Macro Economics 1

Biyani's Think Tank

Concept based notes
Macro Economics
(BA Part-II))






Ms Shalini
Astt. Professor
Deptt. of Arts
Biyani Girls College, Jaipur





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Published by :
Think Tanks
Biyani Group of Colleges



Concept & Copyright :
Biyani Shikshan Samiti
Sector-3, Vidhyadhar Nagar,
Jaipur-302 023 (Rajasthan)
Ph : 0141-2338371, 2338591-95 Fax : 0141-2338007
E-mail : acad@biyanicolleges.org
Website :www.gurukpo.com; www.biyanicolleges.org











First Edition : 2011













Laser Type Set by :
Biyani College Printing Department


While every effort is taken to avoid errors or omissions in this Publication, any
mistake or omission that may have crept in is not intentional. It may be taken note of
that neither the publisher nor the author will be responsible for any damage or loss of
any kind arising to anyone in any manner on account of such errors and omissions.
Macro Economics 3






Preface


am glad to present this book, especially designed to serve the needs of the
students. The book has been written keeping in mind the general weakness in
understanding the fundamental concept of the topic. The book is self-explanatory
and adopts the Teach Yourself style. It is based on question-answer pattern. The language
of book is quite easy and understandable based on scientific approach.
Any further improvement in the contents of the book by making corrections,
omission and inclusion is keen to be achieved based on suggestions from the reader for
which the author shall be obliged.
I acknowledge special thanks to Mr. Rajeev Biyani, Chairman & Dr. Sanjay Biyani,
Director (Acad.) Biyani Group of Colleges, who is the backbone and main concept provider
and also have been constant source of motivation throughout this endeavour. We also
extend our thanks to M/Biyani Sikhshan Samiti, Jaipur, who played an active role in co-
ordinating the various stages of this endeavour and spearheaded the publishing work.
I look forward to receiving valuable suggestions from professors of various
educational institutions, other faculty members and the students for improvement of the
quality of the book. The reader may feel free to send in their comments and suggestions to
the under mentioned address.
Author


I
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Chapter 1

Diagrammatic and Graphical
Representation of Data

Ques. What are the guidelines for constructing diagrams in statistical analysis?
Ans. There are various guidelines for diagrammatic representation, such as:
The diagram should be properly drawn at the outset. The pith and substance
of the subject matter must be made clear under a broad heading which
properly conveys the purpose of a diagram.
The size of the scale should neither be too big nor too small. If it is too big, it
may look ugly. If it is too small, it may not convey the meaning. In each
diagram, the size of the paper must be taken note-of. It will help to determine
the size of the diagram.
For clarifying certain ambiguities some notes should be added at the foot of
the diagram. This shall provide the visual insight of the diagram.
Diagrams should be absolutely neat and clean. There should be no vagueness
or overwriting on the diagram.
Simplicity refers to love at first sight. It means that the diagram should
convey the meaning clearly and easily.
Scale must be presented along with the diagram.
It must be Self-Explanatory. It must indicate nature, place and source of data
presented.
Different shades, colors can be used to make diagrams more easily
understandable.
Vertical diagram should be preferred to Horizontal diagrams.
It must be accurate. Accuracy must not be done away with to make it
attractive or impressive.
Ques. What are the uses and limitations of Diagrammatic presentation?
Ans. Uses of Diagrams
Diagrams give a very clear picture of data. Even a layman can understand it very
easily and in a short time.
We can make comparison between different samples very easily. We don't have
to use any statistical technique further to compare.
This technique can be used universally at any place and at any time. This
technique is used almost in all the subjects and other various fields.
Diagrams have impressive value also. Tabulated data has not much impression as
compared to Diagrams. A common man is impressed easily by good diagrams.
This technique can be used for numerical type of statistical analysis, e.g. to
locate Mean, Mode, Median or other statistical values.
It does not save only time and energy but also is economical. Not much money is
needed to prepare even good diagrams.
Macro Economics 5

These give us much more information as compared to tabulation. Technique of
tabulation has its own limits.
This data is easily remembered. Diagrams which we see leave their lasting
impression much more than other data techniques.
Data can be condensed with diagrams. A simple diagram can present what even
cannot be presented by 10000 words.
Limitations of Diagrammatic Presentation
Diagrams do not present the small differences properly.
These can easily be misused.
Only artist can draw multi-dimensional diagrams.
In statistical analysis, diagrams are of no use.
Diagrams are just supplement to tabulation.
Only a limited set of data can be presented in the form of diagram.
Diagrammatic presentation of data is a more time consuming process.
Diagrams present preliminary conclusions.
Diagrammatic presentation of data shows only on estimate of the actual behavior
of the variables.
Ques. Explain the various types of diagrams used in statistical analysis.
Ans. A large variety of diagrammatic devices are used in practice to present statistical
data. Some of them are as follows:
1. One dimensional diagram like line diagrams and bar diagrams
i) Line diagrams:
It consists of drawing vertical lines, each vertical line being equal to the
frequency. The variate (x) values are presented on a suitable scale along X-
axis and the corresponding frequencies are presented on a suitable scale
along Y-axis.
Example:

ii) Bar Diagrams:
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Bar diagram consist of a group of equidistant rectangles, one for each group
or category of the data in which the values or the magnitudes are represented
by the length or height of the rectangles, the width of the rectangles being
arbitrary and immaterial.
Example:



2. Two dimensional diagrams such as pie diagrams

A pie chart is a circular chart divided into sectors, illustrating proportion. In a
pie chart, the arc length of each sector (and consequently its central angle and
area), is proportional to the quantity it represents. When angles are measured
with 1 turn as unit then a number of percent is identified with the same
number of centi turns. Together, the sectors create a full disk.
Example: the following table shows the area in millions of sq. km. of oceans
of the world
Ocean
Area (million sq.
Km.)
Pacific 70.8
atlantic 41.2
indian 28.5
antartic 7.6
arctic 4.8

