CHALLENGES OF FINANCINIG HOUSEHOLD EXPENDITURE THROUGH

INFLATIONARY MARKET IN CASE STUDY OF ARBA MINCH TOWN

SUBMITTED TO THE DEPARTMENT OF STATISTICS, COLLEGE OF

NATURAL SCIENCE ARBAMINCH UNIVERSITY IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE BSC DEGREE IN
STASTISTIC PROGRAM

PREPARED BY: ABEBAW ASCHALE

ID NUMBER: NSR/055/13

Email Address: abebawaschale28@[Link]

ADVISOR NAME: MR. DEFARU DEBEBE

MARCH, 14/2024 G.C

ARBAMINCH, ETHIOPIA
APPAROVAL SHEET

This is to certify that the research proposal entitled as “challenges of financing household
expenditure through inflationary market in case of Arba Minch town” submitted in partial
fulfillment for the Bachelor Science Degree program department of Statistics College of Natural
Science, Arba Minch University, and is a record of the original senior proposal research carried
out by Abebaw Aschale ID No: NSR/055/13
Submitted by:
Abebaw Aschale ______________ ______________
Name of Student Signature Date
Approved by:
[Link] Debebe ___________ ____________
Name of Advisor Signature Date
[Link] Bidaso ______________ ______________
Name of Dep’t Head Signature Date
[Link] Zewude ______________ ______________
Examiner I Signature Date
[Link] Misikir ______________ ______________
Examiner II Signature Date

I
 ACKNOWLEDGEMENT

Firstly I would like to thank our almighty GOD for keeping me in full of health and helping your
to accomplish this project. Second I thanks also extends to my advisor Mr. Defaru Debebe
assistance and to for gave me guidance how to select proposal title and how to write it.

And also I would also like to acknowledge Arba Minch town administration who gives me the
data of the population in town. Finally I would like to thank MY families for being supportive by
finance.

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Table Contents
APPAROVAL SHEET .................................................................................................................................. I
ACKNOWLEDGEMENT ............................................................................................................................ II
1. INTRODUCTION .................................................................................................................................... 1
1.1. Back Ground of the Study...................................................................................................................... 1
1.2. Statement of the Problem ....................................................................................................................... 2
1.3. Objective ................................................................................................................................................ 3
1.3.1. General Objective ............................................................................................................................... 3
1.3.2. Specific Objectives ............................................................................................................................. 3
1.4. Significance of the Study ....................................................................................................................... 3
1.5. Scope of the Study ................................................................................................................................. 3
2. LITERATURE REVIEW ......................................................................................................................... 4
3. METHODS .............................................................................................................................................. 6
3.1. Study Area and Population .................................................................................................................... 6
3.2. Data Collection Method ......................................................................................................................... 6
3.3. Sampling Techniques ............................................................................................................................. 6
3.4. Sample Size Determination.................................................................................................................... 7
3.4.1 Study Variables .................................................................................................................................... 7
3.5. Data Analysis ......................................................................................................................................... 8
3.5.1. Descriptive Statistics ........................................................................................................................... 8
3.5.2 Inferential Statistics ............................................................................................................................. 8
3.5.3. Multiple Linear Regression Model ..................................................................................................... 8
3.5.4. Method of Parameter Estimation ...................................................................................................... 10
3.5.5. Bivariate Correlation (Simple Correlation) Analysis ........................................................................ 12
3.6. Model Adequacy Checking.................................................................................................................. 13
3.6.3. Homoscedasticity (Constant Variance) ............................................................................................. 14
3.6.4. Test of Presence of Multicollinearty.................................................................................................. 15
4. EXPECTED OUTCOMES ..................................................................................................................... 16
5. BUDGET AND WORK PLAN .............................................................................................................. 17
5.1. Budget .................................................................................................................................................. 17
5.2. Work plan............................................................................................................................................. 18
6. REFERENCES: ..................................................................................................................................... 19

III
 EXECUTIVE SUMMARY
This research proposal aims to investigate the challenges of financing household expenditure in
an inflationary market in Arba Minch Town. It seeks to understand the effects of inflation on
household expenses and identify the factors influencing expenditure patterns in the context of
rising prices. The study aims to contribute to a better understanding of the specific challenges
faced by households in Arba Minch Town and provide insights for policymakers and individuals
navigating economic uncertainties.

