Keynes’s Analysis of Capitalist Depressions
Throughout the remainder of the General Theory, Keynes consistently assumed that the rate of utilization of the productive capacity of physical capital declined sharply in times of depression, and the number of employed workers declined sharply as well. Keynes’s theory was addressed to those obvious realities of depression in an insightful and coherent manner. But because it is an equally obvious fact of capitalist depressions that the real wages of workers did not increase when employment decreased, Keynes’s adherence to the marginal productivity theory that wages were always equal to the workers’ marginal productivity contradicted the rest of his theory.
As we have frequently pointed out in this book, the contradictions in a great thinker’s theory (and Keynes was a logician of the first order) give the best insights into the thinker’s ideological orientation. Keynes wished to furnish capitalist governments with theoretical insights that would help to save capitalism. In doing so, it was necessary for him to abandon some tenets of neoclassical theory. But, as we will see, he wanted to retain as much neoclassical ideology as possible. So he adhered to both the marginal productivity theory of distribution and the belief that the free market efficiently allocated resources (once full employment was attained), despite the fact that both these tenets of neoclassical ideology were logically tied to the belief that the free market automatically created a full employment, Pareto optimal situation. Even with theorists having the extraordinary logical ability of Keynes, ideology very frequently wins out over logic.
Keynes rejected the notion that if a capitalist economy started from a situation of full employment, then the rate of interest would automatically equate saving and investment and thus keep aggregate demand equal to aggregate supply. His major departures from the doctrines that comprised the neoclassical theory of automaticity were twofold: First, although he accepted the neoclassical notion that saving was influenced by the rate of interest, he insisted that the level of aggregate income was a far more important influence on the amount of saving than was the rate of interest. Second, he argued that saving and investment did not determine the rate of interest. The interest rate was a price that equalized the demand and supply of money—something quite different from (although not unrelated to) investment and saving.
These were very important departures indeed, because, although Keynes was unaware of it, they destroyed not only the neoclassical theory of the automaticity of the market but also the two other pillars of neoclassical ideology—the marginal productivity theory of distribution and the theory that a free, competitive market will result in a Pareto optimal allocation of resources. Keynes wanted to achieve the first result (the destruction of the belief in the automaticity of the market) but ...
Contemporary philippine arts from the regions_PPT_Module_12 [Autosaved] (1).pptx
Keynes’s Analysis of Capitalist DepressionsThroughout the remain
1. Keynes’s Analysis of Capitalist Depressions
Throughout the remainder of the General Theory, Keynes
consistently assumed that the rate of utilization of the
productive capacity of physical capital declined sharply in times
of depression, and the number of employed workers declined
sharply as well. Keynes’s theory was addressed to those obvious
realities of depression in an insightful and coherent manner. But
because it is an equally obvious fact of capitalist depressions
that the real wages of workers did not increase when
employment decreased, Keynes’s adherence to the marginal
productivity theory that wages were always equal to the
workers’ marginal productivity contradicted the rest of his
theory.
As we have frequently pointed out in this book, the
contradictions in a great thinker’s theory (and Keynes was a
logician of the first order) give the best insights into the
thinker’s ideological orientation. Keynes wished to furnish
capitalist governments with theoretical insights that would help
to save capitalism. In doing so, it was necessary for him to
abandon some tenets of neoclassical theory. But, as we will see,
he wanted to retain as much neoclassical ideology as possible.
So he adhered to both the marginal productivity theory of
distribution and the belief that the free market efficiently
allocated resources (once full employment was attained),
despite the fact that both these tenets of neoclassical ideology
were logically tied to the belief that the free market
automatically created a full employment, Pareto optimal
situation. Even with theorists having the extraordinary logical
ability of Keynes, ideology very frequently wins out over logic.
Keynes rejected the notion that if a capitalist economy started
from a situation of full employment, then the rate of interest
would automatically equate saving and investment and thus
keep aggregate demand equal to aggregate supply. His major
departures from the doctrines that comprised the neoclassical
2. theory of automaticity were twofold: First, although he accepted
the neoclassical notion that saving was influenced by the rate of
interest, he insisted that the level of aggregate income was a far
more important influence on the amount of saving than was the
rate of interest. Second, he argued that saving and investment
did not determine the rate of interest. The interest rate was a
price that equalized the demand and supply of money—
something quite different from (although not unrelated to)
investment and saving.