Draw a pie chart
Macro Economics 7



Ques. Explain the concept of graph and give the rules for constructing a graph.
Ans. A graph refers to the plotting of different valves of the variables on a graph paper
which gives the movement or a change in the variable over a period of time.
Diagrams can present the data in an attractive style but still there is a method
more reliable than this. Diagrams are often used for publicity purposes but are
not of much use in statistical analysis. Hence graphic presentation is more
effective and result oriented.
The following are the main rules to construct a graph:
Every graph must have a suitable title which should clearly convey the main
idea, the graph intends to portray.
The graph must suit to the size of the paper.
The scale of the graph should be in even numbers or in multiples.
Footnotes should be given at the bottom to illustrate the main points about the
graph.
Graph should be as simple as possible.
In order to show many items in a graph, index for identification should be given.
A graph should be neat and clean. It should be appealing to the eyes.
Every graph should be given with a table to ensure whether the data has been
presented accurately or not.
The test of a good graph depends on the case with which the observer can
interpret it. Thus economy in cost and energy should be exercised in drawing the
graph.
Ques. What are the advantages and limitations of graphic representation of data?
Ans. The presentation of statistics in the form of graphs facilitates many processes in
economics. The main uses of graphs are as under:
Attractive and Effective presentation of Data: The statistics can be presented in
attractive and effective way by graphs. A fact that an ordinary man cannot
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understand easily, could understand in a better way by graphs. Therefore, it is
said that a picture is worth of a thousand words.
Simple and Understandable Presentation of Data: Graphs help to present
complex data in a simple and understandable way. Therefore, graphs help to
remove the complex nature of statistics.
Useful in Comparison: Graphs also help to compare the statistics. IF investment
made in two different ventures is presented through graphs, then it becomes easy
to understand the difference between the two.
Useful for Interpretation: Graphs also help to interpret the conclusion. It saves
time as well as labor.
Remembrance for long period: Graphs help to remember the facts for a long time
and they cannot be forgotten.
Helpful in Predictions: Through graphs, tendencies that could occur in near
future can be predicted in a better way.
Universal utility: In modern era, graphs can be used in all spheres such as trade,
economics, government departments, advertisement, etc.
Information as well as Entertainment: Graphs help us in entertainment as well as
for providing information. By graphs there occurs no hindrance in the deep
analysis of every information.
Helpful in Transmission of Information: Graphs help in the process of
transmission as well as information of facts.
No Need for training: When facts are presented through graphs there is no need
for special training for these interpretations.
Limitations:
Following are the main limitations of graphs.
Limited Application: Graphic representation is useful for a common man but
for an expert, its utility is limited.
Lack of Accuracy: Graphs do not measure the magnitude of the data. They only
depict the fluctuations in them.
Subjective: Graphs are subjective in character. Their interpretation varies from
person to person.
Misleading Conclusions: The person who has no knowledge can draw
misleading conclusions from graphs.
Simplicity: Graph should be as simple as possible.
Index: In order to show many items in a graph, index for identification should be
given.
Ques. Explain various types of graphs used in statistical analysis with example.
Ans. There are two types of graphs.
Time series Graphs- To construct a time series graph, we must look at both
pieces of our paired data set. We start with a standard Cartesian coordinate
system. The horizontal axis is used to plot the date or time increments, and the
vertical axis is used to plot the values variable that we are measuring. By doing
this each point on the graph corresponds to a date and a measured quantity. The
Macro Economics 9

points on the graph are typically connected by straight lines in the order in which
they occur.

Frequency Distribution Graphs-
Frequency distribution graphs present
(a) Histograms- A histogram consists of tabular frequencies, shown as adjacent
rectangles, erected over discrete intervals, with an area equal to the frequency of the
observations in the interval. The height of a rectangle is also equal to the frequency
density of the interval, i.e., the frequency divided by the width of the interval. The total
area of the histogram is equal to the number of data.

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(b) Frequency Polygons- Frequency polygons are a graphical device for
understanding the shapes of distributions.
To create a frequency polygon, start just as for histograms, by choosing a class
interval. Then draw an X-axis representing the values of the scores in your data.
Mark the middle of each class interval with a tick mark, and label it with the
middle value represented by the class. Draw the Y-axis to indicate the frequency
of each class. Place a point in the middle of each class interval at the height
corresponding to its frequency. Finally, connect the points. You should include
one class interval below the lowest value in your data and one above the highest
value. The graph will then touch the X-axis on both sides.
Macro Economics 11



(c) Frequency Curves- A graphical representation of a continuous frequency
distribution; the value of the variable is the abscissa and the frequency is the ordinate.



(d) Ogives- The frequency distribution of a given data set could be converted into a
cumulative frequency distribution by adding each frequency to the total of the
predecessors. The graph of the cumulative frequency distribution is better known as the
cumulative frequency curve or Ogive. The word Ogive is basically a term used in the
architecture to describe curves or curved shapes. An Ogive is a graph that represents the
cumulative frequencies of the classes in a frequency distribution. It shows the data
below or above a particular value. Ogive is pronounced as O-jive. There are two ways of
constructing an Ogive or cumulative frequency curve. The steps for constructing less
than Ogive chart and more than Ogive chart are given below:
Steps for constructing a less than Ogive chart (less than Cumulative frequency curve):
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1. Draw and label the horizontal and vertical axes.
2. Take the cumulative frequencies along the y axis (vertical axis) and the upper
class limits on the x axis (horizontal axis)
3. Plot the cumulative frequencies against each upper class limit.
4. Join the points with a smooth curve.

Steps for constructing a greater than or more than Ogive chart (more than Cumulative
frequency curve):
1. Draw and label the horizontal and vertical axes.
2. Take the cumulative frequencies along the y axis (vertical axis) and the lower
class limits on the x axis (horizontal axis)
3. Plot the cumulative frequencies against each lower class limit.
4. Join the points with a smooth curve.

Macro Economics 13



Chapter 2

Measures of central tendency


Ques. What do you mean by averages and what are the requisites of a good
average?
Ans. . The average of a list of numbers is a single number intended to typify the
numbers in the list. If all the numbers in the list are the same, then this number
should be used. If the numbers are not the same, the average is calculated by
combining the numbers from the list in a specific way and computing a single
number as being the average of the list.
In mathematics, an average is a measure of the "middle" or "typical" value of a
data set.

It is thus a measure of central tendency.
Since an average is a single value representing a group of values, it is
desired that such a value satisfies the following properties:
(i) It should be easy to understand.
Since statistical methods are designed to simplify complexity. It is desirable that
an average is such that can be readily understood; otherwise, its use is bound to
be very limited.
(ii) It should be simple to compute.
Not only an average should be easy to understand but also it should be simple to
compute so that it can be used widely. However, though ease of computation is
desirable is should not be sought at the expense of the other advantages, i.e., if in
the interest of greater accuracy, use of a more difficult average is desirable, one
should prefer that.
(iii) It should be based on all the items.
The average should depend upon each and every item of the series so that if any
of the items is dropped the average itself is altered.
(iv)It should not be unduly affected by extreme observations.
Although each and every item should influence the value of the average, none of
the items should influence it unduly. If one or two very small or very large items
unduly affect the average, i.e., either increase its value or reduce its value, the
average cannot be really typical of the entire series. In other words, extremes
may distort the average and reduce its usefulness.
(v) It should be rigidly defined.
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An average should be properly defined so that it has one and only one
interpretations. It should preferably be defined by an algebraic formula so that if
different people compute that average from the same figures they all get the
same answer (barring arithmetical mistakes). The average should not depend
upon the personal prejudice and bias of the investigator; otherwise the results can
be manipulated.
(vi) It should be capable of further algebraic treatment.
We should prefer to have an average that could be used for further statistical
computations so that its utility is enhanced.
(vii) It should have sampling stability.
Last, but not the least, we should prefer to get a value which has what the
statisticians call sampling stability This means that if we pick 10 different
groups of college students, and compute the average of each group, we should
expect to get approximately the same value. It does not mean, however, that
there can be no difference in the values of different samples. There may be some
difference but those samples in which this difference (technically called
sampling fluctuation) is less are considered better than those in which this
difference is more.

Ques. What are the different measures of Central tendency?
Ans. There are various measures of central tendency. Some of them are as follows:
1. Mean
2. Median
3. Mode
4. Geometric mean
5. Harmonic mean
Ques. Define mean and explain various methods to calculate it.
Ans. The arithmetic mean is equal to the sum of the values divided by the number of
values. The arithmetic mean of a set of numbers x
1
, x
2
, ..., x
n
is typically denoted
by , pronounced "x bar".
There are different methods to calculate arithmetic mean depending on the type
of series. The methods are as follows:
1. Individual Series:
For individual series, arithmetic mean is calculated by simple formula:
i
For example, the arithmetic mean of five values: 4, 36, 45, 50, and 75 is


2. Discrete Series
Macro Economics 15

For discrete series, arithmetic mean is calculated by simple formula:

If x1,x2,.....xn are the n items and f1,f2,.....fn are the corresponding frequencies,
then the mean is given by,



Where N = f

3. Continuous Series
In the case of continuous series, we use the same formula as in discrete series. In
this case, mid values will be taken as x.