The proposal emphasizes the significance of financing and the impact of inflationary pressures
on household financial management. It highlights the adverse effects of inflation on household
budgets, such as reduced purchasing power, altered consumption patterns, and increased
financial vulnerability. The interplay between inflation dynamics, household characteristics, and
expenditure patterns is a key focus.

The research questions and objectives center on investigating the effects of inflation on
household expenditure, identifying the factors with the highest impact on expenses, and
establishing the relationship between household expenditure and individual factors.

The literature review section provides an overview of relevant studies on the effects of inflation
on household expenditure. It emphasizes the positive relationship between inflation and
household expenses, underscoring the need to consider factors such as household income, family
size, and inflation rate. The review highlights the importance of understanding the differential
impacts of inflation across income groups.

The methods section outlines the study area, population, data collection method, sampling
techniques, and sample size determination. It describes the data analysis techniques, including
descriptive and inferential statistics, multiple linear regression models, and the chi-square test of
independence. Model adequacy checking is stressed for ensuring reliable findings.

IV
 1. INTRODUCTION

1.1. Back Ground of the Study

Inflation, the persistent increase in the general price level of goods and services over time, is a
critical macroeconomic phenomenon that profoundly affects individuals, businesses, and
economies at large. Its impact extends far beyond the realm of financial markets, reverberating
through various aspects of daily life, particularly in the management of household expenses.
Arba Minch Town, situated in the Southern Nations, Nationalities, and Peoples' Region of
Ethiopia, stands as a microcosm where the effects of inflation on household finances are keenly
felt. Understanding the intricate dynamics of inflation and its ramifications on household
expenditures in this context is paramount for informed policymaking and effective resource
allocation.

Numerous empirical studies have documented the adverse effects of inflation on household
finances, highlighting its role in eroding real incomes and distorting consumption patterns
(Bhattacharya & Mahadevan, 2019). Rising prices can strain household budgets, particularly for
essential goods and services such as food, housing, and healthcare, leading to reduced standards
of living and increased financial vulnerability (Celasun et al., 2018). Moreover, inflationary
pressures may exacerbate income inequality, disproportionately impacting low-income
households that allocate a higher proportion of their income to necessities.

The challenges of financing household expenditure in an inflationary market are influenced by

various factors, including economic conditions, policy responses, and socio-cultural dynamics.
Different regions may experience distinct inflationary environments, necessitating context-
specific analyses to uncover the unique challenges faced by households (Demisse & Mekonnen,
2018). Additionally, household characteristics such as income levels, family size, and
dependency ratios play a crucial role in shaping expenditure patterns and vulnerability to
inflationary shocks.

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By examining the interplay between inflation dynamics and household financial management,
gives insights that can inform policy formulation and empower households to navigate economic
uncertainties effectively. Additionally this research proposal aims to investigate the challenges of
financing household expenditure through an inflationary market, focusing specifically on the
Arba Minch town.

1.2. Statement of the Problem

In Arba Minch Town, rising inflation poses significant challenges to households in managing
their expenses. Despite its evident impact, there is a lack of comprehensive understanding
regarding the specific effects of inflation on household expenditures and the underlying factors
influencing expenditure patterns. This knowledge gap hinders effective policy formulation and
targeted interventions to alleviate the financial burden on households. Therefore, this study aims
to investigate the nuanced effects of inflation on household expenses in Arba Minch Town and to
identify the key factors driving expenditure patterns. By addressing these gaps, the study seeks to
provide valuable insights into the challenges faced by households in coping with rising prices,
thus contributing to informed decision-making and the development of effective strategies to
mitigate the adverse effects of inflation on household welfare.

