Economists often make forecasts of future conditions Consider the U S
Economists often make forecasts of future conditions. Consider the U.S. unemployment rate for June 2010 as predicted in December 2009 as part of a survey of economists, as shown in Table 8.6.4.
a. Find the average and the standard deviation. Briefly interpret these values.
b. Find the standard error of the average. Interpret this number carefully, by viewing this list as a random sample from a much larger list of economists that might have been selected.
c. Six months after these predictions were made, the actual unemployment rate17 was recorded as 9.5%. Compare the average forecast to this actual outcome.
d. How many standard errors away from the sample average is the actual outcome (9.5%)? Would you ordinarily be surprised by such an extreme difference?
e. Explain why the forecast error (average forecast minus actual outcome) need not be approximately equal in size to the standard error. Do this by identifying the population mean and showing that the actual outcome is not the same object.
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