Graphs in Economics

1 Key excerpts on "Graphs in Economics"

• 

  eBook - ePub

  Doing Economics

  • Peter Smith(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  Figure 5.1 showed GNI per capita in 2012 for selected countries. Graphs provide a simple but important way of monitoring the economic performance of a country, or undertaking international comparisons. They provide information that focuses attention on particular periods or countries.

  It is often helpful to use graphs of data to look for patterns. For instance, it might be important to explore how different countries experienced the global recession that followed the financial crisis of the late 2000s. A time-series graph that brings together data on a number of countries is one approach, although showing more than a small number of countries can become confusing.

  Figure 8.4 shows the annual growth rates of GDP for the UK, Greece, China and the world as a whole for the period 2000–2013.

  Figure 8.4

  Annual growth rates, selected countries, 2000–13

  (Source: Data from World Bank World Development Indicators ).

  You can see from this that the UK and Greece followed a similar pattern to the world as a whole until the onset of recession, although Greece showed a bit more variability in its growth rate. After 2009, the UK and the world showed a recovery, whilst Greece continued to suffer, with growth rates still negative right up to 2013. Meanwhile, China showed steady and rapid growth until 2007, and continued to see GDP growing even during and after the world recession. These sorts of patterns help us to understand what is going on in the world.

  Another way of using data is to look for relationships between macroeconomic variables. Keynes argued that there would be a positive relationship between consumers’ expenditure and household income. A scatter graph can enable us to explore this relationship, as shown in Figure 8.5 .

  Figure 8.5

  Real consumption and income, 1948–2014

  (Source: Based on data from the Office for National Statistics licensed under the Open Government Licence v.3.0. Data from ONS database).

  Each point marked on the graph shows the combination of consumption expenditure and income in a particular year. The pattern suggests that there is a strong positive relationship between these two variables, as overall there is an upward sloping pattern to the scatter, which is not too far away from a straight line. The relationship is not perfect, but it would be expected that it would be, as there are no doubt other factors than income that influence consumption expenditure. Nonetheless, the closeness of the pattern suggests that there is a close association between these variables.

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