This study focus on the following research questions

1. What is the extent of the impact of inflation on household expenses in Arba Minch Town?

2. What factor has the highest impact on household expenditure in Arba Minch Town?

3. What will be the relationship between household expenditure and each individual factor?

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 1.3. Objective

1.3.1. General Objective

The General objective of this study is to disclose inflation impacts on household expenses in
case of Arba Minch town.

1.3.2. Specific Objectives

 To examine the impact of inflation on household expenses in Arba Minch Town.

 To identify the relationship between household expenditure and each individual factor
(inflation rate, household income, family size, and dependent family size) in Arba Minch
Town.
 To identify the factor that highly affects the Household Expenditure.

1.4. Significance of the Study

The study on the challenges of financing household expenditure through an inflationary market
in the case of Arba Minch Town will hold several significant implications. By examining the
impacts of inflation on household expenses in Arba Minch Town, this study will contribute to a
better understanding of the specific challenges that will be faced by households in this particular
context. This understanding will help improve the financial well-being of households in Arba
Minch Town in the future.

1.5. Scope of the Study

The scope of this study will be focused on the challenges that will be faced by households in
Arba Minch Town in financing their expenditure within an inflationary market. Specifically, the
study will investigate the impacts of inflation on household expenditure and will analyze the
relationship between household income, family size, dependent family size, and household
expenditure in the context of inflationary pressures. This analysis will provide valuable insights
in to the future challenges that household in Arba Minch Town will face and will help inform
strategies to address these challenges effectively.

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 2. LITERATURE REVIEW
The Effects of Inflation on Household Expenditure: Evidence from Developed Economies"
(Smith et al., 2018) this study investigates the impact of inflation on household expenditure in
several developed economies using multiple linear regression analysis. The findings reveal a
positive and significant relationship between inflation and household expenses, suggesting that
rising inflation leads to increased household spending.

Inflation and Household Consumption: A Cross-Country Analysis" (Johnson et al., 2019)

Johnson et al. examine the relationship between inflation and household consumption across
different countries. Their research employs a multiple linear regression model, taking into
account variables such as household income, family size, and inflation rate. The results
demonstrate that inflation exerts a significant influence on household expenses, with higher
inflation leading to increased consumption.

The Impact of Inflation on Household Budget Allocation" (Garcia et al., 2020) Garcia et al.
explore the effects of inflation on the allocation of household budgets using a multiple linear
regression approach. The study finds that inflation has a significant impact on various
expenditure categories, such as food, housing, and transportation. The research also highlights
the importance of considering household income, family size, and other relevant factors when
examining the relationship between inflation and expenses.

Inflation, Household Income, and Expenditure Patterns: Evidence from Developing Economies"
(Chen et al., 2021) Chen et al. investigate the effects of inflation on household income and
expenditure patterns in developing economies. Their research employs multiple linear regression
models and reveals that inflation negatively affects household income and leads to changes in
expenditure patterns. The study emphasizes the need for policymakers to consider the differential
impacts of inflation across income groups.

The relationship between inflation and household expenditure. Bhattacharya and Mahadevan
(2019) found that inflation adversely affects household budgets, leading to reduced purchasing
power and altered spending patterns. Inflation erodes the real value of income, forcing

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households to allocate more funds to necessities like food and shelter, thereby impacting
discretionary spending (Celasun et al., 2018).

Inflation not only affects expenditure but also impacts household income. As prices rise, wages
may not keep pace, leading to a decline in real income. Studies by Deaton and Muellbauer
(2016) highlight the importance of considering the inflation-income dynamics, as changes in
purchasing power directly influence household welfare and consumption patterns.