These were very important departures indeed, because, although
Keynes was unaware of it, they destroyed not only the
neoclassical theory of the automaticity of the market but also
the two other pillars of neoclassical ideology—the marginal
productivity theory of distribution and the theory that a free,
competitive market will result in a Pareto optimal allocation of
resources. Keynes wanted to achieve the first result (the
destruction of the belief in the automaticity of the market) but
leave the other two concepts intact.
The principle that underlay his departure from the neoclassical
theory of saving was referred to by Keynes as the “consumption
function.” He insisted that the level of consumption and the
level of saving were primarily a “function of the level of
income,” that is, they were determined primarily by the level of
income. He admitted that “substantial changes in the rate of
interest … may make some difference”17 in the level of saving,
but this influence was much less important than the influence
exerted by the level of income:
For a man’s habitual standard of life usually has first claim on
his income, and he is apt to save the difference which discovers
itself between his actual income and the expense of his habitual
standard. … It is also obvious that a higher absolute level of
income will tend, as a rule, to widen the gap between income
and consumption. For the satisfaction of the immediate primary
needs of a man and his family is usually a stronger motive than
the motives toward accumulation. … These reasons will lead, as
a rule, to a greater proportion of income being saved as real
3. income increases.18
The consumption function depicted the relation of saving and
consumption to the level of income. The relationship between a
change in income and the resultant change in saving (or the
ratio of the change in saving to the change in income) was
defined as the “marginal propensity to save.” The relationship
between a change in income and the resultant change in
consumption (or the ratio of the change in consumption to the
change in income) was defined as the “marginal propensity to
consume.” The marginal propensity to consume and the
marginal propensity to save were both assumed to be less than
one, and neither was primarily determined by or among the
primary determinants of the rate of interest.
Keynes’s second major departure from the neoclassical theory
of the automaticity of the market was his rejection of the
neoclassical theory of the determination of the interest rate:
The propensity to consume … determines for each individual
how much of his income he will consume and how much he will
reserve [save] in some form of command over future
consumption.
But this decision having been made, there is a further decision
which awaits him, namely, in what form he will hold the
command over future consumption. … Does he want to hold it
in the form of immediate liquid command (i.e., in money or its
equivalent)? Or is he prepared to part with immediate command
for a specified or indefinite period of time …? In other words,
what is the degree of his liquidity-preference—where an
individual’s liquidity preference is given by a schedule of the
amounts of his resources … which he will wish to retain in the
form of money in different sets of circumstances? …
It should be obvious that the rate of interest cannot be a return
to saving or waiting as such. For if a man hoards his savings in
cash, he earns no interest, though he saves just as much as
before. On the contrary, the mere definition of the rate of
interest tells us in so many words that the rate of interest i s the
reward for parting with liquidity for a specified period. For the
4. rate of interest is, in itself, nothing more than the inverse
proportion between a sum of money and what can be obtained
for parting with control over the money in exchange for debt for
a stated period of time.
Thus the rate of interest at any time, being the reward for
parting with liquidity, is a measure of the unwillingness of
those who possess money to part with their liquid control over
it. The rate of interest is not the “price” which brings into
equilibrium the demand for resources to invest with the
readiness to abstain from present consumption. It is the “price”
which equilibrates the desire to hold wealth in the form of cash
with the available quantity of cash. … If this explanation is
correct, the quantity of money is the other factor, which, in
conjunction with liquidity preference, determines the actual rate
of interest in given circumstances.19
The rate of interest was determined, then, by the demand for
and supply of money. At any given time the supply of money
was constant at a level determined by the actions of the central
bank or the monetary authorities. The demand for money—
which was the same as the liquidity preference—was, according
to Keynes, determined by three motives:
(i) the transactions motive, i.e. the need for cash for the current
transaction of personal and business exchanges; (ii) the
precautionary motive, i.e. the desire for security as to the future
cash equivalent of a certain proportion of total resources; and
(iii) the speculative motive, i.e. the object of securing profit
from knowing better than the market what the future will bring
forth.20
The portion of demand for money that arose from the
speculative motive was related to the rate of interest. To
understand this relationship, we must understand how the price
of a bond (or a security, or any kind of interest-paying I.O.U.)
reflects the rate of interest. If we purchase a bond that promises
to pay us $1,000 in one year, and the rate of interest is 3
percent, then the current value of that bond is approximately
$970 (the extra $30 being the interest we will earn in one year).
