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1)A company manufacturing computer chips finds that 8% of all chips

manufactured are defective. Management is concerned that high employee turnover


is partially responsible for the high defect rate. In an effort to decrease the
percentage of defective chips, management decides to provide additional training
to those employees hired within the last year. After training was implemented, a
sample of 450 chips revealed only 27 defects. Was the additional training effective
in lowering the defect rate?
a. Write the null and alternative hypotheses. a. H0: p = 0.08 and HA: p < 0.08
b. What is the value of the test statistic? b. z = (0.06-0.08) 0.080.92 450 =
-1.56
c. What is the associated P-value? c. P-value = 0.0594
d. State your conclusion using = 0.01. d.At = 0.01 we fail to reject the null
hypothesis. At the 0.01 level of significance, we cannot conclude that the
additional training significantly lowered the defect rate.
2) A survey claims that 7 out of 10 customers recommend Western Drugs for
pharmacy issues. To test this claim, a random sample of 100 customers is obtained
from the list of rewards customers. Of these 100 customers, 75 indicate that they
recommend using Western Drugs for pharmacy needs. We would like to know if this
claim is accurate. Use alpha = 0.05
a. Write the null and alternative hypotheses. a. H0: p = 0.7 and HA: p 0.7
b. Let's perform a one sample z-test for proportions: What is the value of the test
statistic?
b. z = (0.75-0.7) 0.70.3 100 = 1.09
c. What is the associated P-value? c. P-value = 0.2757
d. State your conclusion using = 0.05. d. At = 0.05 we fail to reject the null
hypothesis.

3)A real estate agency, located in a metropolitan area in the northeastern U.S., kept
data on the various types of properties purchased in the area. Historically, 15% of
purchases were for condominiums, 30% were for townhouses, 40% for single family
homes, 10% for commercial properties and 5% for land. With changing
demographics, the agency wondered if the current distribution matches the
historical distribution. Recent data showed the following:

a. State appropriate hypotheses to test whether the purchasing agent is correct. a.


H0: The current distribution of property sales matches the historical

distribution. HA: The current distribution of property sales differs from the
historical distribution.

b. What is the value of the test statistic and its associated P-value? b. Assuming
that the null hypothesis is true, we use the historical distribution to find
the expected frequencies. For example, the expected frequency for
condos is (0.15) (325) = 48.75. Expected frequencies are shown in the
table above next to observed frequencies. 2 = 62.538 P-value < 0.0001
c. State the conclusion at = 0.05. c. The P-value is very small (less than ),
so we reject the null hypothesis. There is strong evidence that the current
distribution of property sales differs from the historical distribution.

4) Shown below is a correlation table showing correlation coefficients between


population (millions), migration rate of mobile subscriptions to smart phones (in %)
and smart phone penetration per capita (in %) for a sample of 15 countries.

a. What is the correlation between migration rate of mobile subscriptions and


population? Interpret.
a. -0.266, negative and weak.
b. What is the correlation between smart phone penetration and population?
Interpret.
b. -0.419, negative and moderate.
c. What is the correlation between migration rate of mobile subscriptions and smart
phone penetration? Interpret. c. 0.885, positive and strong.
5) The neoclassical growth model predicts that for identical savings rates and
population growth rates, countries should converge to the per capita income level.
This is referred to as the convergence hypothesis. One way to test for the presence
of convergence is to compare the growth rates over time to the initial starting level.
(a) If you regressed the average growth rate over a time period (1960-1990) on the
initial level of per capita income, what would the sign of the slope have to be to
indicate this type of convergence? Explain. Would this result confirm or reject the
prediction of the neoclassical growth model?
(a) You would require a negative sign. Countries that are far ahead of
others at the beginning of the period would have to grow relatively slower

for the others to catch up. This represents unconditional convergence,


whereas the neoclassical growth model predicts conditional convergence,
i.e., there will only be convergence if countries have identical savings,
population growth rates, and production technology.
(b) The results of the regression for 104 countries were as follows:
g6090 = 0.019 0.0006 RelProd60 , R 2 = 0.00007, SER = 0.016,
where g6090 is the average annual growth rate of GDP per worker for the 19601990 sample period, and RelProd60 is GDP per worker relative to the United States
in 1960. Interpret the results. Is there any evidence of unconditional convergence
between the countries of the world? Is this result surprising? What other concept
could you think about to test for convergence between countries?
(b) An increase in 10 percentage points in RelProd60 results in a decrease
of 0.00006 in the growth rate from 1960 to 1990, i.e., countries that were
further ahead in 1960 do grow by less. There are some countries in the
sample that have a value of RelProd60 close to zero (China, Uganda, Togo,
Guinea) and you would expect these countries to grow roughly by 2
percent per year over the sample period. The regression R2 indicates that
the regression has virtually no explanatory power. The result is not
surprising given that there are not many theories that predict
unconditional convergence between the countries of the world.
(c) You decide to restrict yourself to the 24 OECD countries in the sample. This
changes your regression output as follows:
g6090 = 0.048 0.0404 RelProd60 , R 2 = 0.82 , SER = 0.0046
How does this result affect your conclusions from above?