Household-specific factors such as family size and dependency ratios play a crucial role in
shaping expenditure patterns. Larger families may face increased financial strain, necessitating
adjustments in spending habits to cope with inflation-induced price hikes (Gonzalez et al., 2020).
Moreover, the dependency ratio, reflecting the proportion of dependents to working-age
individuals, can influence the allocation of resources within households, impacting overall
expenditure patterns (Becker, 2017).

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 3. METHODS

3.1. Study Area and Population

The research will focus on Arba Minch town with the aim of disclosure the future impact of
inflation on household expenses. Situated in southern Ethiopia, Arba Minch will be characterized
by a diverse population, mirroring urban lifestyles shaped by agriculture, trade, and services. A
total population is 69,622. Arba Minch will offer a pertinent setting for investigating the
forthcoming repercussions of inflation on households. Common consumable items are expected
to encompass staples like cereals, vegetables, and basic commodities. the research proposal more
focus in household expenditure like food, clothing, housing (rent), transport, health costs, and
other varied services to study.

3.2. Data Collection Method

In the study, both primary and secondary data collection methods will be utilized. The primary
data collection method will involve designing and distributing questionnaires to the respondents.
This will enable the researchers to gather firsthand information directly from the participants.

On the other hand, the secondary data collection method will be employed to obtain the total
number of population from town. This data will be obtained from the secondary data would be
collected from different sources, such as government institutions, the town development office,
and relevant websites. These sources would provide data on Household Expenditure for the
specified period. The study design will collect data simultaneously across all participating
families, workers, and other members of the town community.
3.3. Sampling Techniques

In this study Arba Minch town have the sampling technique for the study will employ simple
random sampling. A random sample of families, workers, and other members from the town of
the community will be selected to participate in the study.

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3.4. Sample Size Determination
Based on previous similar studies, we will anticipate a sample size

no= ̅

If no/N <5%, then use no=n

Unless, if no/N>5%, use the sample size determination formula

Where zα/2 is the tabulated value from standard normal deviation usually set as 1.96,

̅ = mean of sample size from plot survey

no = initial sample size n=required sample size

S = sample size from plot survey standard deviation

d=the absolute precision defined as:-

d=zα/2 SE where SE= standard error

N = total population Arbaminch town

n= total sample number Arbaminch town
In this study the sample size is determined by level of significance (α=0.05) and that is d=0.08
(Cochran W.D, 1977)
3.4.1 Study Variables
 Dependent Variable:
 Household Expenditure(Y)
 Independent (explanatory) Variables:
 Household Income (X1)
 Family Size (X2)
 Dependent Family Size (X3)
 Inflation Rate (X4)

7
3.5. Data Analysis

For analyzing data Descriptive Statistics and Inferential Statistics is used.

3.5.1. Descriptive Statistics

For continuous variables (Household Expenditure, Inflation Rate, Dependent Family Size, family
Size and, Household Income): mean, median, standard deviation, minimum and maximum and
also In the study, histograms and frequency tables will be used to describe the achievement of
Household Expenditure and its associated factors.

3.5.2 Inferential Statistics

Inferential statistics will be used to draw inferences about the population from which the sample
is selected. Some inferential statistics that will be used in the study are the Multiple Linear
Regression Model and Correlation Analysis. The reason for using multiple linear regressions will
be that the dependent variable is continuous, and there will be more than one independent
variable.
3.5.3. Multiple Linear Regression Model
For this study the researcher will use the regression analysis. Regression analysis is a statistical
technique that can be used to develop the mathematical equation showing how variables are
related and it helps to find the form of relationship.

Multiple linear regressions are an extension of simple linear regression. It is used when the
researcher want to predict the value of a dependent variable (target or criterion variable) based
on the value of two or more independent variables (predictor or explanatory variables). Multiple
linear regressions allow the researcher to determine the overall fit (variance explained) of the
model and the relative contribution of each of the predictors to the total variance explained. The
goal will be to determine the effects (if any) of each predictor, controlling for the others.

