The population regression model is Income; We want to test if Education is a significant predictor/explanatory variable in explaining Income levels. What would be our null and alternative hypothesis for this test? Ho: E = 0 vs ε = 0 Ο Ηo : β1 = 0 vs β1 7 0 Ο Ho : β = 0 vs βο # 0 O Ho income = = Bo + B₁ Education; + Ei 0 vs Ha income #0

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**Study on Education and Income**

A survey was conducted on 700 Californians older than 30 years of age. The study aims to understand the relationship between years of education and yearly income in dollars. In this context, the response variable is income in dollars, and the explanatory variable is years of education.

A simple linear regression model was employed, and the output from the statistical software R is provided below:

```
lm(formula = Income ~ Education, data = CA)
```

### Model Output

#### Coefficients:
|                 | Estimate | Std. Error | t value | Pr(>|t|)     |
|-----------------|----------|------------|---------|-------------|
| (Intercept)     | 25200.25 | 1488.94    | 16.93   | 3.08e-10 ***|
| Education       | 2905.35  | 112.61     | 25.80   | 1.49e-12 ***|

#### Other Statistics:
- **Residual Standard Error**: 32400 on 698 degrees of freedom
- **Multiple R-squared**: 0.7602

**Explanation of the Output:**

- **Intercept (25200.25)**: This value suggests that an individual with zero years of education would have an expected yearly income of $25,200.25.
- **Education (2905.35)**: This coefficient indicates that for each additional year of education, an individual's income is expected to increase by $2,905.35, on average.
- **Standard Error**: Represents the standard deviation of the error term for the coefficient estimates.
- **t value**: The test statistic for the null hypothesis that the coefficient is equal to zero.
- **Pr(>|t|)**: The p-value associated with the t-statistic; a very small p-value (typically < 0.05) indicates that the coefficient is statistically significant.
- **Residual Standard Error (32400)**: Provides an estimate of the standard deviation of the error term.
- **Multiple R-squared (0.7602)**: Represents the proportion of the variance in the dependent variable (Income) that is predictable from the independent variable (Education). A value of 0.7602 suggests a strong relationship.

Overall, the regression analysis indicates a significant positive relationship between years of education and yearly income, with higher levels of education correlating with higher income
Transcribed Image Text:**Study on Education and Income** A survey was conducted on 700 Californians older than 30 years of age. The study aims to understand the relationship between years of education and yearly income in dollars. In this context, the response variable is income in dollars, and the explanatory variable is years of education. A simple linear regression model was employed, and the output from the statistical software R is provided below: ``` lm(formula = Income ~ Education, data = CA) ``` ### Model Output #### Coefficients: | | Estimate | Std. Error | t value | Pr(>|t|) | |-----------------|----------|------------|---------|-------------| | (Intercept) | 25200.25 | 1488.94 | 16.93 | 3.08e-10 ***| | Education | 2905.35 | 112.61 | 25.80 | 1.49e-12 ***| #### Other Statistics: - **Residual Standard Error**: 32400 on 698 degrees of freedom - **Multiple R-squared**: 0.7602 **Explanation of the Output:** - **Intercept (25200.25)**: This value suggests that an individual with zero years of education would have an expected yearly income of $25,200.25. - **Education (2905.35)**: This coefficient indicates that for each additional year of education, an individual's income is expected to increase by $2,905.35, on average. - **Standard Error**: Represents the standard deviation of the error term for the coefficient estimates. - **t value**: The test statistic for the null hypothesis that the coefficient is equal to zero. - **Pr(>|t|)**: The p-value associated with the t-statistic; a very small p-value (typically < 0.05) indicates that the coefficient is statistically significant. - **Residual Standard Error (32400)**: Provides an estimate of the standard deviation of the error term. - **Multiple R-squared (0.7602)**: Represents the proportion of the variance in the dependent variable (Income) that is predictable from the independent variable (Education). A value of 0.7602 suggests a strong relationship. Overall, the regression analysis indicates a significant positive relationship between years of education and yearly income, with higher levels of education correlating with higher income
### Regression Analysis and Hypothesis Testing

The population regression model is given by:

\[ \text{Income}_i = \beta_0 + \beta_1 \text{Education}_i + \epsilon_i \]

We are interested in testing whether Education is a significant predictor or explanatory variable in explaining Income levels.

**Objective:**
Determine the null and alternative hypothesis for testing the significance of the predictor variable, Education.

**Hypotheses:**

- **Null Hypothesis (\( H_0 \))**: \(\beta_1 = 0\)
- **Alternative Hypothesis (\( H_a \))**: \(\beta_1 \neq 0\)

**Question:**
Which of the following represents our null and alternative hypothesis for this test?

1. \( H_0 : \epsilon = 0 \) vs \( \epsilon \neq 0 \)
2. \( H_0 : \beta_1 = 0 \) vs \( \beta_1 \neq 0 \)
3. \( H_0 : \beta_0 = 0 \) vs \( \beta_0 \neq 0 \)
4. \( H_0 : \text{income} = 0 \) vs \( H_a : \text{income} \neq 0 \)

### Explanation:
To test if Education (\(\text{Education}_i\)) is a significant predictor of Income (\(\text{Income}_i\)), we focus on the slope coefficient, \(\beta_1\). The appropriate hypothesis test involves testing whether \(\beta_1 = 0\) (no effect of Education on Income) against the alternative that \(\beta_1 \neq 0\) (a significant effect of Education on Income). Thus, the correct choice is:

\[ H_0 : \beta_1 = 0 \ \text{vs} \ \beta_1 \neq 0 \]

This test examines if the coefficient \(\beta_1\) is statistically different from zero, indicating the importance of Education as an explanatory variable for Income.
Transcribed Image Text:### Regression Analysis and Hypothesis Testing The population regression model is given by: \[ \text{Income}_i = \beta_0 + \beta_1 \text{Education}_i + \epsilon_i \] We are interested in testing whether Education is a significant predictor or explanatory variable in explaining Income levels. **Objective:** Determine the null and alternative hypothesis for testing the significance of the predictor variable, Education. **Hypotheses:** - **Null Hypothesis (\( H_0 \))**: \(\beta_1 = 0\) - **Alternative Hypothesis (\( H_a \))**: \(\beta_1 \neq 0\) **Question:** Which of the following represents our null and alternative hypothesis for this test? 1. \( H_0 : \epsilon = 0 \) vs \( \epsilon \neq 0 \) 2. \( H_0 : \beta_1 = 0 \) vs \( \beta_1 \neq 0 \) 3. \( H_0 : \beta_0 = 0 \) vs \( \beta_0 \neq 0 \) 4. \( H_0 : \text{income} = 0 \) vs \( H_a : \text{income} \neq 0 \) ### Explanation: To test if Education (\(\text{Education}_i\)) is a significant predictor of Income (\(\text{Income}_i\)), we focus on the slope coefficient, \(\beta_1\). The appropriate hypothesis test involves testing whether \(\beta_1 = 0\) (no effect of Education on Income) against the alternative that \(\beta_1 \neq 0\) (a significant effect of Education on Income). Thus, the correct choice is: \[ H_0 : \beta_1 = 0 \ \text{vs} \ \beta_1 \neq 0 \] This test examines if the coefficient \(\beta_1\) is statistically different from zero, indicating the importance of Education as an explanatory variable for Income.
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