Tutorial Guide

Every week, there is a new lecture and a tutorial that covers material from the previous
week. Before going to a lecture, students are advised to go a tutorial reviewing what they
have learnt from the previous lecture and preparing for the next lecturer.
Tutorials are an integral part of developing skills in business statistics and data analytics.
Without practice, understanding of key concepts in this subject and implementation of key
techniques cannot be achieved. This will hamper the future study of other subjects, such as
finance and economics.
You should turn up to your tutorial – the one you have been allocated to. Rooms, including
Zoom ones, cater for only a certain quota of students so overcrowding occurs when people
just turn up to any tutorial. By turning up to a tutorial that you shouldn’t be at, you will be
disrupting the learning of students who have the right to be there. Tutorial staff can only
deal with and attend to a certain limited number of students. If you do wish to change your
tutorial, you must do so online via the MyStudent / OneStop Admin.
Please don’t ask the Business Statistics staff to change tutorials because they cannot make
those changes.
If you do prepare for tutorials, you will have several outcomes:
1. You can confirm your learning achievements.
2. You can amend your learning of topics that you may have minor misunderstandings.
3. You can identify where you need to spend more time reviewing.
4. Tutors can move through easier material that everyone is OK with more quickly.
and this means a chance to expand on more problematic areas and to have a better idea
what major you want to choose in the next year.
If you do not prepare, you will fall behind as the tutor will cater to those whom have
prepared. You will think that everything needs reviewing and start freaking out!
Remember, you should devote 6 hours per week to Business Statistics outside of the 3
hours face-to-face contact you have in the form of lectures and tutorials.
You should bring the following to tutorials:
1. Tutorial question sheet and your attempt at the answers to each question
2. Lecture notes and study notes
3. Textbook (optional)
4. Calculator
5. Pens/Pencils and Paper/Exercise book
Tutorial 7 in Week 8: Hypothesis Testing I
Question 1. When conducting hypothesis testing, we need to choose or be given a
significance level α. The value of α determines the critical value and thus the rejection
region. Explain intuitively what is meant by a significance level α =0.1, α =0.05 and α =0.01.
The significance level α is the probability of making a mistake – rejecting the null hypothesis
when in fact it is true. If the null hypothesis were true, the distribution of the test statistic
indeed follows the null distribution. For example, suppose we hypothesise H 0 :μ X =c against
H a : μ X ≠ c under a known population standard deviation σ X . If μ X is indeed equal to c,   X́
X́−c σX
indeed follows N ¿), or indeed follows N (0,1). We would reject if   X́ < c−Z α /2 or
σ X / √n √n
σX X́−c X́−c
if X́ > c+ Z α / 2 ; equivalently, we reject if ← Z α/2 or if > Z α / 2. But rejection
√n σ X / √n σ X / √n
when μ X =c (the null hypothesis is true) means we make a mistake. So
X́ −c X́ −c X́−μ X X́ −
P ( mistake )=P ( reject when H 0 : μ X =c istrue )=P
( σ X /√n ) (
← Zα/ 2 + P
σ X /√n ) (
< Z α / 2 =P
σ X /√n ) (
← Zα/ 2 + P
σX/
. So when the significance level α =0.05, 0.1 and 0.01, we allow for 5 %, 10 % and 1 %
chance of mistakenly rejecting the null hypothesis when in fact it is true, respectively.
Question 2. What five steps do we need to follow when conducting hypothesis testing?
Step 1: Write down the null and the alternative hypothesis.
Step 2: Write down the test statistic.
Step 3: Write down the null distribution, i.e. the distribution of the test statistic if the null
hypothesis were true.
Step 4: Write down the rejection rule based on the given significance level α. (You can
sketch the distribution and mark the critical values)
Step 5: Compute the test statistic, write down the test result and conclude. (You can mark
the test statistic on the previously made sketch to see whether or not the test statistic lies in
the rejection region)
Question 3. Hourly wages are normally distributed with an unknown population mean and a
known population standard deviation of $5. To test if the mean hourly wage equals $22 as
reported by the Australian Bureau of Statistics, 25 randomly selected working individuals
were asked to fill in a questionnaire about their hourly wages. The sample gave a mean of
$18.5. Conduct the test at the 10% level.

Based on the question we have  X́ =18.5, σ X =5 , n=25.