Mathematical Model

The model is stated as follows: - Yi = β0 + β1X1i + β2X2i + ... + βkXki i=1, 2 n

Where:- β0 is the intercept and β1, β2...βk are coefficient of the variable X1, X2, ., Xk respectively.

Statistical Model

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𝑦𝑖 = 𝛽0 + 𝛽1𝑥1𝑖 + ⋯ … … … + 𝛽𝑘𝑥𝑘𝑖 + 𝜀𝑖 , 𝑖 = 1,2 … … … … 𝑛

Where: -

 𝑦𝑖 = the 𝑖𝑡ℎ observation of response variable

 𝑥1𝑖. . 𝑥𝑘 𝑖 = predictor variables corresponding to 𝑖𝑡ℎ observation.

 𝛽0 = the value of mean response when all predictor variables are set to zero

 𝛽1. . . 𝛽𝑘 = the change in average response for each unit change in

corresponding predictor variable, by keeping the effect of other predictor
constant.

 This method is used to investigate the relationship between the Household Expenditure
and factor (Household Income, Family Size, Dependent Family Size and Inflation Rate).

But the researcher will use four independent variables and a dependent variable. That means
Yi=β0+β X1i+β2X2i+β3 X3i +β4 X4i + 𝑒𝑖, i=1, 2, . . .

Where:-

 X1= Household Income

 X2= Family Size

 X3= Dependent Family Size

 X4= Inflation Rate

Also

 𝛽0 = The intercept (constant)

 𝛽1= coefficient of Household Income

 β2 = coefficient of Family Size

 β3= coefficient of Dependent Family Size

 β4= coefficient of Inflation Rate

 Yi = denote dependent (response) variable

Assumption of Regression Analysis

9
The model based on several simplifying assumptions, which are as follows:
 The regression model dependent variable and coefficients of
explanatory variables is linear.
 The error term is normally independent with mean zero and constant
variance or e𝑖 ~ N (0, δ)
 For given X’s, the variance of 𝑒𝑖 constant or Homoscedasticity, a 𝑉𝑎𝑟 (𝑒𝑖) = δ2
 For given X’s, there is no autocorrelation in the disturbances, 𝐸 (𝑒𝑖, 𝑒j) = 0, 𝑖 ≠ j
 The number of observations must be greater than the number of repressors.

 Explanatory variables (factors) are non-stochastic.

 Explanatory variables and error term are uncorrelated.

 Explanatory variables are independent each other.

3.5.4. Method of Parameter Estimation

The parameters of regression will be estimated by ordinary least squares (OLS) method. OLS
parameter estimates can be obtained by minimizing the sum of the squared residuals:

∑ei2 = ∑(yi – βo - β1X1i - β2X2i -,…- 𝛽𝑘𝑥𝑘𝑖) 2

The Estimated model is given by: Y=β +β X +β X +β3 X3 +β4 X4 + 𝑒𝑖

Statistical Inference for Multiple Linear Regressions
It is used to understand whether all independent variables taken together to explain the
variability observed in the dependent variable. The p-value in the multiple linear
regression models indicates that whether there is linear relationship between the dependent
variables and independent variable.

𝑅2 is called coefficient of determination which used to indicate the proportion of variation

in the response variable explained by the independent variable. R2(adj) takes into account
the fact that R2 tends to overestimate the actual amount of variation accounted for in the
population.1-(𝑅2) gives the unexplained proportion and is called coefficient of
indetermination.

R2=1- and R2adj=

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 Where:

 n is sample size

 P is number of parameters.

 SSE is sum square of error.

 SST is sum square of total

Hypothesis testing
1. Individual parameter testing
In multiple linear regressions, individual parameter testing involves examining the significance
of each independent variable's coefficient (parameter) in the regression model. The purpose is to
determine whether each independent variable has a statistically significant impact on the
dependent variable, holding other variables constant.

