In this assignment, we will attempt to study the effects that difference in Income Ratio (henceforth known as I.R.) between the years 1980 and 1990 have on the Productivity Growth (P.G.) during the same period of time. The Income Ratio of one specific year can be found if we take the average income of the richest faction of a country (the richest 20% of the population) and divide it by that of the poorest faction (the poorest 20%). In this assignment, the Income Ratios that were used were those of 13 different countries. The I.R.'s on both 1980 and 1990 were taken for all these countries and, to find the difference between them, the I.R. for 1990 was divided by the I.R. for 1980, for each country. These new numbers illustrate the change of I.R. between the two years so that we can compare how the P.G. changes in relation to the changes in the I.R..On this assignment, we use inductive reasoning to examine the data and find a theory (a hypothesis) that would combine the data given in a way that would make sense, based solely on our data. How do we know if the "theory" that we formulate makes sense? In this case we will plot the points (derived from the column "I.R. 1990/1980," going on the x-axis, and the column "Productivity Growth 79-90," on the y-axis). According to how the points are on the graph in relation to the Average Point (0.94,1.45) (point that is an average of all values and which divides the graph into four Quadrants), if 80% of these points are where they would be expected to be to conform to the hypothesis, then there is no reason to reject this hypothesis. If, on the other hand, the majority of the points does not conform to our hypothesis (are not where they were predicted to be), then it is rejected.Another method of reasoning frequently used by Mainstream economists is "deductive knowledge," as opposed to "inductive," described above. Their theory is formulated and only then it is applied to the data. Their theory o...
