James H. Stock, Mark W.

Watson - Introduction
to Econometrics, Global Edition-Pearson (2019)

  Exercises 133

Exercises
3.1 In a population, mY = 75 and s2Y = 45. Use the central limit theorem to
answer the following questions:

a. In a random sample of size n = 50, find Pr1Y 6 732.

b. In a random sample of size n = 90, find Pr176 6 Y 6 772.
c. In a random sample of size n = 120, find Pr1Y 7 692.
3.2 Let Y be a Bernoulli random variable with success probability Pr1Y = 12 = p,
and let Y1, c, Yn be i.i.d. draws from this distribution. Let pn be the fraction
of successes (1s) in this sample.
a. Show that pn = Y.
b. Show that pn is an unbiased estimator of p.
c. Show that var1pn 2 = p11 - p2 >n.
3.3 In a poll of 500 likely voters, 270 responded that they would vote for the candi-
date from the democratic party, while 230 responded that they would vote for the
candidate from the republican party. Let p denote the fraction of all likely voters
who preferred the democratic candidate at the time of the poll, and let pn be the
fraction of survey respondents who preferred the democratic candidate.

a. Use the poll results to estimate p.

b. Use the estimator of the variance of pn , np 11 - pn 2 >n, to calculate the
standard error of your estimator.
c. What is the p-value for the test of H0 : p = 0.5, vs. H1 : p ≠ 0.5?
d. What is the p-value for the test of H0 : p = 0.5, vs. H1 : p 7 0.5?
e. Why do the results from (c) and (d) differ?
f. Did the poll contain statistically significant evidence that the democratic
candidate was ahead of the republican candidate at the time of the poll?
Explain.
3.4 Using the data in Exercise 3.3:

a. Construct a 95% confidence interval for p.

b. Construct a 99% confidence interval for p.
c. Why is the interval in (b) wider than the interval in (a)?
d. Without doing any additional calculations, test the hypothesis
H0 : p = 0.50 vs. H1 : p ≠ 0.50 at the 5% significance level.

3.5 A survey of 1000 registered voters is conducted, and the voters are asked to
choose between candidate A and candidate B. Let p denote the fraction of
voters in the population who prefer candidate A, and let pn denote the fraction
of voters in the sample who prefer candidate A.

a. You are interested in the competing hypotheses H0 : p = 0.4 vs.

H1 : p ≠ 0.4. Suppose that you decide to reject H0 if " pn - 0.4 " 7 0.01.

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 James H. Stock, Mark W. Watson - Introduction
to Econometrics, Global Edition-Pearson (2019)

134 CHAPTER 3  Review of Statistics

i. What is the size of this test?

ii. Compute the power of this test if p = 0.45.
b. In the survey, pn = 0.44.
i. Test H0 : p = 0.4 vs. H1 : p ≠ 0.4 using a 10% significance level.
ii. Test H0 : p = 0.4 vs. H1 : p 6 0.4 using a 10% significance level.
iii. Construct a 90% confidence interval for p.
iv. Construct a 99% confidence interval for p.
v. Construct a 60% confidence interval for p.
c. Suppose that the survey is carried out 30 times, using independently
selected voters in each survey. For each of these 30 surveys, a 90% confi-
dence interval for p is constructed.
i. What is the probability that the true value of p is contained in all 30
of these confidence intervals?
ii. How many of these confidence intervals do you expect to contain the
true value of p?
d. In survey jargon, the “margin of error” is 1.96 * SE1pn 2; that is, it is half
the length of the 95% confidence interval. Suppose you want to design
a survey that has a margin of error of at most 0.5%. That is, you want
Pr( " pn - p " 7 0.005 … 0.005). How large should n be if the survey uses
simple random sampling?
3.6 Let Y1 c, Yn be i.i.d. draws from a distribution with mean m. A test of
H0 : m = 10 vs. H1 : m ≠ 10 using the usual t-statistic yields a p-value of 0.07.

a. Does the 90% confidence interval contain m = 10? Explain.

b. Can you determine if m = 8 is contained in the 95% confidence
interval? Explain.

3.7 In a given population, 50% of the likely voters are women. A survey using
a simple random sample of 1000 landline telephone numbers finds 55%
women. Is there evidence that the survey is biased? Explain.

3.8 A new version of the SAT is given to 1500 randomly selected high school
seniors. The sample mean test score is 1230, and the sample standard deviation
is 145. Construct a 95% confidence interval for the population mean test score
for high school seniors.

3.9 Suppose that a plant manufactures integrated circuits with a mean life of
1000 hours and a standard deviation of 100 hours. An inventor claims to have
developed an improved process that produces integrated circuits with a lon-
ger mean life and the same standard deviation. The plant manager randomly
selects 50 integrated circuits produced by the process. She says that she will
believe the inventor’s claim if the sample mean life of the integrated circuits

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 James H. Stock, Mark W. Watson - Introduction
to Econometrics, Global Edition-Pearson (2019)

  Exercises 135

is greater than 1100 hours; otherwise, she will conclude that the new process
is no better than the old process. Let m denote the mean of the new process.
Consider the null and alternative hypotheses H0 : m = 1000 vs. H1 : m 7 1000.

a. What is the size of the plant manager’s testing procedure?

b. Suppose the new process is in fact better and has a mean integrated
circuit life of 1150 hours. What is the power of the plant manager’s testing
procedure?
c. What testing procedure should the plant manager use if she wants the
size of her test to be 1%?
3.10 Suppose a new standardized test is given to 150 randomly selected third-grade
students in Amsterdam. The sample average score Y on the test is 42 points,
and the sample standard deviation, sY , is 6 points.
a. The authors plan to administer the test to all third-grade students in
Amsterdam. Construct a 99% confidence interval for the mean score of
all third graders in Amsterdam.
b. Suppose the same test is given to 300 randomly selected third graders
from Rotterdam, producing a sample average of 48 points and sample
standard deviation of 10 points. Construct a 95% confidence interval for
the difference in mean scores between Rotterdam and Amsterdam.
c. Can you conclude with a high degree of confidence that the population
means for Rotterdam and Amsterdam students are different? (What is
the standard error of the difference in the two sample means? What is the
p-value of the test of no difference in means versus some difference?)
∼ ∼
3.11 Consider the estimator Y , defined in Equation (3.1). Show that (a) E1Y 2 = mY
∼
and (b) var1Y 2 = 1.25s2Y > n.

3.12 To investigate possible gender discrimination in a British firm, a sample of 120

men and 150 women with similar job descriptions are selected at random. A
summary of the resulting monthly salaries follows:

Average Salary 1Y 2 Standard Deviation 1sY 2 n

Men £8200 £450 120

Women £7900 £520 150

a. What do these data suggest about wage differences in the firm? Do

they represent statistically significant evidence that average wages of
men and women are different? (To answer this question, first, state the
null and alternative hypotheses; second, compute the relevant t-statistic;
third, compute the p-value associated with the t-statistic; and, finally, use
the p-value to answer the question.)
b. Do these data suggest that the firm is guilty of gender discrimination in
its compensation policies? Explain.

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