(c) Judging by the size of the slope coefficient, there is strong evidence of
unconditional convergence for the OECD countries. The regression R2 is
quite high, given that there is only a single explanatory variable in the
regression. However, since we do not know the sampling distribution of
the estimator in this case, we cannot conduct inference.
A company that sells eco-friendly cleaning products is concerned that only 19.5% of
people who use such products select their brand. A marketing director suggests that
the company invest in new advertising and labeling to strengthen its green image.
The company decides to do so in a test market so that the effectiveness of the
marketing campaign may be evaluated. Based on data collected in the test market,
the company constructed a 98% confidence interval for the proportion of all
consumers who might buy their brand. The resulting interval is 16% to 28%. What
conclusion should the company reach about the new marketing campaign?
A. The data do not provide convincing evidence that the marketing
campaign increases the percentage of customers for the company's
products.

B. The data do provide convincing evidence that the marketing campaign increases
the percentage of customers for the company's products.
C. The new marketing campaign is effective in increasing the percentage of
customers buying their brand.
D. The company should launch the new marketing campaign.
E. None of the above.
A report on the U.S. economy indicates that 28% of Americans have experienced
difficulty in making mortgage payments. A news organization randomly sampled
400 Americans from 10 cities named the "fastest dying cities in the U.S." (Forbes
Magazine, August 2008) and found that 136 reported such difficulty. Does this
indicate that the problem is more severe among these cities? The correct null and
alternative hypotheses for testing this claim are:
A. H0 : p = 0.28 and HA : p > 0.28
B. H0 : p = 0.28 and HA : p < 0.28
C. H0 : p = 0.28 and HA : p 0.28
D. H0 : p 0.28 and HA : p = 0.28
E. H0 : p > 0.28 and HA : p = 0.28
A report on the U.S. economy indicates that 28% of Americans have experienced
difficulty in making mortgage payments. A news organization randomly sampled
400 Americans from 10 cities named the "fastest dying cities in the U.S." (Forbes
Magazine, August 2008) and found that 136 reported such difficulty. Does this
indicate that the problem is more severe among these cities? The correct value of
the test statistic for testing this claim is
A. z = -1.28
B. z = -2.67
C. z = 2.67
D. z = 1.96
E. z = -1.28
A national study report released by the Center for Studying Health System Change
(HSC) in 2010, indicated that 20.9% of Americans were identified as having medical
bill financial issues. Many people in families with problems paying medical bills in
2010 experienced severe financial consequences from their medical debt, with
about two-thirds reporting problems paying for other necessities and a quarter
considering bankruptcy, the study found. What if a news organization randomly
sampled 400 Americans from 10 cities and found that 90 reported having such
difficulty. A test was done to investigate whether the problem is more severe among
these cities. The p-value for this test is
A. 0.2156
B. 0.0539
C. 0.1078
D. 0.4312
E. None of the above.

Top management of a large multinational corporation wants to create a culture of


innovativeness and change. A consultant hired to assess the company's
organizational culture finds that only 15% of employees are open to new ideas and
approaches toward their work. Consequently the company conducts a program for
employees in order to reinforce the new corporate philosophy. After the program is
completed, employees are surveyed to see if a greater percentage is now open to
innovativeness and change. The correct alternative hypothesis is
A. p = 0.15
B. p > 0.15
C. p < 0.15
D. > 0.15
A company that has a 10% market share launches a marketing campaign. At the
end of the campaign period, the company conducts a survey in order to assess
whether its market share has increased. The result of the survey issued to 500
customers was 12.5%. What is the associated p-value?
A. 0.0314
B. 0.1256
C. 0.0628
D. 0.0066
E. None of the above
Top management of a large multinational corporation wants to create a culture of
innovativeness and change. A consultant hired to assess the company's
organizational culture finds that only 15% of employees are open to new ideas and
approaches toward their work. Consequently the company conducts a program for
employees in order to reinforce the new corporate philosophy. Based on data
collected after the program, the finds the 95% confidence interval for the proportion
of all employees open to new ideas to be 18% to 22%. What should the company
conclude?
A. The null hypothesis should not be rejected.
B There is no evidence to suggest that the program improved employees' attitudes
toward innovativeness and change.
C. There is evidence that the program improved employees' attitudes
toward innovativeness and change.
D. Both A and B.
E. Both A and C.
A national study report released by the Center for Studying Health System Change
(HSC) in 2010, indicated that 20.9% of Americans were identified as having medical
bill financial issues. Many people in families with problems paying medical bills in
2010 experienced severe financial consequences from their medical debt, with
about two-thirds reporting problems paying for other necessities and a quarter
considering bankruptcy, the study found. What if a news organization randomly
sampled 400 Americans from 10 cities and found that 90 reported having such
difficulty. A test was done to investigate whether the problem is more severe among