5. If, however, the day after we purchase that bond, the rate of
interest rises to 6 percent, then the value of a $1,000 bond falls
to approximately $940 (the extra $60 being the interest that can
be earned at 6 percent). It is obvious that if we are then forced
to sell the bond, we will suffer a loss. Moreover, even if we do
not anticipate being forced to sell the bond, but we do expect
the interest rate to rise to 6 percent, then we are better off not to
buy the bond when the interest rate is 3 percent. If we instead
hold the cash and wait for the interest rate to go up, then (if our
expectation about the change in the interest rate proves to be
correct) we can buy the bond for $940 rather than $970, and
apply the extra $30 toward the purchase of another bond with
which to earn more interest.
Therefore, in Keynes’s view, a portion of the demand for money
depended on expectations about what will happen to the interest
rate in the future. When the interest rate was very high (in
relation to previous rates, or what was considered a normal
rate), very few people would expect it to go even higher in the
future; consequently, very few people would hold cash for
speculative purposes. At lower interest rates, more people
would be inclined to believe that the interest rate would
increase; consequently, more money would be held for
speculative purposes by those who expected the interest rate to
rise in the future. Therefore, the amount of money demanded for
speculative purposes declined as the interest rate rose, and
increased as the interest rate fell.
Figure 15.3 illustrates Keynes’s theory of the interest rate and
its relation to saving and investment. It can be contrasted to the
orthodox neoclassical view illustrated in Figure 15.2. In part (a)
of the figure, the demand for money reflects in part the
speculative motive and hence declines as the interest rate rises.
With the original supply of money (determined by the monetary
authorities) r1 was the interest rate that equated the demand for
and supply of money. But at r1 there was an excess of saving
over investment, as illustrated in part (b). If this situation
persisted, then aggregate demand would be less than aggregate
6. supply. All output could not be sold. Businesses, unable to sell
all that they had produced, found that their inventories of
unsold goods were increasing. Each business saw only its own
problem: that it had produced more than it could sell. It
therefore reduced production in the next period. Most
businesses, being in the same situation, did the same thing. The
results were a large reduction of production, a decrease in
employment, and a decline in income. With the decline in
income, however, even less would be spent on goods and
services in the next period. So businessmen again found that
even at the lower level of production, they were unable to sell
all they had produced. They again cut back production, and the
downward spiral continued.
Under these circumstances, businesses had little or no incentive
to expand their capital goods (because excess capacity already
existed), and, therefore, investment fell drastically.
Expenditures of all types plummeted. As income declined,
saving declined more than proportionately. This process
continued until the declines in income had reduced saving to the
point where it no longer exceeded the reduced level of
investment. At this low level of income, equilibrium was
restored. Leakages from the income-expenditure flow were
again equal to the injections into it. The economy was
stabilized, but at a level where high unemployment and
considerable unused productive capacity existed.
But the problem, as posed in Figure 15.3, was easily remedied.
The monetary authorities could increase the supply of money to
the point where was the prevailing rate of interest (in Figure
15.3). At that interest rate, saving equaled investment,
aggregate demand equaled aggregate supply, and there was no
problem. There were some situations, in Keynes’s view, in
which monetary policy (increasing or decreasing the money
supply) was sufficient to maintain full employment. But there
were also some situations in which monetary policy was not
sufficient. Keynes was more interested in these situations
because he believed them to be more realistic characterizations
7. of the actual conditions that both precipitated and sustained
depressions in capitalist economies.
The first such situation occurred when the distribution of
income was so unequal (thereby increasing saving by putting
more income into the hands of the wealthy, who saved much
more than did workers) and the full-employment level of output
and income was so high that, regardless of how low the rate of
interest sank, saving and investment could not be equated. This
situation is illustrated in Figure 15.4, which is self-explanatory.
