2. The Phillips Curve posits a trade-off between inflation and unemployment. That is, improvements in the unemployment rate (i.e. a decrease in the a. Perform the one-sided hypothesis test for the slope using a critical value approach at a 5% significance level. unemployment rate) is compensated for by a worsening inflation rate (i.e. a higher inflation rate). The Phillips Curve suggests that policy makers can choose different combinations of unemployment and inflation - e.g. they could have low unemployment as long as they are prepared to accept high inflation and Step 1: Define Ho and H1 vice versa. Ho: BI - There is relationship between the unemployment rate and the inflation Since economic theory gives us an a-priori idea of the direction of the effect of the unemployment rate on the interest rate, we should conduct a one-sided rate, suggesting the Phillips Curve trade-off exist during this time. hypothesis test in this case. Use your Excel regression output from Part 1 to perform a one-sided hypothesis test for the slope. That is, test whether the Australian data supports the view that there is a trade-off between inflation and unemployment. H1: B - There is relationship between the unemployment rate and the inflation rate, suggesting the Phillips Curve trade-off exist during this time. (exercises continue to the right) Step 2: Significance level a = 0.05 SUMMARY OUTPUT Regression Statistics Step 3: Test Statistic and Critical Value Multiple R 0.06186853 test statistic R Square 0.00382771 critical value Adjusted R Square -0.0040784 Standard Error 3.30843161 Observations 128 Step 4: Conclusion ANOVA df SS MS F Significance F Regression 5.299318231 5.299318231 0.484145253 0.487832077 Residual 126 1379.160682 10.9457197 Tota 127 1384.46 b. Use Excel's =TDIST function to verify the p-value for this test. p-value: Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 5.76667235 1.227027767 4.69970811 6.71773E-06 3.33842047 8.194924229 3.33842047 8.194924229 End of Part 2 Exercises Quarterly Unemployment Rate -0.1150879 0.165402407 -0.695805471 0.487832077 -0.442414399 0.212238601 -0.442414399 0.212238601