Mid value = (lower limit + upper limit) 2

Example:
Find the mean of the following data
Class 20-25 25-30 30-35 35-40 40-45 45-50 50-55
F 10 12 8 20 11 4 5

Class f x fx
20 - 25 10 22.5 225
25 - 30 12 27.5 330
30 - 35 8 32.5 260
35 - 40 20 37.5 750
40 - 45 11 42.5 467.5
45 - 50 4 47.5 190
50 - 55 5 52.5 262.5
Total 70

2485

fx=2485 and f=70

the mean is given by




= f1x1+f2x2+f3x3........+fnxn
N

= fx
N

= 2485
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70

= 35.5
Mean = 35.5

Ques. What are the advantages and disadvantages of Mean?
Ans.
Advantages of the MEAN:
It takes into account all observations.
It can be used for further statistical calculations and mathematical manipulations.
Disadvantages of the MEAN:
It is easily affected by extreme values.
It cannot be computed if there are missing values due to omission or non-
response.
In grouped data with open-ended class intervals, mean cannot be computed.

Ques. Define median and explain various methods to calculate it.
Ans. In statistics and probability theory, median is described as the numerical value
separating the higher half of a sample, a population, or a probability distribution,
from the lower half.
Methods to calculate median are as follows:
Individual series:
To find the Median, place the numbers you are given in value order and find the
middle number. For example:
3, 13, 7, 5, 21, 23, 39, 23, 40, 23, 14, 12, 56, 23, 29
If we put those numbers in order we have:
3, 5, 7, 12, 13, 14, 21, 23, 23, 23, 23, 29, 39, 40, 56
There are fifteen numbers. Our middle number will be the eighth number:
3, 5, 7, 12, 13, 14, 21, 23, 23, 23, 23, 29, 39, 40, 56
The median value of this set of numbers is 23.
Two Numbers in the Middle
If there are an even amount of numbers things are slightly different. In that case
we need to find the middle pair of numbers, and then find the value that would
be half way between them. This is easily done by adding them together and
dividing by two. For example:
3, 13, 7, 5, 21, 23, 23, 40, 23, 14, 12, 56, 23, 29
Macro Economics 17

If we put those numbers in order we have:
3, 5, 7, 12, 13, 14, 21, 23, 23, 23, 23, 29, 40, 56
There are now fourteen numbers and so we don't have just one middle number,
we have a pair of middle numbers:
3, 5, 7, 12, 13, 14, 21, 23, 23, 23, 23, 29, 40, 56
In this example the middle numbers are 21 and 23.
To find the value half-way between them, add them together and divide by 2:
21 + 23 = 44
44 2 = 22
And, so, the Median in this example is 22.
Grouped frequency table:
To calculate median of grouped data, calculate cumulative frequencies of less
than type. After that, calculate n / 2, with its help determine the class whose
cumulative frequency is nearly equal to n /2. This class is known as median
class. Then, the median is calculated by the following formula.
Median=
l = lower limit of median class
cf = cumulative frequency of class prior to median class.
f = frequency of median class.
h = class size.
Example: Calculate the median of following grouped data.
Marks Number of Student

Class Interval Frequency (f)
0 -10 2
10 -20 12
20 -30 22
30 -40 8
40 -50 6

Class Interval Frequency (f) Cumulative frequency
(cf)
0 -10 2 2
10 -20 12 14
20 -30 22 36
30 -40 8 44
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40 -50 6 50

Here n / 2 = 50 / 2 = 25
So, 20 -30 is the median class.
Now, l =20
h = 10
cf = 14
f = 22
Now using the above formula: median= 25

Ques. What are the advantages and disadvantages of Median?
Ans.
Advantages of the MEDIAN:
It is not affected by extreme values.
It can be computed even for grouped data with open ended class intervals.

Disadvantages of the MEDIAN:
Observations from different data sets have to be merged to obtain a new median,
whether group or ungrouped data are involved.

Ques. Explain the concept of Mode and explain the methods to calculate it.
Ans. The mode of a set of data is the value in the set that occurs most often. Various
methods are used to calculate the mode, such as:
For individual series:
Value that occurs maximum number of times gives the mode of the series.
Example: What is the mode for the following set of data?
8, 11, 9, 14, 9, 15, 18, 6, 9, 10
Solution: ordering the data from least to greatest,
6, 8, 9, 9, 9, 10, 11, 14, 15, 18
The mode is 9 as it occurs three times in the series.
For discrete series:
The value with maximum frequency gives the mode for the discrete series.
Example:
To find the mode in a series
X: 5 8 11 15 24
Frequency (f): 3 8 13 20 12
In this series the highest frequency is 20 and the variable corresponding to this is
15 so the Mode = Z = 15
For continuous series:
To calculate the Mode, we use the following formula
Macro Economics 19


Where L = Lower limit of Modal interval
f
1
= frequency corresponding to Modal interval
f
2
= frequency of succeeding Modal Interval
f
0
= frequency of preceeding Modal interval
i = Length of Modal interval
Mode can also be calculated by taking the upper limit

Where L is the upper limit.
To calculate the Mode of a continuous series
X: 0-10 10-20 20-30 30-40 40-50 50-60 60-70
f: 5 12 20 (f
0
) 43 (f
1
) 32 (f
2
) 21 8
The Modal interval is 30-40, L = 30, i = 10
f
0
= 20, f
1
= 43, f
2
= 32
In case there are two class with same and highest frequency, we calculate mode
by the following formula:

Where, = Mean
M =Median
Z =Mode

Ques. What are the advantages and disadvantages of mode?
Ans.
Advantage of the MODE:
It can be easily identified through ocular inspection.
Disadvantages of the MODE:
It does not possess the desired algebraic property of the mean that allows further
manipulations.
Like the median, observations from different data sets have to be merged to
obtain a new mode, whether group or ungrouped data are involved.
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Ques. How do we calculate geometric mean and harmonic mean? Explain with
example.
Ans. Geometric mean (GM)
The geometric mean is an average that is useful for sets of positive numbers that
are interpreted according to their product and not their sum (as is the case with
the arithmetic mean) e.g. rates of growth.

For example, the geometric mean of five values: 4, 36, 45, 50, and 75 is:

Harmonic mean (HM)
The harmonic mean is an average which is useful for sets of numbers which are
defined in relation to some unit, for example speed (distance per unit of time).

For example, the harmonic mean of the five values: 4, 36, 45, 50, and 75 is













Macro Economics 21


Section B
Chapter 1
Correlation
Ques. What do you mean by Correlation and state different methods to calculate
the correlation coefficient?
Ans. The correlation is one of the most common and most useful statistics. A
correlation is a single number that describes the degree of relationship between
two variables. There are three important methods to calculate the degree of
correlation between two variables:
1. Scatter diagram
2. Karl Pearson Coefficient of Correlation
3. Spearmans Rank correlation Coefficient

Ques. Explain the concept of Scatter diagrams to show the degree of correlation
between two variables?
Ans. A scatter diagram is a tool for analyzing relationships between two variables.
One variable is plotted on the horizontal axis and the other is plotted on the
vertical axis. The pattern of their intersecting points can graphically show
relationship patterns. Most often a scatter diagram is used to prove or disprove
cause-and-effect relationships. While the diagram shows relationships, it does
not by itself prove that one variable causes the other. In addition to showing
possible cause and- effect relationships, a scatter diagram can show that two
variables are from a common cause that is unknown or that one variable can be
used as a surrogate for the other.

