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Maths Exploration – Economics

Math’s Exploration Introduction The Inflation rate changes every month and year, affecting the value of the money in the country. Inflation reflects a reduction in the purchasing power per unit of money, causing the price of goods and services to increase. Although people seem to see inflation as “evil”, but it is a necessary side-effect of a growing country, as economist sees that a small (;2%-3%) consistent amount of inflation is actually good.

Without inflation the prices in the market will fall out of balance, if everything is cheap including costs of production, the resources will be very little as everyone will bulk ay, causing the resources to run out shortly. Aim In this exploration, we are going to see how the interest rates the bank gives us will never catch up with inflation, by comparing the interest rates and the inflation rate for the past 14 years. We will also explore a saving plan in a bank, and compare the gain from the plan with the inflation.

I chose this to be my exploration because last summer when I was creating a bank account, the representative of the bank came up to me and tried to persuade me into Joining a

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saving plan. Throughout the whole time he stressed on saying that the interest rate has been really low in the past ears, and without Joining his plan I was basically losing money every day. So I am curious whether what he said was true or was it Just a trick for me to invest my money with him. Inflation is very important in the real world, and our spending may depend on it as well as the interest rate.

I chose to do this because it helps us to see if there is any positive or negative relationship between the two variables. By finding the Pearson product- moment correlation coefficient, R, we can know whether the relationship is strong or weak. Figure 1 Relationship between interest rate and inflation rate The formula for finding Person’s product-moment correlation coefficient, R, is r=sexy To find the Say, we use the following equation:In the scatter diagram the line of best fit slopes downward meaning that it has a negative relationship. This shows that as the interest rate increases, the inflation rate decreases. This is not a very good scenario for the citizens because this means hat when inflation rate is high we suffer from a low interest rate, causing us to lose money.

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