EC 203: Economic Statistics

Faculty of Business and Economics

School of Economics

Final Examination Assessment

Semester 1, 2020

Face to face Mode

(Solution)

First Name: Taina

Last Name: Mocevinaka

ID: s11158595

Instructions:

1. There are two sections in this assessment:

Section A - 10 Multiple Choice (40 marks).
Section B – 6 Practical Questions (60 marks).
2. Please download this question paper and answer each question/section on this paper
itself. Once completed, upload the completed paper on the drop box provided on
Moodle. Where working is necessary, you may print it and write on it and scan as pdf
and upload it.
3. Please ensure that you write your name and ID on the completed paper. Not only
have as file name.
4. This assessment is marked out of 100 and contributes 50% of the final course grade.
5. Materials needed: Calculator
6. Provided materials: Selected formulas and statistical tables
7. There are seven (7) pages to this assessment paper, including this cover page.

Section A Multiple Choice [20 Marks]

There are 10 questions in this section. Each question is worth two marks. You must indicate the
letter that best represents the correct answer.
 Taina Mocevinaka – s11158595

1. Which of the following is the goal of descriptive statistics?

A To summarise data.
B To display aspects of the collected data.
C To summarise data and display aspects of the collected data.
D To estimate characteristics of the population.

2. Which of the following statements is false?

A. All calculations are permitted on numerical (quantitative) data.
B. All calculations are permitted on nominal (categorical) data.
C. The most important aspect of ordinal data is the order of the data values.
D. The only permissible calculations on ordinal data are ones involving a ranking
process.

3. Which of the following are factors that determine which statistical technique should be used?
A. The type of data being measured.
B. The purpose of the statistical inference.
C. The type of data being measured and the purpose of the statistical inference.
D. None of these choices are correct.

4. Which of the following statistical distributions is used when estimating the population mean
when the population variance is unknown?
A. Student t distribution
B. Standard normal distribution
C. Chi-square distribution
D. None of these choices are correct.

5. The degrees of freedom used to find the t/2 for a confidence interval for the population mean?
A. The degrees of freedom are n − 2.
B. The degrees of freedom are n − 3.
C. The degrees of freedom are n − 1.
D. The degrees of freedom are n.

6. If two populations are not known to be normally distributed, the sampling distribution of the
sample mean difference, X 1  X 2 , will be:
A. normally distributed only if both population sizes are greater than 30.
B. normally distributed.
C. normally distributed only if at least one of the sample sizes is greater than 30.
D. approximately normally distributed.
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7. A Type II error is committed if we make:

A. a correct decision when the null hypothesis is false.
B. correct decision when the null hypothesis is true.
C. incorrect decision when the null hypothesis is false.
D. incorrect decision when the null hypothesis is true.

8. The critical values zα or zα/2 are the boundary values for the:
A. rejection region(s).
B. level of significance.
C. power of the test.
D. Type II error.

9. In regression analysis, if the coefficient of determination is 1.0, then:

A. the sum of squares for error must be 1.0.
B. the sum of squares for regression must be 1.0.
C. the sum of squares for error must be 0.0.
D. the sum of squares for regression must be 0.0.

10. The time-series component that reflects a wavelike pattern describing a long-term trend that
is generally apparent over a number of years is called:
A. trend.
B. cyclical.
C. seasonal.
D. random variation.

Section B Practical Questions [80 Marks]

There are five questions in this section. Answer all questions.

Question 1 Data and Descriptive technique [20 marks]

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Part 1: Determine the type of data (level of Measurement) for each of the following. (10 Marks)

a) University course evaluation system on scale of poor=1, fair=2 and good-3.

Ordinal/ Ranked data – University course evaluation system are indicators of the
quality of student’s ordered, so this is an example of an ordinal level of measurement.

b) Data on patient blood group.

Ordinal/ Ranked data – This is an example of an ordinal level of measurement because
it consists of levels in order of magnitude (Patients’ blood group A, B, and O), but the
distance between levels is not quantifiable.

c) Data on patient mobile phone numbers.

Numerical/ Quantitative data - This is an example of numerical data as it involves use
of numbers.

d) Data on gender of university students.

Nominal data- Gender is at the nominal level of measurement. Nominal variables allow
a researcher to distinguish between 2 or more classes of an attribute by name. There is no
order associated with values on nominal variables.

e) Data on weight of infants.