Steps to draw a scatter diagram are as follows:

1. Collect data. Gather 50 to 100 paired samples of data that show a possible
relationship.
2. Draw the diagram. Draw roughly equal horizontal and vertical axes of the
diagram, creating a square plotting area. Label the axes in convenient multiples
(1, 2, 5, etc.) increasing on the horizontal axes from left to right and on the
vertical axis from bottom to top. Label both axes.
3. Plot the paired data. Plot the data on the chart, using concentric circles to indicate
repeated data points.
4. Title and label the diagram.
5. Interpret the data. Scatter diagrams will generally show one of six possible
correlations between the variables:

Strong Positive Correlation: The value of Y clearly increases as the value of X
increases.
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Strong Negative Correlation: The value of Y clearly decreases as the value of X
increases.

Weak Positive Correlation: The value of Y increases slightly as the value of X
increases.


Weak Negative Correlation: The value of
Y decreases slightly as the value of X
increases.

Complex Correlation: The value of Y seems to be related to the value of X, but the
relationship is not easily determined.
Macro Economics 23


No Correlation: There is any demonstrated connection between the two variables.


Ques. Give mathematical formulation of Karl Pearsons coefficient of correlation
with an example.
Ans. The most often used and most precise coefficient of correlation is known as
the Pearson's Product - Moment Coefficient. It is computed when data are
expressed in interval or ratio and distribution of X and Y has a linear
relationship. Here linear relationship means, if we draw a line graph by taking X
variable on X-axis and Y variable on Y axis the obtained graph should be
straight line.

The formula used for computing the Pearson's coefficient of correlation is :-


Where: r = Pearsons Correlation Coefficient
X = Sum of the scores of variable X
Y = Sum of the scores of variable Y
X
2
= Sum of the squared X scores
Y
2
= Sum of the squared Y scores
XY = Sum of the product of paired X and Y scores
N = Number of Paired Scores

Steps to calculate Karl Pearson Coefficient of Correlation:

Step 1: Find the sum of the values of variable X and Y.
Step 2: Square each value of X and Find their sum i.e. X
2
.
Step 3: Square each value of Y and Find their sum i.e. Y
2
.
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Step 4: Multiply the value of X and the value of Y in the same rows to find XY
and then find their sum i.e. XY.
Step 5: Put all the values in the Formula to find r




Example: the scores given below were obtained on an English and mathematics
test by 10 students. Compute Pearsons correlation coefficient.

St
u
de
nt
Sc
or
es
in
En
gli
sh
score
s in
mathe
matic
s X*X Y*Y X*Y
1 24 13 576 169 312
2 20 9 400 81 180
3 18 12 324 144 216
4 17 20 289 400 340
5 15 11 225 121 165
6 12 16 144 256 192
7 10 5 100 25 50
8 8 2 64 4 16
9 6 7 36 49 42
1
0 4 1 16 1 4
N
=
1
0

X
=1
34
Y=
96
(X*
X)=21
74
(XY*
Y)=125
0
X
Y=1
517









Ques. Explain the method to calculate Spearman Rank Correlation method with
the help of an example.
Macro Economics 25

Ans. When the observations or measurements of the bivariate variable are based on
the ordinal scale in the form of ranks, the rank difference co-efficient of
correlation is computed by using the following formula:

Where: = the Spearmans Rank Correlation coefficient
D = difference between paired ranks
N = Number of subjects or items ranked

Steps to calculate Spearmans Rank Correlation Coefficient:

Step 1: Assign Rank to the values of variable X in descending order i.e. highest
value gets rank 1; second highest value gets rank 2 and so on.
Step 2: Assign Rank to the values of variable Y in descending order i.e. highest
value gets rank 1; second highest value gets rank 2 and so on.
Step 3: Calculate the difference in ranks of two variables to findd.
Step 4: Square the values ofd and find their sum i.e. d
2
.
Step 5: put the values in the above formula to get the value of .
In case of repeated ranks both the values are assigned the mean value of the ranks
i.e. if a value is repeated at 5
th
and 6
th
position then each are assigned 5.5 rank and
the next value gets the 7
th
rank. Similarly, in case a value is repeated thrice then the
mean of their rank is allotted to each value i.e. if a value is repeated at 5
th
, 6
th
, and 7
th

position then all three of them are assigned rank 6 and the next value gets 8
th
rank.

Example:
The following data give the scores of 10 students on two trials. Compute the
correlation between the scores of two trials by rank correlation method.
X Y rank on X rank onY D D*D
10 16 6.5 5.5 1 1
15 16 3 5.5 -2.5 6.25
11 24 5 1.5 3.5 12.25
14 18 4 4 0 0
16 22 2 3 -1 1
20 24 1 1.5 -0.5 0.25
10 14 6.5 7.5 -1 1
8 10 9 10 -1 1
7 12 10 9 1 1
9 14 8 7.5 0.5 0.25
total 0 24






26


26
Page | 26

Ques. What is the interpretation of different values of correlation coefficient?
Ans.
Size of Correlation Interpretation
+1/-1 Perfect Positive/ Perfect Negative Correlation
+.90to +.99/ -.90 to -.99 Very high positive/ Negative Correlation
+.70to +.90/ -.70 to -.90 High Positive/ Negative Coorelation
+.50to +.70/ -.50 to -.70 Moderate positive/ Negative Correlation
+.30to +.50/ -.30 to -.50 Low Positive/ Negative Correlation
+.10to +.30/ -.10 to -.30 Very Low Positive/ Negative Correlation
+.00to +.10/ -.00 to -.10 Markedly Low and negligible Positive/ Negative Correlation

Ques. What is the importance and use of Correlation in Statistical analysis?
Ans. Correlation is one of the most widely used analytic procedures in the field of
Educational Measurement and Evaluation. It not only describes the relationship
of paired variables, but it is also useful in:
1. Prediction of one variable - the dependent variable, on the basis of the other
variable, the independent variable.
2. Determining the reliability and validity of the test or the question paper.
3. Determining the role of various correlates to a certain ability.
4. Factor analysis technique for determining the factor loadings of the
underlying variables in human abilities.






Macro Economics 27

Chapter 2
Regression Analysis
Ques. Explain the concept of Regression analysis in statistical enquiry.
Ans. Regression analysis is a statistical tool for the investigation of relationships
between variables. Usually, the investigator seeks to ascertain the causal effect of
one variable upon anotherthe effect of a price increase upon demand, for
example, or the effect of changes in the money supply upon the inflation rate. To
explore such issues, the investigator assembles data on the underlying variables
of interest and employs regression to estimate the quantitative effect of the causal
variables upon the variable that they influence. The investigator also typically
assesses the statistical significance of the estimated relationships, that is, the
degree of confidence that the true relationship is close to the estimated
relationship.

For purposes of illustration, suppose that we wish to identify and quantify the
factors that determine earnings in the labor market. A moments reflection
suggests a myriad of factors that are associated with variations in earnings across
individualsoccupation, age, experience, educational attainment, motivation,
and innate ability come to mind, perhaps along with factors such as race and
gender that can be of particular concern to lawyers. For the time being, let us
restrict attention to a single factorcall it education. Regression analysis with a
single explanatory variable is termed simple regression.

