Question

The Federal Reserve conducts monetary policy with a variety of goals in mind. Increasing the money supply can help spur investment and boost production in the economy, and the most common ways of increasing the money supply are buying bonds off of the open market, or lowering the discount rate, making it cheaper to borrow for investment. However, doing this comes at a cost of inflation, because there are more dollars chasing goods than before. Recently, the Federal Reserve has raised the discount rate, indicating concern about inflation in the future. Suppose the Federal Reserve is concerned that inflation will be higher than 1.75 percent per year. In Q2 of 2018, the Survey of Professional Forecasters provided their predictions for inflation. 33 professional forecasters produced a sample estimate of 2.01 percent with standard deviation of.67. Do the forecasters' predictions line up with the Fed's concerns? Yes they do O No they don't

Answer 1

Using TI 84 calculator

press STAT then TESTS and select TTest

μη = 1.75 Τ = 2.01 S = 0.67 η = 33 μ:> μο CALCULATE

We get

test statistic t = 2.229

p value = 0.0165 < significance level (0.05)

So, result is statistically significant and we failed to reject the null hypothesis.

Therefore, answer is option A "yes, they do" because the mean is significantly higher than 1.75%

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