Question
In: Economics
Suppose that you are interested in determining whether "consumption depends on income" or whether "income depends...
Suppose that you are interested in determining whether "consumption depends on income" or whether "income depends on consumption." Which of the following would be most relevant?
Group of answer choices
t-test
F-test
Chi-square test
double-blind test
Granger test
Solutions
Expert Solution
Suppose that you are interested in determining whether "consumption depends on income" or whether "income depends on consumption." Which of the following would be most relevant?
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Correct choice: Granger Test
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Explanation:
The above stated problem is that of determining causality. In simple words, causality means "does x cause y" or "does y cause x".
Sometimes, causality is unidirectional - for example, income causes consumption.
Sometimes, it is bidirectional - for example, income causes consumption, and consumption causes further income.
Such a question can be answered by the "Granger Test" of causality.
It is generally used in macroeconomic time series data, to determine the forecasting ability of one variable on another, and vice versa. Thus in the given statement, it is the right test.
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Other options:
The other choices are generally not used in macroeconomic data. The F-test by itself is not a separate test, it is a general statistical test to check for fitting of a model. The t-test, chi-square test and double-blind tests are used in other branches of social studies.
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