At the outset of any regression study, one formulates some hypothesis about the
relationship between the variables of interest, here, education and earnings.
Common experience suggests that better educated people tend to make more
money. It further suggests that the causal relation likely runs from education to
earnings rather than the other way around. Thus, the tentative hypothesis is that
higher levels of education cause higher levels of earnings, other things being
equal.
To investigate this hypothesis, imagine that we gather data on education and
earnings for various individuals. Let E denote education in years of schooling for
each individual, and let I denote that individuals earnings in dollars per year.
We can plot this information for all of the individuals in the sample using a two-
dimensional diagram, conventionally termed a scatter diagram. Each point in
the diagram represents an individual in the sample.
28


28
Page | 28


The diagram indeed suggests that higher values of E tend to yield higher values
of I, but the relationship is not perfectit seems that knowledge of E does not
suffice for an entirely accurate prediction about I. To refine the hypothesis
further, it is natural to suppose that people in the labor force with no education
nevertheless make some positive amount of money, and that education increases
earnings above this baseline. We might also suppose that education affects
income in a linear fashionthat is, each additional year of schooling adds the
same amount to income. This linearity assumption is common in regression
studies but is by no means essential to the application of the technique, and can
be relaxed where the investigator has reason to suppose a priori that the
relationship in question is nonlinear.

Then, the hypothesized relationship between education and earnings may be
written
I = a + bE + e
where
a = a constant amount (what one earns with zero education);
b = the effect in dollars of an additional year of schooling on income,
hypothesized to be positive; and
e = the noise term reflecting other factors that influence earnings.

The variable I is termed the dependent or endogenous variable; E is termed
the independent, explanatory, or exogenous variable; a is the constant
term and b the coefficient of the variable E. the estimated error for each
observation is defined as the vertical distance between the value of I along the
estimated line I = a + bE (generated by plugging the actual value of E into this
equation) and the true value of I for the same observation. Superimposing a
candidate line on the scatter diagram, the estimated errors for each observation
may be seen as follows:
Macro Economics 29



Ques. What is the mathematical formulation to find the value of parameters in a
regression analysis? Explain with an example.
Ans. Suppose we reckon that some variable of interest, y, is driven by some other
variable x. We then call y the dependent variable and x the independent variable.
In addition, suppose that the relationship between y and x is basically linear, but
is inexact: besides its determination by x, y has a random component, u, which
we call the disturbance or error.
Let i index the observations on the data pairs (x, y). The simple linear model
formalizes the ideas just stated:
Y
i=

0
+
1
X
i
+ u
i
The parameters 0 and 1 represent the y-intercept and the slope of the
relationship, respectively.
In order to work with this model we need to make some assumptions about the
behavior of the error term. For now well assume three things:
E (ui ) =0 u has a mean of zero for all i
E (u
i
2
) =
2
it has the same variance for all i

E (uiuj )=0 i = j no correlation across observations

We define the estimated error or residual associated with each pair of data values
as the actual Yi value minus the prediction based on Xi along with the estimated
coefficients

In a scatter diagram of y against x, this is the vertical distance between observed
yi and the fitted value. The most common technique for determining the coefficients
and is Ordinary Least Squares (OLS): values for and are chosen so as to
minimize the sum of the squared residuals or SSR. The SSR may be written as


30


30
Page | 30

The minimization of SSR is a calculus exercise: we need to find the partial
derivatives of SSR with respect to both and and set them equal to zero. This
generates two equations (known as the normal equations of least squares) in the two
unknowns, and . These equations are then solved jointly to yield the estimated
coefficients.
Macro Economics 31

Example:
X Values Y Values
60 3.1
61 3.6
62 3.8
63 4
65 4.1
Step 1: Count the number of values.
N = 5

Step 2: Find XY, X
2

See the below table

X Value Y Value X*Y X*X
60 3.1 60 * 3.1 = 186 60 * 60 = 3600
61 3.6 61 * 3.6 = 219.6 61 * 61 = 3721
62 3.8 62 * 3.8 = 235.6 62 * 62 = 3844
63 4 63 * 4 = 252 63 * 63 = 3969
65 4.1 65 * 4.1 = 266.5 65 * 65 = 4225


Step 3: Find X, Y, XY, X
2
.
X = 311
Y = 18.6
32


32
Page | 32
XY = 1159.7
X
2
= 19359

Step 4: Substitute in the above slope formula given.
Slope (
1
) = (NXY - (X)(Y)) / (NX
2
- (X)
2
)
= ((5)*(1159.7)-(311)*(18.6))/((5)*(19359)-(311)
2
)
= (5798.5 - 5784.6)/(96795 - 96721)
= 13.9/74
= 0.19

Step 5: Now, again substitute in the above intercept formula given.
Intercept (
o
) = (Y
1
(X)) / N
= (18.6 - 0.19(311))/5
= (18.6 - 59.09)/5
= -40.49/5
= -8.098

Step 6: Then substitute these values in regression equation formula
Regression Equation(y) =
o
+
1
x
= -8.098 + 0.19x.

Suppose if we want to know the approximate y value for the variable x = 64. Then we
can substitute the value in the above equation.

Regression Equation(y) =
o
+
1
x

= -8.098 + 0.19(64).
= -8.098 + 12.16
= 4.06
Ques. What are the strength and limitations of regression analysis?
Ans. Strengths
Provides an opportunity to specify hypotheses concerning the nature of effects
(action theory), as well as explanatory factors.
If successfully executed, it can produce a quantitative estimate of net effects.
Limitations
The technique is demanding because it requires quantitative data relating to
several thousand individuals.
Implementing the data collection can be time-consuming and expensive.
In case of circular relation, this method of analysis fails to show result.








Macro Economics 33





Chapter 3
Interpolation


Ques. Explain the concept of interpolation
Ans. Interpolation is defined as the technique of estimating the value of Y
x
for any
intermediate value of the variable X. Suppose,
= Y
x

Suppose we are given the values x
0
, x
1
, x
2, ,
x
n
and let the corresponding values
of Y be Y
0
, Y
1
, Y
2
, , Y
n
respectively. If we want to estimate the value of Y
x

for any value of X between the limits X
0
and X
n
, this can be done by applying
the technique of interpolation.
There are two main methods of Interpolation:
1. Binomial Expansion
2. Newtons method
Ques. Explain the binomial method of Interpolation.
Ans. Binomial Expansion method is used when values of independent variable X are
at equal intervals but one, two or more values of the dependent variable may be
missing. These missing values can be easily interpolated by using the following
results of the calculus of finite differences.
Suppose we are given (n+1) equidistant arguments but the entry corresponding to
any one of them is missing. Thus, we are given n entries and hence we can
express the function Y = f(X) by a polynomial of (n-1)th degree.
By fundamental theorem of finite differences, since Y = f(X) is a polynomial of
(n-1)th degree, (n-1)th order differences are constant, and nth and higher order
differences are zero. Symbolically,