Numerical/ Quantitative data – It is the level of measurement used for this data since it
uses numbers to identify the weights of babies in hospitals.

Part 2: Identify each of the following studies as using either descriptive statistics or inferential
statistics. (10 marks)

A. Calculating the relative frequency of Toyota cars passing by your house between 7pm and
8pm this evening. Descriptive statistics

B. Estimating the proportion of households in Fiji that have at least two dependents, from a
random sample of 100 Fijian households. Inferential statistics.

C. Measuring the fuel efficiency of five brand new Holden Commodore SV6 cars in order to
find out whether the average fuel consumption of this make and model is better than
10L/100km. Inferential statistics

D. Calculating the proportion of female students in an economic statistics class.

Descriptive statistics

E. Estimating the average age of students at USP from a sample of 200 randomly
selected students. Inferential statistics.

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Question 2 Sampling [17 marks]

Tevita a newly graduated accountant from USP starts job at PWC as an external auditor. His first
job was to audit account receivables section of MH supermarket. MH has a total of 8500 debtors,
who have purchased goods on credit from MH. Tevita was requested to audit 500 accounts to
ensure that account receivable balance is true and fair in the financial reports. The MH
supermarket accountant assisted Tevita by providing list of these debtors.

a) What is population of interest and sample size? (3 marks)

Population is the group of all items of interest to a statistics practitioner.
Sample is a subset of data drawn from the population.
Population of interest refers to all debtors at MH.
Population size (N) = 8500 debtors Sample (n) = 500 debtors

b) Using simple random sample, state who will be the first five debtors to be selected. Use
random Numbers Table provided below. Select the sample starting at the first digit of row 2
and working along the row. Please show all the steps clearly. (10 marks)

Simple Random Sampling

Steps:
1. Identifying the population frame which is the list pertaining the details about all items in
population. E.g. list of all 8500 debtors at MH. ( N = 8500 debtors)
2. Counting the number of digits of population :
N=8500 4 digits
3. Selecting of random numbers [first five debtors]
The first five debtors include:
 3204
 6906
 5719
 1116
 5982

Table 1: Random Numbers

789
8 8002 4418 2747 8079 4993 6863 9542 0949 4531 6955 5826 9971 6233 7887
864
0 3204 6906 5719 1116 5982 9532 2422 8333 8828 9002 2680 1928 8532 3600
443 3453 3070 5239 3168 6490 0274 8443 9984 7503 0263 8086 3372 5454 1599

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1
586
8 4764 0158 1225 5558 7840 9394 8126 6974 1561 4765 0758 8717 6979 6306
851
4 6959 7775 5844 5147 9173 4558 9107 0453 6119 2915 6586 9670 6580 5202
313
7 1170 0345 6099 6352 6074 6142 1898 3657 1924 5625 3556 8178 0103 6107
349
0 3349 7010 2045 6123 6271 8981 5274 2183 9820 0957 3988 6747 3508 8914

c) State two advantages of simple random sampling. (2 marks)

 Lack of Bias – This is due to the fact that individuals who make up the subset of
the larger group which are chosen at random will lead to each individual in the
large population set having the same probability of being selected. Hence, this
will result in having a balanced subset pertaining the greatest potential that best
represents the larger group as a whole.
 Simplicity - Simple random sample is much less complex than other methods
used, such as stratified random sampling. There are no additional steps since
individuals in the subset are selected randomly.

d) State one way to minimize sampling error and one way to minimize non-sampling error.
(2 marks)
 Sampling Error - refers to differences between the sample and the population, because of
the specific observations that happen to be selected. Sampling error can be reduced by
increasing the sample size and using stratified sampling for making the sample more
representative. A larger sample size leads to a more precise result because the study gets
closer to the actual population size.

 Non-sampling Error – occurs due to mistakes along the process of data acquisition.
Thus, it can be reduced by randomize selection to eliminate bias, i.e. selecting
participants based on a random factor, like choosing every fourth person on a list.

