Assignment 2 - Hypothesis Testing (Essay Sample)

Assignment 2: Hypothesis Testing Name Institutional Affiliations Date Assignment 2: Hypothesis Testing Observation On September 15, 2022, The World Bank Reported that 2023 would see the world welcome a recession and a string of financial crises. Citation: The World Bank. (2022, September 15). Risk of Global Recession in 2023 Rises Amid Simultaneous Rate Hikes, World Bank. World Bank. https://www.worldbank.org/en/news/press-release/2022/09/15/risk-of-global-recession-in-2023-rises-amid-simultaneous-rate-hikes#:~:text=WASHINGTON%2C%20September%2015%2C%202022%E2%80%94 Discussion On September 2015 2022, the World Bank reported that the global economy was slowly edging toward a recession. The recession, according to The World Bank, would begin in 2023 and is accompanied by a string of other financial crises. What's more, The World Bank reported that the severity of the recession and the period it will last remain uncertain. These concerns by the World Bank arise amid rising interest rates across the world. The World Bank observed that central banks across the world are hiking interest rates in a synchrony that has not been observed over the last fifty years. The World Bank further asserts that it fears that pre-existing policies meant to contain inflation are not sufficient enough to prevent the impending recession. Explanatory question Will the global economy welcome a recession in 2023? Hypotheses 1 and 2 Hypothesis 1: the global economy will not experience a recession in 2023 Hypothesis 2: the global economy will welcome a recession in 2023 Prior probabilities Estimation P (Hypothesis 1)-25% There is a 25% chance the world will not welcome a global recession in 2023 because the behaviour of important financial institutions suggests otherwise. The role of central banks in setting the pace for economic growth and stability remains uncontested. By regulating interest rates, they either promote or challenge economic growth. Generally, synchronous increase in the interest rates by central banks as can be observed by the World Bank works to slow growth and lead to inflation which are signs of an impending recession. Therefore, it is highly unlikely that the recession will not occur. P (Hypothesis 2)-50% On the other hand, there is a 50% chance of a recession in 2023 because although the World Bank reports hiking interest rates across the world, there are credible reports of different parts of the world registering positive growth rates, although unevenly. Barely 2 years after the pandemic, a large body of literature asserts that the global economy has registered the strongest post-recession recovery in the past 80 years (The World Bank, 2021). However, the growth is uneven and varies by country. These two insights are both credible but disconfirm each other. As a result, we find it more precise to allocate a 50% chance for Hypothesis 2. New Evidence According to an October issue by Reuters, key economies are continually registering low growth rates (Kishan, 2022). Evidence strength The estimated probability of Hypothesis 1 occurring in light of the new evidence is 15% while the estimated probability for H1 (P (⌐H)) not happening in light of the new evidence is 85%. Departing from P (H│E) = P(E│H) * P (H) ÷ P(E) Where; P (E│H) = 0.15, and P(H)= 0.25, we can calculate P (H│E). but P(E)= P(E│H) * P(H)+ P (⌐H) * P(E│⌐H) ...