Determine the null and alternative hypotheses 2 Specify the test statistic and

# Determine the null and alternative hypotheses 2

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1. Determine the null and alternative hypotheses.2. Specify the test statistic and its distribution if the null hypothesis is true.3. Select αand determine the rejection region.4. Calculate the sample value of the test statistic.5. State your conclusion. 3.4 Examples of Hypothesis Tests STEP-BY-STEP PROCEDURE FOR TESTING HYPOTHESES
Principles of Econometrics, 4t h Edition Page 44 Chapter 3: Interval Estimation and Hypothesis Testing 3.4.1a One-tail Test of Significance The null hypothesis is H 0 : β 2 = 0 The alternative hypothesis is H 1 : β 2 > 0 The test statistic is Eq. 3.7 In this case c = 0, so t = b 2 /se( b 2 ) ~ t ( N 2) if the null hypothesis is true Select α = 0.05 The critical value for the right-tail rejection region is the 95 th percentile of the t- distribution with N 2 = 38 degrees of freedom, t (0.95,38) = 1.686. Thus we will reject the null hypothesis if the calculated value of t ≥ 1.686. If t < 1.686, we will not reject the null hypothesis. 3.4 Examples of Hypothesis Tests