But Keynes did not believe that it required such a drastic
discrepancy between saving and investment to create a situation
in which monetary policy was unable to prevent a disastrous
depression. It was possible, he argued, that if the rate of interest
that would equate the full-employment levels of saving and
investment was very low, monetary policy might not be able to
lower the interest rate sufficiently. If monetary authorities
pushed the rate of interest so low that nearly everyone expected
the interest rate to rise significantly in the future, then people
would prefer to hold cash rather than securities even when the
monetary authorities dramatically increased the amount of
money in the system:
Circumstances may develop in which even a large increase in
the quantity of money may exert a comparatively small
influence on the rate of interest. … Opinion about the future of
the rate of interest may be so unanimous that a small change in
present rates may cause a mass movement of cash [into private
hoards].21
Such a situation is depicted in Figure 15.5. It can be seen that
when the rate of interest approaches some minimum point, the
demand for money flattens out, indicating that even with large
increases in the supply of money, most of the increased money
supply will be held in private hoards. In Figure 15.5, a large
increase in the money supply results in a very small decline in
the rate of interest and still leaves an excess of saving over
investment.
In either of the situations depicted in Figures 15.4 and 15.5, the
8. free, competitive market would lead society into a disastrous
depression; monetary policy would be useless in preventing the
social calamity. It was obvious that something more
fundamental and more powerful was needed.
Keynes’s analysis was not, in its essentials, drastically different
from those offered by Marx (Chapter 9) and Hobson (Chapter
13). The principal cause of a depression was, in the opinion of
all three thinkers, the inability of capitalists to find sufficient
investment opportunities to offset the increasing levels of
saving generated by economic growth. Keynes’s unique
contribution was to show how the relation of saving to income
could lead to a stable but depressed level of income, with
widespread unemployment.
Marx had believed the disease to be incurable. Hobson had
prescribed measures to equalize the distribution of income and
thereby reduce saving as a cure. Could Hobson’s prescription
work? This probably is not a very meaningful question. In most
industrial capitalist countries, wealth and economic power
determine political power, and those who wield power have
never been willing to sacrifice it to save the economic system.
In the United States, for example, out of 300,000 nonfinancial
corporations existing in 1925, the largest 200 made
considerably more profit than the other 299,800 combined. The
wealthiest 5 percent of the population owned virtually all the
stocks and bonds and received in excess of 30 percent of the
income. Needless to say, this 5 percent dominated American
politics. In these circumstances, speculating about what would
happen if the income and wealth were radically redistributed
amounts to mere daydreaming. Keynes’s answer to the problem
was more realistic. Government could step in when saving
exceeded investment, borrow the excess saving, then spend the
money on socially useful projects that would not increase the
economy’s productive capacity or decrease the investment
opportunities of the future. This government spending would
increase the injections into the spending stream and create a
full-employment equilibrium. In doing so, it would not add to
9. the capital stock. Therefore, unlike investment spending, it
would not make a full-employment level of production more
difficult to attain in the next period. Keynes summarized his
position thus:
Ancient Egypt was doubly fortunate, and doubtless owed to this
its fabled wealth, in that it possessed two activities, namely,
pyramid-building as well as the search for precious metals, the
fruits of which, since they could not serve the needs of man by
being consumed, did not stale with abundance. The Middle Ages
built cathedrals and sang dirges. Two pyramids, two masses for
the dead, are twice as good as one: but not so two railways from
London to York.22
What type of expenditures ought the government to make?
Keynes himself had a predilection toward useful public works
such as the construction of schools, hospitals, parks, and other
public conveniences. He realized, however, that this would
probably benefit middle- and lower-income recipients much
more than it would the wealthy. Because the wealthy had the
political power, they would probably insist on policies that
would not redistribute income away from them. He realized that
it might be politically necessary to channel this spending into
the hands of the large corporations, even though little that was
beneficial to society would be accomplished directly.
