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Testing of Hypothesis

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On Friday, Wall Street traders were anxiously awaiting the federal government's release of numbers on the January increase in nonfarm payrolls. The early consensus estimate among economists was for a growth of 250,000 new jobs (CNBC, February 3, 2006). However, a sample of 20 economists taken Thursday afternoon provided a sample mean of 266,000 with a sample standard deviation of 24,000. Financial analysts often call such a sample mean, based on late-breaking news, the "whisper number". Treat the "consensus estimate" as the population mean. Conduct a hypothesis test to determine whether the whisper number justifies a conclusion of a statistically significant increase in the consensus estimate of economists. Use ? = .01 as the level of significance.

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The solution explains a testing of hypothesis problem from financial economics.

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Testing Hypothesis at 0.05 Level

Given the following sample information, test the hypothesis that the treatment means are equal at the .05 significance level.

Treatment 1 Treatment 2 Treatment 3

8 3 3
11 2 4
10 1 5
3 4
2

A. State the null hypothesis and the alternate hypothesis.

B. What is the decision rule?

C. Compute SST, SSE, SS total.

D. Complete an ANOVA table.

E. State your decision regarding the null hypothesis.

F. If Ho is rejected, can we conclude that treatment 1 and treatment 2 differ? Use the 95% level of confidence.

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