these cities. The result of this test is


A. Inconclusive.
B. There is no indication the medical bill problem is more severe among
the cities surveyed.
C. There is insufficient evidence to conduct the test.
D. There is evidence that the medical bill problem is more severe among the cities
surveyed.
E. None of the above.
A national study report released by the Center for Studying Health System Change
(HSC) in 2010, indicated that 20.9% of Americans were identified as having medical
bill financial issues. Many people in families with problems paying medical bills in
2010 experienced severe financial consequences from their medical debt, with
about two-thirds reporting problems paying for other necessities and a quarter
considering bankruptcy, the study found. What if a news organization randomly
sampled 400 Americans from 10 cities and found that 90 reported having such
difficulty. A test was done to investigate whether the problem is more severe among
these cities. What is the value of the test statistic?
A. 0.787
B. 0.016
C. -0.787
D. 2.479
E. None of the above.
A survey claims that 7 out of 10 customers recommend Western Drugs for
pharmacy issues. To test this claim, a random sample of 100 customers is obtained
from the list of rewards customers. Of these 100 customers, 75 indicate that they
recommend using Western Drugs for pharmacy needs. We would like to know if this
claim is accurate. State your conclusion using = 0.05.
A. The null hypothesis is not supported: more than 70% of customers recommend
Western Drugs for pharmacy issues.
B. The null hypothesis is not supported: less than 70% of customers recommend
Western Drugs for pharmacy issues.
C. The null hypothesis is not supported: the percentage of customers who
recommend Western Drugs for pharmacy issues is not equal to 75%.
D. More information is required to draw a valid conclusion
E. The null hypothesis is supported: 70% of customers recommend
Western Drugs for pharmacy issues.
A satellite TV provider finds that 15% of their customers switch providers when a
discount offer expires. A consultant tries a small experiment and offers a random
sample of customers a free 6 months of service if they commit to staying as a
customer for two years. Not surprisingly, they find that the new switching rate is
lower by a statistically significant amount. Should they offer short-term discounts to
all their customers? What should the company take into consideration when
deciding if they should offer short-term discounts to all their customers?

A. The p-value of the hypothesis test.


B. The cost of the service.
C. How much the switch is lowered (the effect size).
D. A, B and C.
E. Both B and C.
A z-test is best since the information is an established proportion (= 34%)
and a sample proportion (= 42%).
Null: percent of students attending events = 34%
Alternate: percent of students attending events > 34%
The percent of students who attend a Duluth sporting event is 34%. At a recent
soccer game, 42% of the students showed up to root for the Wildcats. Is this strong
evidence that more students are attending sporting events?

A t-test is best since the information is an established mean (= 60) and a


sample mean (= 52).
Null: average is = 60
Alternate: average is < 60
A teacher wants to know how well students perform in her math class relative to
students in other math classes in her school district. She administers a standardized
test, which students in other classes had taken, with a mean (average) of 60 and
standard deviation of 10. Her class has 40 students with a sample mean of 52 and
sample standard deviation = 3.5. Which statistical method should she use to test if
the test average is lower?

A z-test is best since the information is an established proportion (= 45%)


and a sample proportion (= 50/100 = 50%).
Null: percent of people who show improvements = 45%
Alternate: percent of people who show improvement > 45%
Drug X is administered to 100 patients with a particular
disease. 50 improve. Test whether this drug is better than drug Y, which is known to
produce improvement in 45% of patients.