If the Treasury were to fill old bottles with banknotes, bury
them at suitable depths in disused coal mines which are then
filled up to the surface with town rubbish, and leave it to
private enterprise on well-tried principles of laissez faire to dig
the notes up again … there need be no more unemployment. …
It would indeed be more sensible to build houses and the like;
but if there are political and practical difficulties in the way of
this, the above would be better than nothing.The Military
Economy
Between 1947 and the mid-1970s, the American government
spent nearly $2 trillion (numbers of that magnitude are hard to
conceptualize: that figure is 2,000 billions of dollars) on
military expenditures.25 The total expenditures for wars and
10. preparation for potential wars, past, present, and future,
including both warfare and related expenditures, grew from
$27.9 billion per year in 1947 to $112.3 billion in
1971.26 These figures represent a total of 12.2 percent of GNP
in 1947 and 11.1 percent in 1971. Moreover, if one analyzes the
“multiplier” effect of further aggregate demand created by these
military expenditures, the impact was much larger. The most
careful study of these effects resulted in two estimates,
constituting lower and upper limits. The conservative estimate
showed that, in 1947, military expenditures accounted, directly
and indirectly (through the induced or multiplier effect), for
24.4 percent of aggregate demand in 1947 and 22.2 percent in
1971. Using the higher estimate, militarism accounted for 30.5
percent of aggregate demand in 1947 and 27.8 percent in
1971.27 In only a few of the intervening years was the figure
very slightly lower, and in several of the intervening years the
figure was higher. In the 1970s military spending grew at a
somewhat lower rate but it virtually exploded in the 1980s.
During the late 1970s many economists were predicting a severe
recession was at hand. Indeed, at the time, the recession of
1981–82 was the worst since the 1930s. It was not, however,
nearly as bad as most economists had predicted. The remaining
years of the 1980s were years of economic prosperity. One does
not have to look far to find the reason for this prosperity.
Between 1980 and 1987, American military expenditures more
than doubled. Defense spending was $134 billion in 1980 and
had soared to $210 billion by 1983. During 1982 alone, the
construction of two nuclear-powered aircraft carriers, two
nuclear-powered attack submarines, and five warships; the
procurement of the F-15 jet fighter; and the work of the B-1B
and Stealth bomber and the MX missile created about 300,000
new jobs. General Dynamics hired 7,000 new employees to
work on the M 1 tank project. Rockwell International added
4,000 additional employees to work on the B-1B bomber.
Boeing, Lockheed, Raytheon, McDonnell Douglass, United
Technologies, and General Electric all substantially increased
11. their workforces to produce new military hardware. The U.S.
Defense Department increased its employment by 255,000 new
jobs between 1981 and 1985.28 There can be no doubt that the
prosperity of the 1980s was due primarily to the huge growth in
militarism. President Bush’s budget proposal for the fiscal year
1991 included over $303 billion directly for defense and another
$65 billion for “international affairs,” “science, space, and
technology,” and “veterans’ benefits,” most of which are
disguised military spending.
Defense spending remained high from 1990 to 1999 averaging
approximately $280 billion annually. Though looking back, the
1990s represent a sort of reprieve from the typical defense
spending. According to the Office of Management and Budget
(OMB) figures, the average growth in defense spending during
the 1990s was nearly zero, compared to 9.6 percent a decade
earlier. Moreover, defense spending as a percentage of total
government expenditures actually decreased fairly consistently
from 23.9 percent in 1990 to 16.1 percent in 1999, compared
with an almost equally consistent increase from 22.7 percent in
1980 to 26.5 percent in 1989. Another way to consider the size
of defense spending is in relation to GDP. Throughout much of
the 1980s defense spending relative to GDP was in the high 5
percent to low 6 percent range, averaging 5.8 percent for the
decade. This figure fell throughout the 1990s ending at 3
percent in 1999, with an average for the decade of 4 percent
annually. Since 2000, however, these figures have all turned
around. The annual growth in defense spending shot back up
averaging 9.5 percent from 2000 to 2009 (a figure comparable
to the 1980s). Defense spending as a percent of total
government expenditures rose, again fairly consistently, from
16.5 percent in 2000 to an estimated 21.7 percent in 2009. The
movement was similar for defense spending relative to GDP,
rising from 3 percent at the beginning of the decade to an
estimated 4.5 percent in 2009. From a longer historical
perspective dating back to 1940, it appears that the 1990s
represented a low in defense spending relative to the entire
12. budget and GDP. Unfortunately, the United States appears to be
slowly returning to the more typical levels at the current time.
