one important step in the econometric methodology. It itself consists of five steps:
1. state the null and alternative hypothesis
2. select the distribution to use (usually normal distribution)
3. determine the rejection and nonrejection regions(area)
4. calculate the value of the test statistic(critical value of z and observed value of z )
5. make a decision.
Note: probability distribution of estimator u takes an extremely important role in hypothesis testing.
see statistical inference