Central bank believes that if consumer confidence is too high, the economy risks over heating. Low confidence is a warning that recession might be on the way. In either case, the bank may choose to intervene by altering interest rates. The ideal value for the bank's chosen measure is 50. We may assume the measure is normally distributed with standard deviation 10. The bank takes a survey of 30 people. Which returned a sample mean of 54 for the index. What would you advice the bank to do? Use = .05.
Continuous Probability Distributions
Probability distributions are of two types, which are continuous probability distributions and discrete probability distributions. A continuous probability distribution contains an infinite number of values. For example, if time is infinite: you could count from 0 to a trillion seconds, billion seconds, so on indefinitely. A discrete probability distribution consists of only a countable set of possible values.
Normal Distribution
Suppose we had to design a bathroom weighing scale, how would we decide what should be the range of the weighing machine? Would we take the highest recorded human weight in history and use that as the upper limit for our weighing scale? This may not be a great idea as the sensitivity of the scale would get reduced if the range is too large. At the same time, if we keep the upper limit too low, it may not be usable for a large percentage of the population!
Central bank believes that if consumer confidence is too high, the economy risks over
heating. Low confidence is a warning that recession might be on the way. In either case, the
bank may choose to intervene by altering interest rates. The ideal value for the bank's chosen
measure is 50. We may assume the measure is
The bank takes a survey of 30 people. Which returned a sample
would you advice the bank to do? Use = .05.
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