In particular taking x=a(the first argument), we get

Expanding by binomial theorem, we get


34


34
Page | 34

Chapter 4
Association of Attributes


Ques. What do you mean by attributes? What are the different criteria used for
studying the association of attributes?
Ans. Attributes are defined as quality or characteristic. Some examples of attributes
are gender, beauty, honesty etc. in the study of attributes; the objects are
classified according to the presence or absence of the attribute in them. Two
attributes are said to be associated if they are not independent but are related in
some way or the other.
The presence of Attributes is represented by capital letters of the English
alphabet i.e. A, B, C, D, and so on and their absence is denoted by small letters
of the Greek alphabet i.e. , , , and so on.
We have the following criteria of studying the association between two attributes:
1. Proportion Method
This method consists in comparing the presence or absence of a given attribute in
the other.
Two attributes are said to be:
Positively associated if or
Negatively associated if or
However if or , then A and B are independent.
2. Comparison of Observed and Expected frequencies
Two attributes are said to be:
Positively associated if or >0
Negatively associated if or <0
However if or =0, then A and B are independent.
3. Yules Coefficient of Association
This coefficient is a mathematical measure of the extent of association between
two attributes. The Yules Coefficient is represented by Q and is given by

Positively associated if Q=+1
Negatively associated if Q=-1
4. Coefficient of Colligation
The coefficient is represented by Y.
Macro Economics 35


Relation between Q and Y

Ques. Out of 715 literates in a particular city of India, number of criminals was 8;
while out of 975 illiterates in the same city, 17 were criminals. Find out if
illiteracy and criminality are associated or independent by using all the
criteria of association of attributes.
Ans. let us define the attributes:
A: illiteracy B: Criminality
: Literacy : Non-criminality
Then, in the usual notation, we are given
(A) = 975, (AB)= 17, ()= 715, (B)= 8, (A)= 958, ()= 707, (B)= 25, ()= 1665
Proportion Method


Now, since 68%> 57.53%, this implies

Therefore A and B are positively related.
Comparison of Observed and Expected frequencies
(AB) = 17

Since 17> 14.42, this implies

Therefore A and B are positively related.
Yules Coefficient of Association




Hence, there is low degree of positive association between two attributes A and
B.


36


36
Page | 36



Multiple choice questions
Set 1

1 A laboratory assistant measures the weight of a sample of bread. This variable is:
(a) nominal (b) ordinal (c) interval (d) ratio

2 A tutor grades his students as A, B, C, D or E. This variable is:
(a) nominal (b) ordinal (c) interval (d) ratio
3 Departments of Merlin plc are coded 1 to 7. This variable is:
(a) nominal (b) ordinal (c) interval (d) ratio

4 A weather forecaster predicts tomorrows temperature in (
o
C) This variable is:
(a) nominal (b) ordinal (c) interval (d) ratio

5 An athlete wears numbers on his vest. This variable is:
(a) nominal (b) ordinal (c) interval (d) ratio

6 A doctor records the state of health of a patient as good. This variable is:
(a) nominal (b) ordinal (c) interval (d) ratio ?

The following graph describing the marks for a group of students is for use with
questions 7 and 8











7 A reasonable estimate for the mode is:
100 90 80 70 60 50 40 30 20 10 0
10
5
0
Marks %
s
t
u
d
e
n
t
s

p
e
r

1
0

m
a
r
k

i
n
t
e
r
v
a
l
F
r
e
q
u
e
n
c
y

d
e
n
s
i
t
y

Macro Economics 37

(a) 43% (b) 45% (c) 47% (d) 50%
8 The number of students in the sample is:
(a) 8 (b) 11 (c) 45 (d) 48



The following graph describing the same data and is for use with questions 9 to 13















9 A reasonable estimate for the median is:
(a) 5 (b) 50 (c) 52 (d) 55

10 A reasonable estimate for the interquartile range is:
(a) 0.05 (b) 23 (c) 50 (d) 75

11 The percentage of students with marks over 40 could be:
(a) 30 (b) 40 (c) 60 (d) 75
12 The percentage of students who scored between 40 and 70 could be:
(a) 30 (b) 40 (c) 60 (d) 75

13 The top 20% of the students scored over:
(a) 20 (b) 65 (c) 80 (d) 90
The following information is for questions 14 to 20

100 90 80 70 60 50 40 30 20 10 0
100
50
0
Marks %
C
u
m
u
l
a
t
i
v
e

P
e
r
c
e
n
t

38


38
Page | 38
The profits, in 000, from a random sample of eight weeks from three connected
newsagents, X, Y and Z, were found to be:

Week 1 2 3 4 5 6 7 8
Shop X 13 22 21 16 21 17 25 23
Shop Y 29 26 33 34 36 38 28 31
Shop Z 17 ? 20 18 18 17 23 19


14 The median weekly profit for shop X is: (000)
(a) 18 (b) 19 (c) 20 d) 21

15 The range of weekly profit for shop X is: (000)
(a) 13 to 25 (b) 16 to 21 (c) 5 (d) 12

16 The estimated mean of all weekly profits for shop Y is: (000)
(a) 30.5 (b) 30.7 (c) 31.9 (d) 32.0

17 The estimated standard deviation of the weekly profit of shop Y is: (000)
(a) 3.7 (b) 3.9 (c) 4.0 (d) 4.1

18 If the mean weekly profit for shop Z was 19 250, the missing value is:
(a) 21 (b) 22 (c) 23 (d) 24

19 The modal weekly profit for shop X over the eight weeks is: (000)
(a) 21 (b) 19 (c) 18 (d) 16

20 In total, the three shops employ three men who earn on average 5.20 per hour and seven
women who earn on average 3.80 per hour. The average hourly pay for all these ten
workers is:
(a) 4.15 (b) 4.22 (c) 4.50 (d) 4.64

The following frequency distribution of salaries represents a sample from a
company and is for use in questions 21 to 24

Salary (000) Frequency
10 and under 12 4
12 and under 14 5
Macro Economics 39

14 and under 16 8
16 and under 18 7
18 and under 20 4
20 and under 25 2
25 and under 30 3
30 and under 50 3
50 and under 100 1


Set 2

21 A reasonable estimate for the median value is: (000)
(a) Between 18 and 20 (b) between 16 an 18 (c) Between 14 and 16 (d) 55


22 The best estimate for the modal value is: (000)
(a) Between 14 and 16 (b) between 16 an 18 (c) Between 50 and 100 (d) 8


23 The best estimate for the mean is: (000)
(a) 15.0 (b) 20.2 (c) 19.0 (d) 54.9


24 The best estimation of the standard deviation for the whole company is: (000)
(a) 8.0 (b) 11.9 (c) 12.1 (d) 15.0
25 One reason that the sample mean is the usual estimator of the population mean is that:
(a) The average of all sample means equals the population mean
(b) The sample mean equals the population mean
(c) The sample mean is unaffected by extreme values
(d) The sample mean occurs more often than the mode or the median


26 In a five horse race two horses have the probability of 0.25 of winning, two more have
the probability of 0.2 of winning. The probability that the fifth horse will win is:
(a) 0.10 (b) 0.33 (c) 0.45 (d) 0.55
27 If three coins are tossed, the probability of getting exactly one head is:
(a) 1/3 (b) 1/8 (c) 2/8 (d) 3/8

28 If a pair of dice are rolled the probability of getting a double is:
40


40
Page | 40
(a) 1/36 (b) 1/18 (c) 1/6 (d) 1/3

The following information is for questions 29 to 34
A survey of a sample of users of home computers by region revealed that they used the
following hardware:
Hardware
Region CD ROM Modem Both Neither
South 13 7 11 17
North 15 6 14 19
West 10 8 10 20

The probability that a user selected at random has:

29 A CD ROM only:
(a) 0.278 (b) 0.271 (c) 0.253 (d) 0.208
30 Comes from the North:
(a) 0.400 (b) 0.395 (c) 0.360 (d) 0.339

31 Neither CD ROM nor modem is:
(a) 0.373 (b) 0.357 (c) 0.354 (d) 0.352

32 A CD ROM only and comes from the South is:
(a) 0.573 (b) 0.513 (c) 0.087 (d) 0.081
33 A modem only or comes from the North is:
(a) 0.500 (b) 0.460 (c) 0.050 (d) 0.040

34 Both CD ROM and modem given that they are from the West is:
(a) 0.075 (b) 0.208 (c) 0.553 (d) 0.728

The following information is for use with questions 35 to 40
Paper cups of coffee sold in a university canteen may be large, medium or small.
They may be sold to academics, administrators or students. A random sample taken one
day produced the following information:

Size of container
Macro Economics 41

Large Medium Small
Academics 15 25 20
Administrators 10 20 5
Students 25 10 10

A cup is selected at random.

