Macro Economics

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Macro Economics

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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

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