Question 3 Estimating a single population proportion [17 marks]

Part 1: Is climate change a major issue in Pacific Island Countries (PICs)? To answer this
question, a researcher surveys 1200 randomly selected individuals in PICs. Suppose 800 of the
sampled people responded that climate change is a major issue for them.

a) Construct a 95% confidence interval to estimate the population proportion of individuals

in PICs who feel that climate change is a major issue for them. (7 marks)

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n = 1200
β = 800/1200 = 0.67
1-0.95 = 0.05 0.05/2 = 0.025
0.025 = 1.96
q = 1 - 0.67 = 0.33

p + Z α/2 p * q
n

0.67 – 1.96 0.67*0.33 0.67 + 1.96 0.67*0.33

1200 1200

= 0.64 [LCL] = 0.70 [UCL]

0.64 < p < 0.70

Therefore, with a 95% confidence level, population proportion of individuals is estimated to be

between 0.64 and 0.70 in PICs who felt that climate change is a major issue for them.

b) Assume there are 800,000 populations in PICs. What is the minimum number of people
in PICs that are concerned about climate change? (5 marks)

Minimum number of people = Total Population x Lower Confidence Level

in PICs concerned about
climate change = 800 000 x 0.64
= 512 000

Therefore, 512 000 is the minimum number of people in PICs that are concerned about climate
change.
Part 2: Determining the sample size for estimating population proportion.
Suppose Vodafone Company’s manager wants to estimate the average amount of money spent
on recharge by pre-paid customers. The mean must be estimated to within $2 with 99%
confidence. What sample size should be taken? Assume that the amount of money spent on
recharge is normally distributed with a standard deviation of $3. (5 marks)
Standard Deviation = $3
1 – 0.99 = 0.01 0.01/2 = 0.005
Z α/2 = Z 0.005 = 2.575

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The mean is estimated to be within $2

n = Z α/2 * σ²
β

n= 2.575 * 3 ²
2
n = 15
Therefore, if the estimated mean is to be within $2 and has a confidence level of 99%, then the
required sample would be ‘15’.
Question 4 Hypothesis testing [11 marks]

The manager of a department store is thinking about establishing a new billing system for the
store’s credit customers. She determines that the new system will be cost-effective only if the
mean monthly account balance is more than $170. A random sample of 400 monthly accounts is
drawn, for which the sample mean is $178. The manager knows that the accounts are
approximately normally distributed with a standard deviation of $65.
a) Can the manager conclude from this that the new system will be cost-effective at a 5%
level of significance? [Define your parameter and show all 6 steps procedure] (7 marks)
Step 1: Establishing Hypothesis
A random sample of 400 monthly accounts is drawn, for which the sample mean is $178. The
manager knows that the accounts are approximately normally distributed with standard deviation
of $65.
From the above information we have,
The sample mean: x̄ = $178
The standard deviation: σ = $65
The sample size: n = 400

It determines that the new system will be cost-effective only if the mean monthly account is
more than $170. From this information, the null and alternative hypotheses are identified as
follows:

H0: μ = 170 [Do not install new system will be cost effective is less than or equal to$170]

H1: μ >170 [Install new system will be cost effective is greater than to $170

Level of significance: α = 0.05

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Step 2: Determining of Test Statistics

The standard deviation σ = $65 is known, hence, the formula below will be used:
Z = x̄ - μ
σ/ √n
Step 3: Specification of Significance Level (α)
H0: μ = 170
H1: μ >170
From the above hypothesis shown, a one-tail test (right tail) will be used indicating the rejection
region on the right hand side. Thus, the significance level (α) which can be identified is 0.005.

Step 4: Defining the decision rule

Rejection Region Approach

The value of the sample mean that is large enough is considered to reject the null hypothesis as

H0 X ; H0 X
L L is the critical value. The rejection region is X > XL
Since a Type I error is defined as rejecting a true null hypothesis, and the probability of
committing a Type I error is α, it follows that: α = P (Rejecting H0 given that H0is true) = P (X >
XL given that H0 is true)

One Tail Test (right tail)

H0: μ = 170

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H1: μ >170

Step 5: Calculating Test Statistics

Formally, from the central limit theorem, we know that if our null hypothesis is true, i.e., if µ =
170, then
P = [x̄ ≤ 170 + Zα σ/ √n]

\Hence, let:
XL = 170 + Zα σ/ √n

For α = 0.005, the following is calculation is obtained:

XL = 170 +1.645 __65__

√400
= 175.34

Step 6: Conclusion
The sample mean was computed to be $178. Because the test statistic (sample mean) is in the
rejection region (it is greater than 175.34), we reject the null hypothesis. Thus, there is sufficient
evidence to infer that the mean monthly amount is greater than $170.

b) Discuss the following concepts:

i) Type I error (2 marks)

Type I error occurs when we reject a true null hypothesis. For instance, it is like sending
an innocent person to jail. The probability of a type 1 error is the level of significance.

ii) Type II error (2 marks)

Type II error arises when we fail to reject a false null hypothesis. It is like not sending a
criminal to jail. The probability of a type 2 error is equal to beta (β).

Question 5 Index numbers [15 marks]

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Part 1: The GDP is often used as a measure of the economic performance of a country. The
annual GDP and CPI (1990 = 100) of Australia for the years 2004–2011 is shown in the
following table. Deflate the GDP values to 2004. (8 marks)

Solution

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Deflated GDP
GDP(millions of
Year: CPI (1990=100) CPI(2004=100) (2004 Constant
current $):
$):
145.2 × 100 890381 × 100
2004 890,381 145.2 145.2 100
=100 = 890,381
149.1 × 100 960,608 × 100
2005 960,608 149.1 145.2 102.69
= 102.69 = 935,444
154.4 × 100 1035,295 × 100
2006 1035,295 154.4 145.2 106.34
= 106.34 = 973,570
158.0 × 100 1128,881 × 100
2007 1128,881 158.0 145.2 108.82
= 108.82 = 1037,383
164.8 × 100 1232,583 × 100
2008 1232,583 164.8 145.2 113.50
=113.50 = 1085, 976
167.8 × 100 1251,928 × 100
2009 1251,928 167.8 145.2 115.56
=115.56 = 1083, 357
172.6 × 100 1357,034 × 100
2010 1357,034 172.6 145.2 118.87
= 118.87 = 1144,500
178.5 × 100 1445,430 × 100
2011 1445,430 178.5 145.2 122.93
= 122.93 = 1175,815

Part 2: The tourist industry is very much interested in understanding how tourists spend money.
In order to measure the price changes in three important components of tourist spending, a
statistician calculated the average cost of a hotel room per night, cost of one meal and cost of
rental car per day. The results of this are shown below.

Tourist spending component 1985 2015

Cost($) Quantity Cost($) Quantity
Hotel (one night) 55 6 220 4
Meal 10 8 26 6
Car rental (one day) 25 2 70 3
a) Calculate a simple price index of a rental car per day, taking 1985 as base year. Interpret
your answer. (3 marks)

Simple price index of a rental car per day (2015):

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I₁,₀ = Price in the current period 1 ×100

Price in the base period 0
= P₁ × 100
P₀
= 70 × 100
25
= 280

Simple Price index (1985):

I₁,₀ = P₁ ×100
P₀
= 25 × 100
25
=100

Interpretation:
According to the calculation shown above, the price of car rentals shows a 180% increase
in 2015 compared in 1985.

b) Calculate the Laspeyres Price Index (LPI) for tourist spending for year 2015. Let 1985
=100. Interpret your answer. (3 marks)

(2015): n

LPI₁,₀ = ∑Pi₁, Qi₀

i=1 × 100
n
∑Pi₀, Qi₀
i=1

= 220(6) + 26(8) + 70(2) × 100

55(6) + 10(8) + 25(2)

= 1668 × 100
460
= 362.61
1985: n

LPI₁,₀ = ∑Pi₁, Qi₀

i=1 ×100

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n
∑Pi₀, Qi₀
i=1

= 55(6) + 10(8) + 25(2) × 100

55(6) + 10(8) + 25(2)

= 460 × 100
460

= 100

Interpretation:
The cost of this tourist spending increased by 262.61% in 2015, compared to costs in
1985. The benefit of using this index is that it only requires quantity consumed data for
the base year which is easier to obtain and cheaply available in the current year.

c) Discuss when Pasche Price Index (PPI) method provides accurate changes in price. (1
mark)
 Pasche Price Index provides accurate changes in price when there is a significant change
in consumption pattern.
 It accounts for quantities consumed in current period 1 or the current year which
simultaneously avoids the problem faced with Laspeyres Price Index.

THE END

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