35 The probability that it is a small one is:
(a) 0.429 (b) 0.333 (c) 0.250 (d) 0.143

36 The probability that it is bought by a student is:
(a) 0.357 (b) 0.321 (c) 0.333 (d) 0.286

37 The probability that it is small or bought by a student is:
(a) 0.500 (b) 0.286 (c) 0.222 (d) 0.071

38 The probability that it is large and bought by an administrator is:
(a) 0.286 (b) 0.250 (c) 0.200 (d) 0.071

39 The probability that a medium cup is bought by an academic is:
(a) 0.643 (b) 0.455 (c) 0.417 (d) 0.179

40 The probability that it is not small if bought by an academic:
(a) 0.750 (b) 0.667 (c) 0.666 (d) 0.250


Set 3

The following information is for use with questions 41 to 45
A haulier has a large fleet of vehicles. The annual mileage follows a normal distribution
with mean 74 000 and standard deviation 3000.

41 The probability that a vehicle selected at random does over 75 000 a year is:
(a) 0.131 (b) 0.369 (c) 0.631 (d) 0.839
42 The probability that a vehicle selected at random does over 70 000 a year is:
(a) 0.907 (b) 0.593 (c) 0.407 (d) 0.093

42


42
Page | 42
43 The probability that a vehicle selected at random does between
73 000 and 77 000 miles a year is:
(a) 0.971 (b) 0.712 (c) 0.471 (d) 0.212

44 The probability that a vehicle selected at random does between
70 000 and 73 000 miles a year is:
(a) 0.131 (b) 0.278 (c) 0.540 (d) 0.778

45 The mileage exceeded by the top 10% of the vehicles is:
(a) 70 150 (b) 71 300 (c) 76 700 (d) 77 850

The following information is for use with questions 46 to 51
Garden fertiliser is packed into plastic bags which are nominally 1.5

kg. The net weights
of these bags are known to follow a normal distribution with a mean weight of 1.55

kg
and a standard deviation of 0.05

kg. A bag is selected at random:

46 The probability that the bag contains less than 1.5

kg is:
(a) 0.841 (b) 0.659 (c) 0.341 (d) 0.159

47 The probability that the bag contains less than 1.6

kg is:
(a) 0.841 (b) 0.659 (c) 0.341 (d) 0.159

48 The probability that the bag contains between 1.51 and 1.57

kg is:
(a) 0.867 (b) 0.556 (c) 0.444 (d) 0.133

49 The probability that the bag contains between 1.48 and 1.53

kg is:
(a) 0.736 (b) 0.575 (c) 0.425 (d) 0.264

50 The weight exceeded by 10% of all the bags is:
(a) 1.61

kg (b) 1.56

kg (c) 1.54

kg (d) 1.49

kg

51 The 20
th
percentile of the distribution is:
(a) 1.59

kg (b) 1.58

kg (c) 1.52

kg (d) 1.51

kg

The following information is for use with questions 52 to 53
A random sample of nine durations for the completion of a task was found to be normally
distributed with a mean of 20 minutes and a standard deviation of 12 minutes.

Macro Economics 43

52 The table value used in the calculation of the 95% confidence interval for the mean of all
the times taken to complete the task is:
(a) 1.86 (b) 1.96 (c) 2.26 (d) 2.31

53 The 95% confidence interval used to estimate the mean of all the times is: (minutes)
(a) 17.7 to 22.3 (b) 16.9 to 23.1
(c) 10.8 to 29.2 (d) 16.0 to 24.0

54 A 95% confidence interval can be interpreted as meaning:
(a) It includes 95% of the population;
(b) There is a 95% chance that it includes the sample mean;
(c) 95% of samples would provide confidence intervals which include the population
mean;
(d) None of the above.


The following information is for use with questions 55 to 58
A company has a large staff of machine operators. The Manager selects a random sample
of eight male machine operators and finds that during a particular year the hours of
overtime they worked were:
142 127 171 137 161 183 148 124

55 The estimated mean and standard deviation of all the male operators respectively are:
(a) 149 and 19.6 (b) 149 and 21.0 (c) 145 and 19.6 (d) 145 and 21.0


56 Assuming normal distribution, the 95% confidence interval for the population mean is:
(a) 132 to 167 (b) 135 to 164 (c) 35 (d) 29


57 Assuming normal distribution, the 99% confidence interval for the population mean is:
(a) 130 to 168 (b) 123 to 175 (c) 52 (d) 38

58 If the mean of a further sample of six female operators selected at random had an average
of 37 hours overtime, the best estimate for the overall average number of hours overtime
is:
44


44
Page | 44
(a) 101 (b) 99 (c) 93 (d) 91


The following information is for questions 59 to 61
The time taken by packers at a mail order firm is known to be normally distributed. A
random sample of 10 packers were timed at a particular plant in order to estimate the
mean time taken by all the packers with the following results:

Packer A B C D E F G H I J
Time (min) 4.2 6.5 7.1 4.6 9.3 4.5 6.2 8.3 7.4 5.2

59 The mean and standard deviation needed in order to calculate a 95% confidence interval
for the mean packing time are:
(a) x = 6.33 s = 1.72 (b) x = 6.33 s = 1.632
(c) x = 7.03 s = 1.72 (d) x = 7.03 s = 1.632


Set 4

60 The table value to make use of in your calculation is:
(a) 1.83 (b) 1.96 (c) 2.23 (d) 2.26

61 The confidence interval produced is: (minutes)
(a) 5.10 to 7.56 (b) 5.16 to 7.50 (c) 5.20 to 7.45 (d) 5.26 to 7.40

62 In hypothesis testing the significance level is the risk of:
(a) Rejecting H
0
when H
0
is correct
(b) Rejecting H
0
when H
1
is correct
(c) Rejecting H
1
when H
1
is correct
(d) Rejecting H
1
when H
0
is correct

63 An example of a two-tailed alternative hypothesis is:
(a) H
1
: < 0 (b) H
1
: = 0 (c) H
1
: 0 (d) H
1
: > 0

The following information is for use with questions 64 to 70
Macro Economics 45

A new method of training was to be introduced into your company. In order to test its
efficiency the training manager paired his next batch of recruits on equal mental ability.
He then trained one of each pair by the old method, X, and the other by the new method,
Y. Giving them both the same test produced the following results:
Pair A B C D E F G H I J
Old Method X 75 45 81 60 56 59 61 48 39 56
New Method Y 70 46 93 75 63 57 67 52 61 71

