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    ECON 2P91: Assignment #1

    Uploaded by

    Joel Christian Mascariña
    The document describes an assignment involving analyzing probability distributions of rolling dice, calculating statistics like mean and standard deviation, and performing regressions and hypothesis tests on economic data. Key points: - Rolling two dice produces a discrete probability distribution with outcomes from 2 to 12 and an expected value and standard deviation that can be calculated. - Economic data on age (AGE) and average hourly earnings (AHE) are right-skewed and have heavy tails for AHE based on their coefficients. - A regression of AHE on AGE produces a positive slope, indicating AHE increases with higher AGE. - Hypothesis tests reject the null that the AGE slope is zero, providing evidence it

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    ECON 2P91: Assignment #1

    Uploaded by

    Joel Christian Mascariña
    81 views7 pages
    The document describes an assignment involving analyzing probability distributions of rolling dice, calculating statistics like mean and standard deviation, and performing regressions and hypothesis tests on economic data. Key points: - Rolling two dice produces a discrete probability distribution with outcomes from 2 to 12 and an expected value and standard deviation that can be calculated. - Economic data on age (AGE) and average hourly earnings (AHE) are right-skewed and have heavy tails for AHE based on their coefficients. - A regression of AHE on AGE produces a positive slope, indicating AHE increases with higher AGE. - Hypothesis tests reject the null that the AGE slope is zero, providing evidence it

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    The document describes an assignment involving analyzing probability distributions of rolling dice, calculating statistics like mean and standard deviation, and performing regressions and hypothesis tests on economic data. Key points: - Rolling two dice produces a discrete probability distribution with outcomes from 2 to 12 and an expected value and standard deviation that can be calculated. - Economic data on age (AGE) and average hourly earnings (AHE) are right-skewed and have heavy tails for AHE based on their coefficients. - A regression of AHE on AGE produces a positive slope, indicating AHE increases with higher AGE. - Hypothesis tests reject the null that the AGE slope is zero, providing evidence it

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    81 views7 pages

    ECON 2P91: Assignment #1

    Uploaded by

    Joel Christian Mascariña
    The document describes an assignment involving analyzing probability distributions of rolling dice, calculating statistics like mean and standard deviation, and performing regressions and hypothesis tests on economic data. Key points: - Rolling two dice produces a discrete probability distribution with outcomes from 2 to 12 and an expected value and standard deviation that can be calculated. - Economic data on age (AGE) and average hourly earnings (AHE) are right-skewed and have heavy tails for AHE based on their coefficients. - A regression of AHE on AGE produces a positive slope, indicating AHE increases with higher AGE. - Hypothesis tests reject the null that the AGE slope is zero, providing evidence it

    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    of 7

    ECON 2P91: Assignment #1

    1. Think of the situation of rolling two dice and let M denote the sum of the number of
    dots on the two dice. (So M is a number between 2 and 12.)

    a. In a table, list all the possible outcomes for the random variable M together with
    its probability distribution and cumulative probability distribution. Sketch both
    distributions
    b. Calculate the expected value and the standard deviation for M

    c. Looking at the sketch of the probability distribution, you notice that it resembles a
    normal distribution. Should you be able to use the standard normal distribution
    to calculate probabilities of events? Why or why not?

    Even though the graph resembles a normal distribution curve, we should not use
    normal distributions to calculate probabilities. This is because, normal distribution is a
    continuous distribution, whereas, in this problem the sum of two dices is a discrete
    distribution. Therefore, it would not be applicable.

    2. By looking at the results of activity #1 above, what is the probability (in percentage) of
    the following outcomes?

    a. Pr(M = 7)
     ANS: 16.67%
    b. Pr(M = 2 or M = 10)
     ANS: 2.78% + 8.33% = 11.11%
    c. Pr(M = 4 or M ≠ 4)
     ANS: 1
    d. Pr(M < 8)
     ANS: 2.78% + 5.56% + 8.33% + 11.11% + 13.89% + 16.67% = 58.33%
    e. Pr(M = 6 or M > 10)
     ANS: 13.89% + 5.56% + 2.78% = 22.22%
    3.
    4. By looking at a large Statistics Canada data set (accessed at https://www.statcan.gc.ca/)
    with over 60,000 observations for the year 2018, you find that the average number of
    years of education is approximately 15.6. However, a surprising large number of
    individuals (approximately 800) have quite a low value for this variable, namely 6 years
    or less. You decide to drop these observations, since none of your relatives or friends
    have that few years of education. In addition, you are concerned that if these
    individuals cannot report the years of education correctly, then the observations on
    other variables, such as their average hourly earnings, can also not be trusted. As a
    matter of fact, you have found several of these to be below minimum wages in Ontario
    in 2018. Discuss if dropping these odd observations is reasonable.

    In the year 2018, Statistics Canada conducted an analysis with over 60,000 individuals,
    establishing that the average number of years of education is approximately 15.6 years.
    However, in this analysis there was approximately 800 individuals who had only 6 years or
    less of education. Additionally, there was also a situation in which several hourly wages were
    recorded incorrectly, as they were below the minimum wage. In my personal opinion, I
    believe dropping these odd observations is completely reasonable. This is because, these
    observations can significantly have an impact on the national average. These odd
    observations are called outliers which can cause the data to be skewed. This is a very
    important matter because skewness can affect the mean. Therefore, it is vital that we drop
    these odd observations, so that we can obtain more accurate results.

