Definition: An inverse relationship is identified between two variables, which are interrelated but the change of one causes the opposite change to the other.
What Does Inverse Relationship Mean?
What is the definition of inverse relationship? The inverse relationship is also known as negative correlation in regression analysis; this means that when one variable increases, the other variable decreases, and vice versa. A typical example of this type of relationship is between interest rates and consumer spending.
When the interest rates increase, consumers are less willing to spend and more willing to save. Also, when unemployment increases, consumer spending decreases because people have less disposable income.
Let’s look at an example.
Example
There are many real-life examples of inverse relationships. The speed of travel relative to travel time (the faster one travels from point to point B, the less travel time is required to arrive at point B from point A); current and resistance (the higher the resistance, the lower the current); savings and disposable income (the less the disposable income, the more the savings); government spending and unemployment rate (the higher the government spending, the lower the unemployment rate); unemployment rate and inflation (known as the Phillips Curve).
The Philips Curve is the most common example of a negative relationship. In fact, when the government spending increases, the unemployment rate decreases because more jobs are created. Following the higher government spending, employees are better compensated, which means that they have more money to spend. On the other hand, firms face higher compensation costs, which are passed to consumers through inflation. Hence, the lower the unemployment rate, the higher the inflation.
The negative relationship is portrayed as a downward sloping curve. The mathematical explanation is that if f(x) = x + 2 and y (x) = x -2, the relationship is inverse.
Also, f(x) = -x and f(x) = 1/x to eliminate a zero value.
Summary Definition
Define Inverse Relationship: Inversely related means two measurements move in the opposite direction when one changes.
