asmt3_summer_sol - UNIVERSITY OF VICTORIA Economics 246:...

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UNIVERSITY OF VICTORIA August 5, 2011 Economics 246: Statistical Inference Summer 2011 Assignment #3 Solutions Due: Friday 12 th of August, 2011, 12 noon. (In the box marked “Econ 246" near the Economics Department Office.) Hand in your EViews printout. Question 1: (3 marks; 1 each) State whether each of following statements is true or false, and explain why. (i) The probability of the Type I error and the probability of the Type II error always add to 1. Solution : False: These probabilities are conditional probabilities and are conditioned on different events. Type I error is the error that we commit when we reject the null hypothesis when in fact it is true. Type II error is the error that we commit when we accept the null hypothesis when in fact it is false. (ii) Increasing the value of α increases the value of β . False: Increasing the value of decreases the value of . (iii) The smaller the specified value of is, the larger the rejection region. False; the critical region is smaller if is made smaller. Question 2: (3 Marks; 1 each) An automobile manufacturer must decide whether the design of its seatbelts in their newest vehicle is safe. The null hypothesis is “the design of the seatbelt is safe.” (i) What is the alternative hypothesis? Ha: the design of the belt is not safe. (ii) Explain what the Type I and Type II errors are in this situation. Type I error: the design of the belt is safe but you reject the null. Type II error: The design of the belt in reality is not safe, but you fail to reject the null hypothesis. (iii) Which type of error is more serious? The Type II error is more serious.
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Question 3: (3 Marks; 1 each) A drug company must decide whether their most recent blood-pressure drug is safe. The null hypothesis is “the drug is unsafe.” (i) What is the alternative hypothesis?
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This note was uploaded on 01/27/2012 for the course ECON 204 taught by Professor Beryl li during the Spring '11 term at University of Victoria.

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asmt3_summer_sol - UNIVERSITY OF VICTORIA Economics 246:...

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