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AminaRahmanK Econometrics Semi-Project

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10 views

AminaRahmanK Econometrics Semi-Project

Uploaded by

thecuriousnalyst695
Copyright
© © All Rights Reserved
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ECONOMETRICS

SEM-PROJECT

Submitted By : Amina Rahman K


B.Sc(H) Data Science & Analytics
Jain(Deemed-to-be) University
Submitted To : Mr. Teeson CJ
Faculty
Jain(Deemed-to-be) University
Heteroscedasticity
Examine the variance of consumption expenditure of the two groups of families such as low
income and high income. Number of families from each categories should be same. Take
the average figure of last 6 months.Give the Specific definition of consumption expenditure
and list out the categories of consumption expenditure like food, accommodation,
travelling, education, health ..etc
Sl_N Incom IncomeCateg Food Accomodati Travelli Educati Healt Water_Electric Leisur Miscelleneo Total
o e ory on ng on h ity e us
1 25000 Low Income 3000 11000 2000 0 3000 1200 1000 780 21980
2 22000 Low Income 1500 6000 800 9000 400 1000 250 200 19150
3 75000 High Income 1200 45000 9000 12000 4000 6900 10000 89000 18790
0 0
4 17000 Low Income 3000 8000 1000 0 8700 3400 1000 900 10430
0 0
5 30000 Low Income 5000 8000 2000 1500 500 3500 5000 1200 26700
6 10000 High Income 1000 15000 2000 2000 1500 9750 10000 17980 68230
0 0
7 12000 High Income 1500 25000 2500 2500 2800 7800 22000 14000 11680
0 0 0 0
8 29000 Low Income 2000 5000 200 1800 0 1455 10000 13000 41455
9 93000 High Income 2200 18000 800 0 8700 2300 500 2395 54695
0
10 20000 High Income 1800 0 0 75000 1300 4200 10000 19000 13920
0 0 0 0

Data
This dataset contains income - consumption data of 10 households, 5 each with high and
low incomes. The average figure of six months is recorded. The consumption expenditure is
recorded across categories such as Food, Accommodation, Traveling, Education, Health,
Water/Electricity, Leisure, Miscellaneous(tours, personal affairs, shopping etc).

Variance of Total Consumption


 "The variance of low income households are : 1276855370"

 "The variance of high income households are : 2928512450"

 "The Standard Deviation of low income households are :35733.1130745699"

 "The Standard Deviation of high income households are :


54115.7320009625"

Consumption is an important activity performed by the household sector. Post


Globalisation has raised India’s per capita income(expenditure) and that has significantly
impacted its consumption patterns. Consumption accounts for the bulk of aggregate
demand in the United States and in other countries.
J. R. McCulloch, an economist of the early nineteenth century, wrote, “Consumption … is, in
fact, the object of industry.”J. R. Mc Culloch, A Discourse on the Rise, Progress, Peculiar
Objects, and Importance, of Political Economy: Containing the Outline of a Course of
Lectures on the Principles and Doctrines of That Science (Edinburgh: Archibald Constable,
1824), 103. Goods and services are produced so that people can use them. The factors that
determine consumption thus determine how successful an economy is in fulfilling its
ultimate purpose: providing goods and services for people. So, consumption is not just
important because it is such a large component of economic activity. It is important
because, as McCulloch said, consumption is at the heart of the economy’s fundamental
purpose.
It seems reasonable to expect that consumption spending by households will be closely
related to their disposable personal income, which equals the income households receive
less the taxes they pay. Note that disposable personal income and GDP are not the same
thing. GDP is a measure of total income; disposable personal income is the income
households have available to spend during a specified period.

The above graph is taken from here, it shows the relation between real values of
disposable personal income and consumption per year from 1960 through 2011. The
relationship between consumption and disposable personal income is called
the consumption function. It can be represented algebraically as an equation, as a
schedule in a table, or as a curve on a graph.
Heteroscedasticity
Heteroscedasticity refers to situations where the variance of the residuals is unequal over a
range of measured values. When running a regression analysis, heteroscedasticity results
in an unequal scatter of the residuals (also known as the error term). It can be considered
as the opposite of homoscedasticity.

A classic example of heteroscedasticity is that of income versus expenditure on meals. As


one's income increases, the variability of food consumption will increase. A poorer person
will spend a rather constant amount by always eating inexpensive food; a wealthier person
may occasionally buy inexpensive food and at other times eat expensive meals. Those with
higher incomes display a greater variability of food consumption. Let’s look at this visually
by plotting our Food column.

 "The variance in food consumption of low income households are : 1800000"


 "The variance in food consumption of High income households are : 22800000"
 "The Standard Deviation in food consumption of low income households are :
1341.64078649987"
 “The Standard Deviation in food consumption of High income households are :
4774.93455452533"

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