Moreover, the correlation between changes in military spending
and the cyclical instability of capitalism is very
significant.29 There seems to be little question that militarism
has been the contemporary capitalist equivalent to the pyramids
of Egypt and the cathedrals of the Middle Ages.
Has this militarism been a necessary response to international
exigencies, or do military expenditures have unique features
that make them particularly effective and desirable forms of
government expenditures? A full answer to this question would
necessitate an extensive discussion of the Cold War and its
putative demise—something that cannot be done within the
scope of this book. A growing body of historical literature has
amassed considerable evidence, however, to show that the Cold
War was the deliberate and fraudulent creation of American
politicians, capitalists, and the capitalist-controlled press.30 If
this position is correct, then the Cold War must be revived or a
suitable substitute must be found. The wars in Iraq and
Afghanistan might be the prototypes of a new world policing
role for the United States. This could be our new Cold War.
Whatever position one takes on the nature of the Cold War,
however, two facts clearly emerge from the study of American
militarism. First, militarism offers several unique and distinct
advantages to capitalists over nearly any other form of
government spending; and second, militarism has become so
thoroughly enmeshed in the structure of the American economy
that it is increasingly inconceivable that it can ever be
extirpated short of a complete restructuring of the entire
American social, economic, and political system.
Militarism offers innumerable advantages to large corporations:
(1) it stimulates aggregate demand without redistributing
income from the rich to the poor; (2) there can never be too
much elaborate weaponry; government-financed research
constantly renders military hardware obsolete, and horror
stories convince most of the public that continued escalation of
13. the arms race is absolutely necessary for survival; (3) the
capital goods industry—the most volatile and unstable segment
of a capitalist economy—is kept operating at near capacity by
military production, and, yet, this does not increase the
productive capacity of the capitalist economy. As a result,
militarism does not worsen the persistent problem of excess
aggregate productive capacity; (4) because virtually all military
production is done by giant private corporations or
subcontracted to smaller private corporations, it does not
compete with private profit making; on the contrary, it reduces
the anarchy of the free market by giving corporations a stable
core of demand not subject to the vagaries of the market; (5)
although precise statistics to substantiate this are unobtainable,
most evidence points to military production being more
profitable than production for the free market; (6) as Rosa
Luxemburg pointed out, large military establishments are
necessary to maintain and enlarge the worldwide “sphere of
influence” of capitalist countries, in which profitable foreign
investment and very favorable terms of trade can be assured; (7)
as Veblen pointed out, jingoism, patriotism, and militarism are
perhaps the most effective means of keeping workers docile and
promoting the view among workers that their interests are in
harmony with the interests of the capitalists.
The price that we have paid for this militarism, however, is
reflected in the evolution of the military-industrial complex, in
which militarism has become a permanent, thoroughly
integrated cancer in the very heart of the structure of American
industry.
Many of the largest and most powerful of American
corporations are heavily dependent on military contracts.
Equally important is the fact that a large number of cities,
regions, and even whole states are heavily economically
dependent on these corporations or on large military bases to
support their local economies and maintain employment at a
time when persistently high unemployment plagues the
economy. A large reduction in the output of military hardware
14. or in the number or size of these military bases can
economically ruin whole communities. Therefore, the slightest
hint of a reduction in militarism brings powerful protests from
military leaders, large corporations, politicians, and labor union
leaders.
In 1989 and 1990, there was a good deal of talk about the end of
the Cold War. Because most East European economies,
including the Soviet Union, were undertaking reforms that were
pushing their economies toward market capitalism, it became
difficult to use the horror of communism as a pretense for
massive military expenditures. Yet, there is a powerful built-in
resistance to the reduction of these expenditures, as seen in the
return of higher growth and larger portions of the budget
devoted to defense spending beginning again in 2000. If
military expenditures are significantly reduced, the U.S.
economy faces the prospect of stagnation and depression. It
would appear as though the United States cannot allow the Cold
War to “cool off” to a very great extent without finding some
alternative to the “dangers of communism.” Iraq, Afghanistan,
or any other nonindustrialized nation can never, by itself,
replace the Soviet Union as the new enemy because they can be
destroyed. The problem of finding an enemy to justify military
expenditures is likely to grow worse.