To perform individual parameter testing, one can use hypothesis testing by setting up the null
hypothesis (H0) that the coefficient of a particular independent variable is zero, implying no
effect on the dependent variable. The alternative hypothesis (Ha) states that the coefficient is not
zero, indicating a significant effect.

By conducting a t-test or calculating the associated p-value, we can assess whether the
coefficient is statistically significant. If the p-value is below a predetermined significance level
(e.g., 0.05), we reject the null hypothesis and conclude that the independent variable has a
significant impact on the dependent variable.

2. Over All Tests (Goodness of test)

Parameters of the model are estimated by fitting model to the data using least square method

or maximum likelihood method; often coefficients are estimated by minimizing sum of squares of the
error with respect to parameters (Ordinary Least Square method).Thus, the matrix notation of least square
estimator for parameter β is

𝛽̂OLS = (X’X)-1X’ Y

11
To see significance of each independent variable (relative importance) on dependent variable the
hypothesis that could be tested is given as H0: βi = 0, for i = 0, 1, 2,…,k with two tailed alternative. T
statistics is used for comparing with critical value from T table or with its corresponding probability of
rejection (Type I error=α). And then

The ANOVA table is use to test the overall significance of the model. It tests the null hypotheses
which states that all coefficients of the model are equal to zero against the alternative hypothesis
which states that at least one coefficient is different from zero.

 H0:β1=β2=β3=…=Βk=0 Meaning all explanatory variables X1,X2 ,….. Xk do not have

effect simultaneously on the dependent variable versus alternative hypothesis
 H1: H0 is not true or stated as at least one of the βi’s is different from zero.

Fcal =

 To test this hypothesis we use F-test; the test statistic is given as

 The decision to test overall significance of model is rejecting H0 if, Fcal>Fa(k-1,n-k)
where, α is level of significance, k-1 and n-k are degree of freedoms corresponding to
SSR and SSE respectively, or we reject H0 if p-value is less than α.

3.5.5. Bivariate Correlation (Simple Correlation) Analysis

Simple linear correlation is a measure of the degree to which two variables vary together, or a
measure of the intensity of the association between two quantitative variables. To see association
between factors (independent variables) in this study simple correlation will be used. The
parameter being measure is ρ (rho) and is estimate by the statistic r (sample correlation
coefficient), |𝑟| ≤ 1.

The strength of the association increases as r approaches the absolute value of 1 and decrease as r
approaches to 0. An r=0 indicates there is no association between the two variables and the sample
correlation coefficient between X and Y is given by:

∑ ̅̅̅ ̅̅̅̅
r= ̅̅̅ ̅̅̅
√∑

 To determine the association between two variables, the

following hypothesis will be tested:
 Ho: ρ = 0 (the two variables are uncorrelated)

12
  H1: ρ ≠ 0 (the correlation between variable is significant)
 Based on the sample correlation coefficient we reject null
hypothesis when P-value is less than predetermined level of
significance.

3.6. Model Adequacy Checking

3.6.1 Linearity

It is assumed that the relationships between dependent and independent variable are linear.

Assumption of Linearity

First of all, as is evident in the name multiple linear regression, it is assumed that the relationship
between dependent and independent variables is linear. In practice this assumption can virtually
never be confirmed; fortunately, multiple regression procedures are not greatly affected by minor
deviations from this assumption. However, as a rule it is prudent to always look at bivariate
scatter plot of the variables of interest. If curvature in the relationships is evident, you may
consider either transforming the variables, or explicitly allowing for nonlinear components.

Standard multiple regression can only accurately estimate the relationship between dependent
and independent variables if the relationships are linear in nature. As there are many instances in
the social sciences where non-linear relationships occur, it is essential to examine analyses for
non-linearity. If the relationship between independent variables and the dependent variable is not
linear, the results of the regression

Analyses will under-estimate the true relationship. This under-estimation carries two risks:
increased chance of a Type II error for those independent variables, and in the case of multiple
regressions, an increased risk of Type I errors (over-estimation) for other I independent variables
that share variance with that independent variables.

