In: Economics
1. What are the five Classic Gauss-Markov Assumptions for simple linear regression?
2. What are two reasons the sample mean may deviate from the null hypothesis? What are the steps for testing a hypothesis?
The assumptions are as follows:
Linearity in parameters
Expected value of error term is zero for all observations
The conditional variance of the error term is constant
Error term is independently distributed and not correlated with
regressors
Independent variables are not correlated
Two reasons: Null is hypothesized incorrectly, sample selected is not a representative sample
The steps for testing a hypothesis are:
frame the null and alternate hypothesis
calculate the test statistic
compare the test-statistic with the critical value to ascertain the
hypothesis