Step 1: Write down the null and the alternative hypothesis:

H 0 :μ X =22, H a : μ X ≠ 22

Step 2: Write down the test statistic:

 X́−μ X
Z=
σ X / √n

Step 3: Write down the null distribution (the distribution of the test statistic under the null):

X́−μ X
Z= ∼ N (0,1)
σ X / √n

Step 4: Write down the rejection rule:

At the significance level 10% or α =0.10, we reject the null if Z← Z 0.05 or Z> Z 0.05, where
Z 0.05=1.645.

Step 5: Compute the test statistic, write down the test result and conclude:

X́−μ X 18.5−22
The test statistic = =−3.5 is smaller than the critical value −Z 0.05=−1.645.
σ X /√n 5/ √ 25
This means that we have sufficient statistical evidence to reject the null hypothesis that the
mean of hourly income equals $22. Therefore we accept the alternative hypothesis that the
mean of hourly income is not equal to $22.
Question 4. According to Ausgrid’s 2017-18 Local Council Community Electricity Report, the
daily usage per customer living in Burwood is normally distributed with a mean of 12.9 kWh
and an unknown standard deviation. To test if the population of electricity usage per
customer living in Burwood per day equals 12.9 kWh, a random sample of the usage from 18
customers is collected and it shows a mean of 14.8 kWh and a standard deviation of 8.4
kWh. Conduct the test at the significance level α =0.05.

Based on the question we have  X́ =14.8, s X =8.4 and n=18.

Step 1: Write down the null and the alternative hypothesis:

H 0 :μ X =12.9 , H a : μ X ≠ 12.9

Step 2: Write down the test statistic:

X́−μ X
t v=
sX / √ n

Step 3: Write down the null distribution (the distribution of the test statistic under the null):

X́−μ X
t v= ∼t ( v ) where v=n−1=17
sX / √ n

Step 4: Write down the rejection rule:

At the significance level 5% or α =0.05, we reject the null if t v ←t 0.025,17 or t v >t 0.025,17 , where
t 0.025,17 =2.110. ( you need to look at the t table with row header 17 the degrees of
freedom and with column header t 0.025)

Step 5: Compute the test statistic, write down the test result and conclude:
 X́−μ X 14.8−12.9
The test statistic = =0.9596 is in between the left critical value
s X / √n 8.4 / √ 18
−t 0.025,17=−2.110 and the right critical value t 0.025,17 =2.110. This means that we do not have
sufficient statistical evidence to reject the null hypothesis that the mean electricity usage
per customer living in Burwood per day equals $12.9 kWh. So we maintain this null
hypothesis.
Question 5. The “Great Moderation” refers to the change in volatility of macroeconomic
variables such as productivity growth, inflation and unemployment rate in the US after
1980. It is known that the quarterly unemployment rate in the US is normally distributed
with a mean of 4% and a pre-Great Moderation standard deviation 2.1%. The Federal
Reserve Board is interested in testing whether there has been a change of volatility, i.e.
standard deviation, prior to and after 1980. A random sample of 24 quarterly
unemployment rates after 1980 is collected and the sample shows a standard deviation of
0.4%. Conduct the test at the 1% significance level.

Based on the question we have, s X =0.4 and n=24.

Step 1: Write down the null and the alternative hypothesis:

H 0 :σ X =2.1 , H a :σ X ≠2.1

Step 2: Write down the test statistic:

( n−1 ) s 2X
χ 2v = 2
σX

Step 3: Write down the null distribution (the distribution of the test statistic under the null):

( n−1 ) s 2X
χ 2v = 2
∼ χ 2 ( v ) where v =n−1=23
σ X

Step 4: Write down the rejection rule:

At the significance level 1% or α =0.01, we reject the null if χ 2v < χ 20.995,23 or χ 2v > χ 20.005,23, where
χ 20.995,23 =9.2604 and χ 20.005,23=44.1813 ( you need to look at the χ 2 table with row header
23 the degrees of freedom and with column header 0.995 and 0.005)
Step 5: Compute the test statistic, write down the test result and conclude:

( n−1 ) s 2X
( 24−1 ) 0.42
The test statistic ==0.8345 is smaller than the critical value
σ 2X 2.12
χ 20.995,23 =9.2604. This means that we have sufficient statistical evidence to reject the null
hypothesis that the post-Great Moderation standard deviation is equal to 2.1%. So we
accept the alternative that after the Great Moderation the standard deviation is not equal to
2.1%.