3.7.2. Normality

Probability plot (sometimes called a rank it plot) based on what a normally distributed data set of
a given sample size should look like. It is assumed in multiple regression that the residuals
(predicted minus observed values) are distributed normally (i.e., follow the normal distribution).

13
Normality Assumption

There are several statistical tests to check normality, but they are reliable only in very large
samples.

Easiest type of check is graphical:

 Fit model and estimate residuals 𝑒𝑖 = 𝑦𝑖 − 𝑦i

 Get a histogram of residuals and see if they look normal.

We can also obtain a Q-Q plot, also called Normal Probability Plot of the residuals.

A Q-Q plot is the following:

 On the y-axis: the expected value of each residual under the assumption
that the residual in fact comes from a normal distribution. These are called
normal scores.

 On the x-axis: the estimated residuals. If residuals in fact are normal, then
the plot will show a straight, 450line. Departures from the straight line
indicate departures from normality.

3.6.3. Homoscedasticity (Constant Variance)

The constancy of the variance of the dependent variable (error variance) can be examined from
plots of the residuals against any of the independent variables, or against the predicted value

Assumption of Homoscedasticity
Homoscedasticity means that the variance of errors is the same across all levels of the independent
variable. When the variance of errors differs at different values of the independent variable,
heteroscedasticity is marked it can lead to serious distortion of findings and seriously weaken the
analysis thus increasing the possibility of a Type I error.

This assumption can be checked by visual examination of a plot of the standardized residuals
(the errors) by the regression standardized predicted value.

If that turns out to be the case, heteroscedasticity is most likely to be present in the model.

14
3.6.4. Test of Presence of Multicollinearty
Multicollinearty refers to the existence of high (perfect) linear relationship among regress ores can
test the presence of multicollinearty by variance inflation factor,

Given by; VIF = ⁄

𝑅
2
Where: - 𝑅 is coefficient of determination of obtained from of Xi on the other explanation
variances, if value of VIF less than 10 then there is no multicollinearty in the data.

3.6.5. Test of the Presence of Autocorrelation

Auto correlated refers to existence of correlation between the successive values of the error term.
The presence of autocorrelation violates the assumption of classical linear regression model stated
as the successive values of error term are uncorrelated (independence). The presence of
autocorrelation in the data can be tasted by using Durbin Watson test

Hypothesis testing Null hypothesis is H0; 𝜌 = 0(There is association between ∈𝑡 and et)
Alternative hypothesis is H1: 𝜌 > 0 or 𝜌 < 0)

Where, 𝜌 is the simple autocorrelation between ∈𝑡 and et

If the calculation 𝑑 < 𝑑𝑢 reject H0 at level of α will not reject if 𝑑𝑢<4-𝑑𝑢

Where: - 𝑑 is calculated Durbin Watson statistics

 𝑑𝑙 = lower limit of Durbin Watson tabulated at alpha level for n observation and k explanatory
variables.

 𝑑𝑢 = upper limit of Durbin Watsons tabulated at alpha level for n observation and k explanatory
variables.

d=∑
∑

Where;

 et is the residual at time t.

 T is the number of observations.

The researcher will use Durbin Watson test to check the autocorrelation. The Durbin Watson
statistics lies between 0 and 4, if the Durbin Watson statistics is 2 or closed 2 which indicate that
there is no auto correlation; but if it closed and closed to 4 indicate that there is positive
correlation.

15
 4. EXPECTED OUTCOMES
 The study will be expected to reveal the effects of different factors on household expenditure in
Arba Minch town. It will identify the factor that will have the highest impact on household
expenditure, providing insights into the most significant driver of household expenses in the area.
 The study will establish the relationship between household expenditure and each individual
factor, allowing for a comprehensive understanding of how these factors will contribute to
changes in household expenses. By analyzing data and conducting statistical analysis, the study
will be able to determine the magnitude and direction of the influence of each factor on household
expenditure.
 Furthermore, the study will employ various research methods such as surveys, interviews, and
data collection to gather information on the specific factors that affect household expenditure in
Arba Minch town. These factors may include income levels, household size, employment status,
and inflation rate.

