Question

Chris’s mother, the accountant, is on yet another rant, this time about the, in her words, “blatant stupidity” of economists who, when comparing mean yearly incomes of samples of different sub-populations to the population as whole routinely use the normal distribution. As Chris’s mother correctly points out, the population distribution of yearly incomes is anything but normal (indeed, she correctly notes, “it is highly positively skewed”), so, she exclaims, “How can they get away with using the normal distribution”? Is Chris’s mother correct: are economists doing it all wrong or not? Explain.

Answer 1

Answer:

Chris' mom would be right in saying that annual  mean salary would not be normally distributed.on the off chance population is not normal, at that point we can't assume the sample mean follows a normal distribution. Anyway for huge example a normal test can be applied by the business analysts since for huge example and for any measurement t we have

z=[t-E(t)]/S.E(t) roughly follows Normal distribution  with variance "1"and mean "0 "

henceforth financial experts won't do all off-base if sample  size is moderately large.