Chute 1

Simon Chute
Mr. Hanif
Extended Maths
Modeling GDP
Table 1
Gross Domestic Product in the U.S. between 1990 and 2000
Year

GDP ($billion)

1990

6707.9

1992

6880.0

1994

7347.7

1996

7813.2

1998

8495.7

2000

9318.5

1.

Figure 1
2. a)
b)

a=262

f ( x)=262 x+ 6449

b=6449

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c) The coefficient of x is the gradient of the line of best fit. As the size of the coefficient of
x increases, the steepness of the line increases. If the coefficient of x is positive, the line
will slant uphill but if the coefficient is negative, the line will slant downhill.
d)

r=0.979

r =0.959

e) Percentage errors:
Table 2
The percentage error of values given by the model
Year

Percentage Error

1990

3.86%

1992

1.35%

1994

2.03%

1996

2.66%

1998

0.58%

2000

2.68%

In table 2 it is observed that the values given by the model are not very accurate. The values
given for 1994, 1996 and 2000 have a percentage error of over 2%. The value for the year 2000
was off by nearly $250 billion. In the year 1990, the value given was off by nearly $260 billion.
This is an extremely large difference which proves that the results are quite inaccurate.
f) In 2002, the model predicts that the GDP of the USA will be $9593 billion, through the model

f (12)=262(12)+6449
In 2006, the model predicts that the GDP of the USA will be $10,641 billion, through the model

f (16)=262(16)+6449
In 2020, the model predicts that the GDP of the USA will be $14,309 billion, through the model

f (30)=262(30)+ 6449

g) The model suggests that the gross domestic product will continue to rise in a linear form,
increasing by the same amount every year. However, the United States of America is an ever
growing country who currently stands as one of the largest superpowers of the 21st century. In
previous years, the gross domestic product has not risen by the same amount annually, but has
actually risen by a greater amount every year. This means the GDP is increasing in an
exponential form, which is expected from such a powerful and economically thriving country. I
believe that the predictions made using the linear model will be significantly lower than the real

Chute 3
GDP. As every year passes, the growth will become larger, meaning the prediction of the linear
model will become more inaccurate.
3.
Table 3
Real Gross Domestic Product for the years 2002 to 2006
Year

GDP at market prices

($bn)

2002

10,469.6

2003

10,960.8

2004

11,712.5

2005

12,455.8

2006

13,246.6

Table 3 shows the real values of the GDP for the years 2002-2006. Using my model, I predicted
the GDP for the years 2002 and 2006. In 2002, the prediction given from my model was 876.6
billion below the actual value. This is a very significant number and shows that the model was
very inaccurate. The value given by my model for the year 2006 was 2,605.6 billion below the
real GDP. This is a difference of nearly 20% of the actual value. The reason for the inaccuracy
of the model is due to it being a linear regression, whereas the actual data follows an
exponential regression. This means that the predicted value will continue to be more inaccurate
as every year passes. I also predicted the GDP for the year 2020, however I know that the value
given will be substantially lower than the real value as the model is extremely inaccurate.
4.
Figure 2

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After adding the data from 2002-2006, I was able to run an exponential regression on the data.
This gave me a much more accurate model. The model obtained from this exponential
regression is: f ( x)=5348+1266 e0.115 x . This model is exponential, meaning it will continually
grow larger and larger annually. This model fits the data much better as this is the pattern that
the data shows for the GDP of the years 1990-2006.
5.
Table 4
The percentage error of values given by the exponential model
Year

Percentage Error

1990

1.4%

1992

0.89%

1994

0.07%

1996

0.75%

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1998

0.34%

2000

0.3%

2002

0.86%

2003

0.3%

2004

0.26%

2005

0.01%

2006

0.55%

As seen in table 4, the percentage errors for the values given by the exponential model are very
minimal. The highest percentage error given by the model was 1.4% for the year 1990. The
lowest percentage error was just 0.01% which is an extremely small difference in the values.
For the year 1994, there is only a $5.3 billion difference as opposed to the difference of $149.3
billion difference that was given using the linear model. The same pattern can be observed in
every year, with the value given by the exponential model being much more accurate than the
linear model. This shows that my exponential model was extremely accurate.
6.

In 2007, the exponential model predicts that the GDP of the USA will be $14,291

billion, through the model

f (17)=5348+1266 e

0.115(17)

In 2010, the exponential model predicts that the GDP of the USA will be $17,975 billion,
through the model

f (20)=5348+1266 e

0.115(20)

In 2020, the exponential model predicts that the GDP of the USA will be $45,228 billion,
through the model

f (30)=5348+1266 e

0.115(30)

7. The exponential model to fit the data was exceptionally more accurate than the
linear model. While running the linear regression on the data, the percentage error
reached nearly 4%, which translated to a difference of over $260 billion in the year 1990.
The data would continue to grow exponentially but because the model was linear, the
values given by the model would continue to be more inaccurate with every year that
passes. The data follows an exponential model because as the population grows, the
economy will grow with the population. The population does not increase by the same
amount every year but will instead grow by a larger amount than the previous year and
will continue in the same way every year. The exponential model is a great improvement
to the linear model and this can be observed in the percentage errors of table 4
compared to the percentage errors of table 2. It is clear that the percentage errors for the
exponential model were significantly smaller than those of the linear model. It is also
observed in figure 1 and 2 where it is clear that the exponential model fits the data more
accurately than the linear model.

Chute 6

8. The gross domestic product of a country is a key concept in economics. The

GDP considers the expenditure, output and income of the country. The most common
trends of the GDP are a continuous growth with periods of acceleration and
deceleration. Economists use models to examine economic issues, to explain an
economic process, or for developing a new economic theory. They can use the data to
observe the trends or changes in the economy. They can use the models to determine
whether or not a new economic strategy will work in the future or to see what the issues
were in past strategies. By studying past data of GDPs, and by creating new models,
they are able to predict the economy level for the future years. In some cases, this
allows the country to change their strategy and better plan for the future. However there
are also some limitations to the models. In the real world, the GDP could have sudden
drops at any moment, as seen in the US during the great depression. If economists
were to solely look at the models, it would appear that the country's wealth would
continue to grow annually, without ever dropping. But the model is unable to take into
account other factors that could decrease the GDP. Wars are one factor that have major
effects on countries and can decrease the GDP drastically. The gross domestic product
is reported every quarter, however some economists are able to create models that
predict the GDP every week or every few days. This gives the country an idea of where
they are at all the time in case their is a need to change strategies or research direction.
They receive updates more frequently than just once every quarter.