4. An economist would recommend that the Bank of Canada change the interest rate for borrowed...

4. An economist would recommend that the Bank of Canada change the interest rate for borrowed money if the average annual inflation rate is less than 2.15%. Based on a sample from the past 21 years, the average annual inflation rate was 1.87%, with a standard deviation of 0.67%. Assume the population is approximately normally distributed.

(a) [1 mark] Define the parameter you are testing.

(b) [1 mark] State the null hypothesis and alternative hypothesis you would use to test whether there was sufficient evidence that the average annual inflation rate was less than 2.15%.

(c) [1 mark] Assuming that H0 is true, what is the formula for the appropriate test statistic? How is it distributed? If it is t-distributed, be sure to indicate the number of degrees of freedom.

(d) [1 mark] Compute the observed value of the test statistic.

(e) [2 marks] Determine the p-value to within table accuracy. If your test statistic is zdistributed, this will be an exact value; if your test statistic is t-distributed, indicate the tightest possible bounds on the p-value.

(f) [1 mark] Report the strength of the evidence against H0 in favour of H1.

(g) [1 mark] Report the estimated value of the parameter and the estimated standard error.

(h) [2 marks] Would you reject your null hypothesis H0 when using a significance level of α = 0.01? Write a concluding sentence about the economist’s decision regarding the mean annual inflation rate.

Solutions

Expert Solution

orchestra answered 1 year ago

Next > < Previous

Related Solutions

An economist would recommend that the Bank of Canada change the interest rate for borrowed money...

An economist would recommend that the Bank of Canada change the interest rate for borrowed money if the average annual inflation rate is less than 2.15%. Based on a sample from the past 21 years, the average annual inflation rate was 1.87%, with a standard deviation of 0.67%. Assume the population is approximately normally distributed. (a) [1 mark] Define the parameter you are testing. (b) [1 mark] State the null hypothesis and alternative hypothesis you would use to test whether...

Abdullah borrowed from a bank an amount of 12,000 dinars for a period of 4 years at an interest rate of 7%.

Abdullah borrowed from a bank an amount of 12,000 dinars for a period of 4 years at an interest rate of 7%. Find the value of the monthly installment?a. 320 kwdb. 256 kwd

1 When the Bank of Canada lowers the overnight rate, the Canadian interest rate differential ________...

1 When the Bank of Canada lowers the overnight rate, the Canadian interest rate differential ________ and the Canadian dollar ________ on the foreign exchange market. A) increases; appreciates B) increases; depreciates C) decreases; appreciates D) decreases; depreciates E) decreases; reaches interest rate parity 2. When real GDP is less than potential GDP, an increase in the quantity of money leads to a(n) A) increase in both real GDP and the price level. B) decrease in real GDP and an...

You borrowed from the bank $300,000 with an annual interest rate of 6% and a maturity...

You borrowed from the bank $300,000 with an annual interest rate of 6% and a maturity of 30 years. Determine the monthly mortgage payment.

The treasurer of a small bank has borrowed funds for 3 months at an interest rate...

The treasurer of a small bank has borrowed funds for 3 months at an interest rate of 6.73% and has lent funds for 6 months at 7.87%. a. Represent the exposure on cash flow diagrams. b. To cover his exposure created by the mismatch of maturities, the dealer signs a forward loan. Calculate this treasurer’s break - even forward rate on interest, assuming no other costs. c. Assume that instead, the treasurer decides to wait 3 months and take a...

When the inflation rate is 4 percent, the Bank of Canada will A) buy bonds to...

When the inflation rate is 4 percent, the Bank of Canada will A) buy bonds to lower interest rates and increase aggregate demand. B) sell bonds to raise interest rates and decrease aggregate demand. C) do nothing, since an interest rate of 4 percent is desirable. D) sell bonds to lower interest rates and accelerate the economy. E) buy bonds to raise interest rates and slow down the economy. When the Bank of Canada buys bonds from a chartered bank,...

If a nation’s economy is sliding into recession, and you are an economist, would you recommend...

If a nation’s economy is sliding into recession, and you are an economist, would you recommend that the government cut taxes and then make up for the drop in taxes collected by the government by cutting government spending? If not, what would you recommend? Explain your answer.

You have a $200,000.00 budget borrowed (Loan) from a bank, with an interest rate of 4.5%...

You have a $200,000.00 budget borrowed (Loan) from a bank, with an interest rate of 4.5% per annum. (Loan Date = January 1, 2018) Cars purchased must be ONLY New 2018 models, Ford, Chevrolet AND Dodge cars mixed from the Big 3 US Auto manufacturers. You can reinvest buying new cars from the profits you earn from the original rental car fleet fees; assume 80% of the vehicles will be rented at all times. Assume 1.5% product price increase each...

4)Mario Morales borrowed $ 15,000 at an interest rate of 14% to be paid in 3...

4)Mario Morales borrowed $ 15,000 at an interest rate of 14% to be paid in 3 years. The loan must be repaid in three equal payments at the end of each year. a)Calculate the annual payment to be made. b)Prepare an amortization table that shows the principal and interest payment, as well as the loan balance for each year. c)Explain why the interest portion of each payment decreases over time.

In response to the COVID-19 outbreak, the Bank of Canada has cut the key interest rate...

In response to the COVID-19 outbreak, the Bank of Canada has cut the key interest rate by 50 basis points to help stimulate the economy. (Chapter 28) Complete the following: Graph the decline in interest rate and discuss what happened. What parts of the AE function are effected and how? Graph the change in the AE model. Graph the AD/AS function and close the gap. What gap was closed? What is expected to happen to GDP and price levels as...

Subjects