Problem 1: - work on this
Astra Zeneca needs to understand if there is a discrepancy
between how females (“F”) react to their COVID booster and
how males (“M”) do. They sample ten thousand people for
whether or not they've had no reaction to the booster (“-” :
negative reaction) or an obvious reaction (“+” : positive
reaction). In column A are the genders of the 10000 people,
and in column B their reaction. Determine in cell E1 the
number of males, in cell E2 the number of females, in cell E4
15. the number of positive reactions, and in cell E5 the number of
negative reactions. Determine in cell E7 the number of positive
reactions among males and in cell E8 the number of positive
reactions among females. Determine in cell E10 the proportion
of positive reactions among males, and in cell E11 the
proportion of positive reactions among females.
The operating hypothesis is that there is no difference between
the proportion of positive reactions among males ( pm ) and
females ( pf ). Construct a 90% confidence interval for the
difference of true proportions ( pm- pf ), given sample, with the
lower bound in E13 and upper bound in E14.
If 0 is within the confidence interval enter “no discernable
difference” in E16. If 0 is less than the lower bound we take
that pm- pf in positive and say “men react worse” in E16, and
if 0 is greater than the upper bound we take that pm- pf in
negative and say “women react worse” in E16.
Problem 2:
A chip manufacturer observes that chips seem to be failing in
two different ways. The manufacturer is trying to determine
whether or not the two failures are independent, but believes
that they are independent. After testing a thousand chips, give
in E1 the number failures at site 1, and the number in E2 the
number of failures at site 2, and at E3 the number of failures at
both sites.
If the two failures are independent, use the proportion of
observed failures at site 1 and the proportion of observed
failures at site 2 to give in E5 the number of chips expected to
fail at both sites from a sample of size one thousand. We will
compare the number of failures observed at both sites with the
number expected.
16. Give the lower and upper bounds for a 90% confidence interval
for the number of failures at both sites, assuming independence.
If the observed number of failures at both sites is within this
confidence interval display “YES” in E10, otherwise display
“NO”
Problem 3:
Data is believed to be generated by an exponential random
variable. A thousand data values are collected. Determine the
average in C2 and compile the data into relative frequency bins
(see E2:E5) in F2:F5. Using the average as mean, give in
G2:G5 the proportions of data expected in each bin for an
exponential process.
Since the values in column G are proportions, determine in
H2:I5 the upper and lower bounds of 90% confidence intervals
for an average over a sample of size 1000 for Bernoulli random
variables of these proportions (i.e. in H2 the lower bound for a
90% confidence interval for an average over a sample of size
1000 of a Bernoulli (G2) random variable, etc.). Then indicate
whether the relative frequencies are within these confidence
intervals with “YES” or “NO” in J2:J5.
We accept that we do indeed have an exponential random
variable if all four relative frequencies lie in their respective
confidence intervals. Indicate whether we accept or reject the
exponential random variable hypothesis with “ACCEPT” or
“REJECT” in L2.
Illustrate the relationship between the bounds and the relative
frequency by plotting columns F:I against column E in C7:J22
with line plots.
17. gender
reaction
# of men in study
0.5154046487
M
-
# of women in study
0.9136065114
M
-
0.9176842958
F
-
# of positive reactions
F
-
# of negative reactions
M
-
F
-
# of positive reactions among men
M
-
# of positive reactions among women
F
-
F
-
observed proportion of positive reactions among men
F
-
observed proportion of positive reactions among women
M
-
18. M
-
lower bound for 90% confidence
F
-
upper bound for 90% confidence
M
-
M
-
gender disparity?
F
-
M
-
M
-
F
-
M
+
F
-
M
-
F
-
M
-
M
-
F
-
M
-
F
573. -
Site 1
Site 2
# of failures at site 1
0.1233931101
N
N
# of failures at site 2
0.0891696784
N
N
# of failures at both
0.1989457273
N
N
N
N
expected # of failures at both if independent
N
N
N
N
lower bound for 90% confidence interval
N
N
upper bound for 90% confidence interval
N
N
Y
N
independent?
N
N
N
N
Y