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In the regression model yt = β0 +β1 Xt + ut the true parameter values are given by β0 = 1 and β1 = 2
In the regression model yt = β0 +β1 Xt + ut the true parameter values are given by β0 = 1 and β1 = 2. You test the following hypothesis Η0 : β1 = 1, Η1 : β1 ≠ 1. By not rejecting Η0 you would:
Select one:
A. Commit a Type II error
B. None of these
C. Make a correct decision
D. All of these
E. Commit a Type I error
Expert Solution
In this model, the null hypothesis and the actual values are different.
Thus, a false null hypothesis has not been rejected. It should have been rejected.
By definition, this is a type II error (non-rejection of a false null hypothesis)
Hence, the correct answer is:
A. Commit a Type II error
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