
  • 2006 – (115,974/104,4)*100≈111086,21
  • 2007 – (135,391/111,3)*100≈121645,10
  • 2008 – (139,205/122,9)*100≈113266,88
  • 2009 – (112,525/122,8)*100≈91632,74
  • 2010 – (112,608/126,4)*100≈89088,61

GDP converted into real GDP

  • 1999 – (83,842/77,2)*100=108603,63
  • 2000 – (96,380/80,7)*100=119429,99
  • 2001 – (109,070/84,9)*100=128468,79
  • 2002 – (121,673/87,8)*100=138579,73
  • 2003 – (136,421/91,5)*100=149093,99
  • 2004 – (151,542/94,8)*100=159854,43
  • 2005 – (176,956/100)*100=174956
  • 2006 – (209,520/108,3)*100=193462,60
  • 2007 – (247,646/119,7)*100=206888,89
  • 2008 – (252,015/128,4)*100=196273,37
  • 2009 – (216,875/128,3)*100=169037,41
  • 2010 – (226,890/130,2)*100=174262,67

Conclusion

Real consumption function and GDP are critical towards understanding dependence of one variable to another in calculating deflator effect. Generally, these concepts are vital in forecasting and act as a guide towards actualizing household consumption behaviour over a period of time. Reflectively, the relationship as indicated in the line of best fit shows moderate relationship between the real household consumption and the real GDP.

Remember! This is just a sample
You can get your custom paper by one of our expert writers

References

2011. Web.

Kirk, R. (2007). Statistics: An Introduction. Alabama: Cangage Learning.

Mankiw, G. (2010). Macroeconomics, New York: Worth Publishers.

Print
Need an custom research paper on Estonia’s Gross Domestic Product and Consumption written from scratch by a professional specifically for you?
808 writers online
Cite This paper
Select a referencing style:

Reference

IvyPanda. (2020, September 27). Estonia's Gross Domestic Product and Consumption. https://ivypanda.com/essays/estonias-gross-domestic-product-and-consumption/

Work Cited

"Estonia's Gross Domestic Product and Consumption." IvyPanda, 27 Sept. 2020, ivypanda.com/essays/estonias-gross-domestic-product-and-consumption/.

References

IvyPanda. (2020) 'Estonia's Gross Domestic Product and Consumption'. 27 September.

References

IvyPanda. 2020. "Estonia's Gross Domestic Product and Consumption." September 27, 2020. https://ivypanda.com/essays/estonias-gross-domestic-product-and-consumption/.

1. IvyPanda. "Estonia's Gross Domestic Product and Consumption." September 27, 2020. https://ivypanda.com/essays/estonias-gross-domestic-product-and-consumption/.


Bibliography


IvyPanda. "Estonia's Gross Domestic Product and Consumption." September 27, 2020. https://ivypanda.com/essays/estonias-gross-domestic-product-and-consumption/.

Powered by CiteTotal, easy essay citation generator
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda. Request the removal
More related papers
Cite
Print
1 / 1