The gross domestic product (GDP) per capita is a widely used measure of a country’s (or state’s) economy. It is defined as the total market value of all goods and services produced within a country (or state) in a specified period of time. The most common computation of GDP includes five items: consumption, gross investment, government spending, exports, and imports (which negatively impact the total). The Census Bureau reports the GDP for each state in the United States quarterly. The government also reports annual personal income totals (seasonally adjusted in $millions) by state and each state’s population. Let’s examine how personal income is related to GDP at the state level. Use the data in the file GDP by state to investigate the relationship between GDP and personal income.
Find a model to predict Personal Income from GDP. Write a short report detailing what you find. Be sure to include appropriate plots, look for inf luential points, and consider transforming either or both variables.
Repeat the analysis after dividing both variables by state population in 2005 to create per capita versions of the variables. Discuss which regression you think best helps to describe how personal income and GDP are related. Be sure to examine the residuals and discuss the regression assumptions.