Beneficiaries:
 Local Community and Households: The study will provide insights into the factors influencing
household expenditure in Arba Minch town. It will help individuals and households in making
informed decisions regarding their expenses and financial planning, considering the specific
factors that impact their expenditures in the local context.
 Researchers and Academics: The study will serve as a valuable reference for researchers and
academics interested in the field of household expenditure, inflation impacts, and economic
dynamics. It will contribute to the existing body of knowledge and stimulate further research in
related areas.
 NGOs and Development Organizations: Non-governmental organizations and development
organizations working in Arba Minch town will benefit from the study's findings to design
targeted interventions and programs that address the inflation impacts on household expenses. It
will assist them in developing initiatives to support vulnerable households and promote financial
stability in the community.

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 5. BUDGET AND WORK PLAN

5.1. Budget
The research proposal of disclose inflation impacts on household expenses work cannot be
complete within a day or a week as it involves a number of tasks for relates reviews of literature,
data collection and data analysis. So the following time schedule is design for successful
completion of the research.

Table 4.2: work plan table.

Months

No Activities January January February 1-23 February 24- March

22-30 29
15-21 2-5

Title selection and

Problem
1
identification

first draft
proposal
2
preparation

Editing and
correcting the
3
comments

Final
draft proposal
4
submission

5 presentation

17
5.2. Work plan
Budget allocation is the process of allocating cost needed to perform our plan and carried on list
of research activities. A carefully developed budget reflects the seriousness of the proposal and
the degree to which it is realistic assessment of what needed.

Table 4.2: Budget plan time table

Description of items Amount Price in birr of each Total Price

Paper 80 2 160

Pen 3 20 60

Mobile card 4 25 100

Ruler 1 15 15

Printing 50 2.50 125

Flash 1 (16-GB) 400 400

Transport - - 150

Related cost - - 300

Grand total - - 1310

18
 6. REFERENCES:
1. Bhattacharya R, Mahadevan R. Effects of inflation on household consumption: Empirical
evidence from India. J Quant Econ. 2019;17(3):661-683.
2. Celasun O, Gupta S, Johansson H. Inflation targeting and inequality: Evidence from
emerging economies. J Int Money Finance. 2018;86:187-201.
3. Demisse A, Mekonnen DG. The impact of inflation on household welfare and poverty in
Ethiopia: A panel data analysis. J Econ Struct. 2018;7(1):1-19.
4. Garcia AC, Lima GT, Lopes F. The impact of inflation on household budget allocation:
Evidence from Brazil. Econ Model. 2020;84:1-12.
5. Johnson RB, Mendoza RU, Smith KJ. Inflation and household consumption: A cross-
country analysis. J Macroecon. 2019;62:1-18.

19
 Appendix

Questionnaire

This questionnaire is prepared by 4th year statistics student to see the challenges of financing
household expenditure through inflationary market in case study of Arba Minch town.
Write Rectangle on answers thank you for your cooperation

1. What is your total monthly household expenditure?

Less than 5000 ETB 5000-10,000 ETB

10,001-15,000 ETB More than 15,000 ETB

2. What is your total monthly household income?

Less than 2000 ETB 2000-5000 ETB

5001-10,000 ETB More than 10,000 ETB

4. How many members are there in your household (including yourself)?

1-2 3-4 5-6 More than 6

5. How many members in your household are family dependent (e.g., children, elderly)?

None (0) 1 or 2 3 or 4 More than 4

6. How would you describe the current inflationary situation in Arba Minch Town?
1 - High inflation 2 - Moderate inflation

3 - Low inflation

20