A t-test is best since the information is an established mean (= 78) and a


sample mean (= 84).
Null: average with or without instruction is = 78
Alternate: average with instruction is > 78

Let's say a group of 17 average ninth grade students are assigned to a new style of
science teaching. Their performance before entering the new classroom was
average, though as a result of the new style of classroom instruction we believe
they should score higher than average on tests of science knowledge if the new
curriculum is working. After 6 weeks in the classroom, we give them a test
assessing their knowledge of basic science concepts to see if the teaching has been
effective. We find the following: x(bar) = 84, S.D. = 16, N = 17
We know from studies done at UCLA that ninth graders in general score an average
of 78 on this exam (0 = 78). Is the difference we observed after six weeks of
instruction consistent with what is likely under conditions of chance alone of does it
reflect a true difference, a better performance on the test than average?

A z-test is best since the information is an established proportion (= 54%)


and a sample proportion (= 200/500 = 40%).
Null: percent of people who would vote for a candidate = 54%
Alternate: percent of people who would vote for a candidate < 54%
In a recent Gallop Poll, it was reported that 54% of the population would vote for a
particular candidate.
In a sample poll of 500 voters, 200 say that they will support a particular candidate
in the election. Is this enough proof to show that the population is losing faith in the
candidate?

A t-test is best since the information is an established mean (= 1.45) and a


sample mean (= 1.21).
Null: average exhaust emissions = 1.45 g
Alternate: average exhaust emissions < 1.45 g
The EPA reports that the exhaust emissions for a certain car model has a normal
distribution with a
mean of 1.45 grams of nitrous oxide per mile and a standard deviation of 0.4. The
car manufacturer claims their new process reduces the mean level of exhaust
emitted for this car model. A SRS of 28 cars is taken and the mean level of exhaust
emitted for this sample is 1.21 grams.

A t-test is best since the information is an established mean (= 31%) and a


sample mean (= 30.2%).
Null: average total spending on housing = 31%
Alternate: average total spending on housing < 31%
The Census Bureau reports that households spend an average of 31% of their total
spending on housing. A homebuilders association in Cleveland believes that this
average is lower in their area. They interview a sample of 40 households in the

Cleveland metropolitan
area to learn what percent of their spending goes toward housing. Suppose that the
study finds x-bar = 30.2% for the 40 households in the sample.
Take to be the mean percent of spending devoted to housing among all Cleveland
households.

The Null Hypothesis (Ho) is a tentative assumption about a population


parameter such as a population mean or a population proportion
- it is assumed to be true when forming a hypothesis test

The Alternative Hypothesis (Ha) is a statement that is the opposite of


what is stated in the null hypothesis.

Which of the following is true with respect to hypothesis testing?


a. The null hypothesis Ho is assumed false.
b. Action should be taken when the null hypothesis Ho is
rejected.
c. The alternative hypothesis Ha is assumed false.
d. The alternative hypothesis Ho is assumed true.
an automobile product research group developed a new fuel injection
system designed to increase the miles-per-gallon rating of a particular
automobile. With the current model obtaining an average of 24 miles per
gallon, the hypothesis test is: Ho: u < 24 Ha: u > 24

Type I Error The error of rejecting Ho when it is true. (finding a guilty man
innocent)

Type II Error The error of accepting Ho when it is false. (sending an innocent


man to jail)

Type I Error Example researchers claiming that the new system improves
the miles-per-gallon rating when in fact the new system is not any better than
the current system

The Level of Significance is the probability of making a Type I error when


the null hypothesis is true as an equality.

By selecting (alpha symbol), that person is controlling the probability of


making a Type I error

If the cost of making a Type I error is high: small values of (alpha


symbol) are preferred. (.001)

If the cost of making a Type I error is not too high: larger values
of (alpha symbol) are typically used. (.25)

What is the probability of a Type I error if the level of significance of


a hypothesis test is .08?
a.) .05
b.) Not enough information is given to answer this question.
c.) .92
d.) .08
Which of the following represents a Type II error for testing H 0:
1500 versus H a: >1500
A Type II error would occur if we fail to reject H 0 and conclude that
1500 when in fact >1500.

Which of the following does not need to be known when computing


a p-value for a hypothesis test?
a. knowledge of whether the test is one-tailed or two-tailed
b. the level of significance
c. the value of the test statistic
d. All of these are needed.
One-Tailed Test a hypothesis test in which rejection of the null hypothesis
occurs for values of the test statistic in one tail of its sampling distribution

Two-Tailed Test a hypothesis test in which rejection of the null hypothesis


occurs for values of the test statistic in either tail of its sampling distribution

Test Statistic a statistic whose value helps determine whether a null


hypothesis should be rejected

P-Value a probability that provides a measure of the evidence against the null
hypothesis given by the sample

Critical Value a value that is compared with the test statistic to determine
whether Ho should be rejected.