Introduction
The decision on whether to invest money or deposit it in a savings account is influenced by many factors. However, the most significant factor would be the economic gain from depositing money in a savings account compared to investing. Various indicators can be used to determine the economic gain to be made in terms of purchasing power. One vivid indicator is the real interest rate. Real interest rate as an economic indicator describes the rate at which an individual’s purchasing power grows from investing activities. The real interest rate is derived from adjusting the nominal interest rates in order to compensate for the effect of inflation on the purchasing power.
Calculations/Graphs
Mean
The mean is given by the formula Total (N) / number of entries. When the individual figures for the real interest rate for the sixteen years between 2000 and 2015 are added and divided by 16, the mean is 2.902070833 as indicated in Table 1 above.
Standard Deviation
The standard deviation is a measure of central dispersion. It measures the variation in the dataset. The standard deviation for the dataset is 1.624298455 as indicated in Table 1 above.
Five-Number Summary
The five number summary of the dataset is comprised of various indicators that help one understand the nature of the data. The first sample percentile is the sample minimum which is comprised of the smallest observation. The other indicators are the lower quartile, the median, the upper quartile and the sample maximum.
Sample Minimum
The sample minimum for the dataset is 1.2.
Lower Quartile
The first quartile of the dataset is 1.590784095, approximately, 1.6.
Median
The median value is 2.4
Upper Quartile
The third quartile of the dataset is 3.454132173, approximately, 3.5.
Sample Maximum
The sample maximum for the dataset is 6.8.
Histogram
Discussion
The dataset by World Bank on the real interest rates of the United States and that of other countries is expansive and laborious to read and understand. Given a scenario where one has to present such data, there is need to develop summaries that will enable one’s audience understand the nature of the data, its meaning, and to also present the entire dataset within a short term. The statistics and statistical methods used above help summarize the dataset, thereby enabling one achieve the goals highlighted above.
The mean is an important indicator in summarizing the dataset. The mean offers the audience the average interest rate over the years considered. It tells the audience the average rate at which the purchasing power from investing activities has grown between 2000 and 2015. The standard deviation informs one of the degree of variation in the real interest rate over this period. This is an important indicator as it helps inform how close to the average interest rates the other variables are; hence the degree of change in purchasing power.
The five-number summary is also important in highlighting various aspects of the dataset. The sample minimum and sample maximum are indicators of the lowest and highest values of the real interest rates. Using these derivatives, one can pinpoint the year when the real interest rate was at the lowest, and by association, the year when there was the least growth in the purchasing power through the investing activities. The sample minimum and maximum can also be computed to give the range. This informs one of the range over which the purchasing power increased through investing activities between 2000 and 2015.
The graphical presentation of data after quantitative analysis is a vital summary too. For instance, the histogram provided above summarizes the distribution of the real interest rates and their frequencies. Through the Histogram, one can also determine whether there are outliers; periods when the change in the real interest rate was abnormal.
Conclusion
The real interest rate is one economic indicator with which people should be conversant. By studying trends in real interest rates, one develops knowledge of how the purchasing power from investing activities has changed over time when nominal interest rates are adjusted to factor in the rate of inflation. The application of statistical methods in data analysis helps yield the information that is required to yield such an understanding.
Works Cited
The World Bank. United States. 2016. Web. 13 Jul. 2016.