64 A one-sample t-test is carried out on the results obtained by the old method to see if the
mean mark is 65. The test statistic calculated would be:
(a) 1.644 (b) 1.732 (c) 1.826 (d) 2.802

65 The critical value for comparing this test statistic with, at 5% significance, would be:
(a) 1.81 (b) 1.96 (c) 2.23 (d) 2.26

66 If the magnitude of the test statistic is less than the critical value and H
1
is two tailed we
should:
(a) Reject H
0
(b) Not reject H
0
(c) Accept H
1
(d) Accept neither

67 A paired t-test is carried out, at 5% significance, on the above marks in order to see if
training by the new method is more efficient. In analysing the results the critical value
should be obtained for:
(a) 9 degrees of freedom (b) 10 degrees of freedom
(c) 19 degrees of freedom (d) 20 degrees of freedom

68 The critical value obtained for this test would be:
(a) 1.81 (b) 1.83 (c) 2.23 d) 2.26

69 The test statistic calculated from these results in order to carry out the paired t-test is:
(a) 2.66 (b) 2.80 (c) 3.76 d) 3.96

70 If the null hypothesis is rejected, the conclusion would be:
(a) The new method, Y, probably produces different marks to the old method, X.
(b) The new method, Y, probably produces a worse mark than the old method, X
(c) The new method, Y, probably produces a better mean mark to the old method, X.
(d) The new method, Y, probably produces a different mean mark to the old method, X.
The following information is for use with questions 71 to 73
46


46
Page | 46

x 1 2 3 4 5 6 7 8
y 23 18 17 14 10 6 5 1

x = 36 y = 94 x
2
= 204 y
2
= 1500 xy = 295


71 The value of the correlation coefficient between x and y is:
(a) 0.993 (b) 0.533 (c) -0.533 (d) -0.993


72 In order for the correlation coefficient to be significant, at 5%, its absolute value must be:
(a) less than 0.707 (b) more than 0.707 (c) more than 0.632 (d) more than 0.632

73 The regression line can be described by the equation:
(a) y = 25.5 3.05x (b) y = -25.5 + 3.05x (c) y = 3.05 25.5x (d) -3.05 + 25.5x

74 The gradient of the regression line estimates:
(a) The value of y divided by the value of x
(b) The increase in y for an increase of 1 in x
(c) The value of y when x is zero
(d) The average increase in y for an increase of 1 in x


The following information is for questions 75 to 78
The numbers of a particular type of sports car sold in five different towns are given
below, together with the populations of those towns in thousands:
Population (x) 37 56 98 72 114
No. of cars sold (y) 8 9 17 12 24

( x = 377 y = 70 x
2
= 32289 y
2
= 1154 xy = 6066)

75 The regression equation of y on x is:
(a) A = -1.38, B = 0.204 (b) y = 12.0 + 4.53x
(c) y = -1.38 + 0.204x (d) A = 12.0, B = 4.53

76 The correlation coefficient is:
(a) 0.961 (b) 0.871 (c) 0.204 (d) -1.38
Macro Economics 47

77 In this example, we use x for the towns' populations because:
(a) It is the first variable given (b) It is the independent variable
(c) It is what we are trying to estimate (d) It is the larger variable

78 The expected sales of this particular car in a town of 80 000 would be:
(a) 15 (b) 16 (c) 17 (d) 18

The following information is for questions 79 and 80
The statistics and computing marks for a random sample of first year students were:

Statistics 72 67 53 80 63 45 32 54
Computing 66 59 72 68 54 60 49 50

79 The correlation coefficient describing the association between the two sets of marks is:
(a) +0.4625 (b) - 0.4625 (c) +0.5325 (d) - 0.5325

80 The regression equation suitable for predicting computing marks from statistics marks is:
(a) y = 42.76 + 0.292x (b) y = 42.76 0.292x
(c) y = 0.168 + 0.972x (d) y = -0.168 + 0.972x

Set 5

The following information is for questions 81 to 87
The profits (000) of the XYZ garages plc during the period 1997 to 2000 were:

Year 1997 1998 1999 2000
Profit 167 145 196 204
Index 100

81 The index value for 1998 was:
(a) -22 (b) 78 (c) 87 (d) 115

82 The index value for 2000 was:
(a) 37 (b) 104 (c) 108 (d) 122

48


48
Page | 48
83 If the index for 2001 is 110, the profit is: (000)
(a) 177 (b) 184 (c) 214 (d) 224




Answers to multichoice questions

Questio
n
Answer Questio
n
Answer Questio
n
Answer Questio
n
Answer
1 d 22 a 43 c 64 b
2 b 23 b 44 b 65 d
3 a 24 c 45 d 66 b
4 c 25 a 46 d 67 a
5 a 26 a 47 a 68 b
6 b 27 d 48 c 69 b
7 c 28 c 49 d 70 c
8 d 29 c 50 a 71 d
9 c 30 c 51 d 72 b
10 b 31 a 52 d 73 a
11 d 32 c 53 c 74 d
12 c 33 b 54 c 75 c
13 b 34 b 55 b 76 a
14 d 35 c 56 a 77 b
15 d 36 b 57 b 78 a
16 c 37 a 58 a 79 c
17 d 38 d 59 a 80 a
18 b 39 b 60 d 81 c
19 a 40 b 61 a 82 d
20 b 41 b 62 a 83 b



Bibliography

Introduction to statistical method in economics, Herman Bennett, MIT
HyperStat online : an introductory statistics book and online tutorial for help in
statistics, David M Lane, Rice University
Applied Statistics and the SAS Programming Language by Ronald P. Cody, Ron Cody,
and Jeffrey Smith
Lee C. Adkins, R. Carter Hill (2011) Using Stata for Principles of Econometrics
David R. Anderson, Dennis J. Sweeney, Thomas A. Williams (1999) Essentials of
Statistics for Business and Economics
David R. Anderson, Dennis J. Sweeney, Thomas A. Williams (2001) Quantitative
Methods for Business
David R. Anderson, Dennis J. Sweeney, Thomas A. Williams (2002) Statistics for
Business and Economics with Student Test Review CD-ROM
David A. Anderson et al. (2010) Statistics for Business and Economics
Michael Barrow (2009) Statistics for Economics, Accounting and Business Studies
Plus MathXL Pack
Mr Michael Barrow (2010) Statistics for Economics, Accounting and Business Studies
with MyMathLab Global Student Access Card
Mike Barrow (1996) Statistics for Economics, Accounting and Business Studies
Christopher F. Baum (2006) An Introduction to Modern Econometrics Using Stata
Bernard Baumohl (2007) The Secrets of Economic Indicators: Hidden Clues to Future
Economic Trends and Investment Opportunities
Glyn Burton, George Carroll, Stuart Wall (2001) Quantitative Methods for Business
and Economics
William L. Carlson, Betty Thorne (1996) Applied Statistical Methods
Gary E. Clayton, Martin Gerhard Giesbrecht (2003) A Guide to Everyday Economic
Statistics

Important Websites
www.economicsnetwork.ac.uk ... Online Text and Notes
books.google.com Mathematics Probability & Statistics General
users.math.yale.edu/~bbm3/web_pdfs/032statisticalEconomics.pdf

en.wikipedia.org/wiki/Economic_statistics