    5. IQs of individuals are normally distributed with a mean of 100 and a standard
    deviation of 16. If you sample Brock University students and assume, as the null
    hypothesis, that they have the same IQ as the population, then find the following
    probabilities on given samples: ̅

    a. n = 25, find Pr(� < 105). (3 Marks)

    Ý −μ 105−100

    (
    Pr ( Ý <105 ) =Pr Z <
    σ
    √n) (
    =Pr Z<
    16
    √ 25 )
    =Pr ( Z <1.56 ) =0.9406

    b. n = 100, find Pr(� > 97). (3 Marks)

    Ý −μ 97−100

    (
    Pr ( Ý > 97 )=Pr Z >
    σ
    √n) (
    =Pr Z >
    16
    √100 )
    =Pr ( Z >−1.88 )=1−0.0301=0.9699

    c. n = 144, find Pr(101 < � < 103). (4 Marks)


    Y´ 1 −μ Y´ −μ 101−100 103−100
    Pr ( 101< Ý <103 ) =Pr
    ( σ
    √n
    <Z< 2
    σ
    √n
    ) (
    =Pr
    16
    √144
    < Z<
    16
    √144 )
    =Pr ( 0.75<Z <2.25 )=0.9878−0.773

    6. Review the excel file cps04-assign01.xls for this assignment. Using GRETL, show the
    summary statistics for the variables AHE & AGE respectively.

    7. By reviewing the results of activity #6 above, comment on the coefficients of Kurtosis &
    skewness for variables AHE & AGE, respectively.

    For AHE Variable:


    Skewness Coefficient: 1.2963
     A positive skewness coefficient indicates that the data is skewed towards the right
     Since the coefficient is greater than 1 ( it is exactly 1.2963), it means that the data is
    highly skewed
     Also, due to the fact that it is positively skewed, mean > median > mode
    Kurtosis Coefficient: 1.8921
     A positive kurtosis coefficient indicates that the distribution has heavy tails, compared to
    the normal distribution

     Also, since the kurtosis coefficient is a positive number, it means that the curve is a lot
    pointier than a normal distribution (kurtosis of a normal distribution = 0)

    For AGE Variable:


    Skewness Coefficient: -0.12766
     A negative skewness coefficient indicates that the data is skewed towards the left
     Due to the fact that it is negatively skewed, mean < median < mode

    Kurtosis Coefficient: -1.1940


     A negative kurtosis coefficient indicates that the distribution has lighter tails, compared
    to the normal distribution
     Also, since the kurtosis coefficient is a negative number, it means that the curve is flatter
    than a normal distribution because a normal distribution has a kurtosis of 0

    8. Given the outcome in activity #6 above, graph the distribution of the two variables AGE
    & AHE, respectively. Interpret the shape of the tails of the two variables AGE & AHE.

    Therefore, by looking at the shape of the tails of the two variables, AGE & AHE, we can
    confidently say that the results analyzed in question 6 & 7 match the two graphs above. In the
    description (under question 7), I mentioned that the graph of AGE would have a negative
    skewness, and also a negative kurtosis, indicating that the distribution has lighter tails. This is
    exactly what is shown in the image above (on the left). Furthermore, the graph of AHE shows a
    positive skewness and also a positive kurtosis, indicating that the distribution has heavy tails, as
    shown in the image on the right.
    9. What is the estimated slope of the regression line? Comment
    about this slope

    Linear Regression Equation: ΑHE=−4.66024+ 0.823615 ΑGE+ μi

    Therefore, from looking at the equation above, I can confidently say that the slope of the line
    is 0.823615. This slope states that, AHE will increase by 0.823615 units for each additional
    AGE. In simple terms, as you increase the number for AGE, AHE will increase as well.

    10. Test the null hypothesis of �0 ∶ �1 = 0 , against the alternative of �a ∶ �1 ≠ 0. Deploy (i)
    the pre- specified level of significance approach and (ii) the p-value approach. Make
    sure you interpret your findings. Consider 5% level of significance on both methods of
    your testing procedure.

    �0 ∶ �1 = 0 (Null Hypothesis)

    �a ∶ �1 ≠ 0 (Alternative Hypothesis)

    First: use the t-test to test the Null Hypothesis:


     T-Test calculated = 5.148
     Since the data is extremely large, encircling 500 observations, we can use the z-
    distribution. Therefore, the 5% (0.05) level of significance for the critical value of the
    two tailed test would be 1.96.
     Since the t-test calculated > t-critical, we can reject the null hypothesis

    Second: use the p-test to test the Null Hypothesis


     P-Test calculated is < 0.0001
     CRITERIA:
    o P-Test > Level of Significance (we do not reject the null hypothesis)
    o P-Test < Level of Significance (we reject the null hypothesis)
     Since the given p-test is < 0.0001, which is less than the level of significance (0.05), we
    can reject the null hypothesis

    In conclusion, we can reject the null hypothesis.

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