The significance level (α) represents the probability of committing a Type I error, which is rejecting the null hypothesis (H₀) when it is actually true. Therefore, at the 1% significance level, P(reject H₀ | H₀ is true) = 0.01.

Key Concepts:

• Type I Error: Rejecting H₀ when it is true (false positive)
• Type II Error: Failing to reject H₀ when it is false (false negative)
• Significance level (α): Probability of Type I error
• Power (1-β): Probability of correctly rejecting H₀ when it is false

Option A represents the power of the test (1 - Type II error rate). Option C represents the probability of Type II error (β). Option D represents the confidence level (1 - α).