Assignment
IA. Empirical Research Questions
Use the regression equation and table of results below to answer questions 1-3 below. The dependent variable is the average 4th-grade test score for a school district, where the test is measured in points out of 800. The independent variable STR refers to the student-teacher ratio in elementary schools in the district (i.e., the number of students per teacher, which on average is about 20). Non-English is the percent of non-native english speakers attending elementary schools in the district, which on average is about 0.16. Free Lunch is the percent of elementary school student who are eligible for free lunch in the district, which on average is about 0.25. The variable In(Avg Income) is the natural logarithm of the average income in the district.
Score = β0 + β1(STR) + β2(Non-English) + β3(Free Lunch) + β4In(Avg Income) + εi
Table I: Dependent variable = Average Test Score in the District
OLS
Student-Teacher Ratio -0.73
(0.26)
Percent Non-Native English Speakers -1.76
(0.34)
Percent Eligible for Free Lunch -3.98
(0.33)
In(Average District Income) 11.57
(1.81)
Intercept 658.6
(8.6)
Observations 420
R2 0.73
Table Notes: The regression is Ordinary Least Squares. Standard errors are in parentheses below each coefficient estimate.
I. Consider the above regression equation and regression results reported in Table I. In a sentence, interpret the marginal effect of a one-percentage point increase in the number of students eligi¬ble for free lunch on the average district test scores. Is this effect statistically significant at the 5-percent level? Using the statistics, explain how you know this.
2. Consider the above regression equation and regression results reported in Table I. Calculate the marginal effect of adding ten more students per teacher (i.e., increasing the student-teacher ratio by 10) on average district test scores? Is this effect statistically significant at the 5-percent level? Using the statistics, explain how you know this.
3. Consider the above regression equation and regression results reported in Table I. In a sentence, interpret the marginal effect of average district income on average test scores. Is the effect statis¬tically significant at the 5-percent level? Using the statistics, explain how you know this.
IB. Empirical Research Questions
1. Suppose you wanted to answer the following research question: Are students who graduate from private colleges/universities more successful in the labor market than graduates from public col¬leges/universities?
(a) What would be your dependent variable? Be specific in your answer regarding a measurable variable.
(b) What would be your key independent variable? Be specific in your answer regarding a measurable variable.
(c) List 3 other independent variables you would need to control for. And, briefly state why these arc important to control for.
(d) What type of data (time series, cross sectional, or longitudinal) would you want? And, what would be your unit of observation?
(c) List one concern, if any, that you might have with interpreting the coefficient estimate on the key independent variable as a casual effect on the dependent variable? Briefly explain your answer.
2. Consider the issue of causality.
(a) Briefly explain the difference between correlation and causality.
(b) Provide 1 possible threat to (i.e.. potential problem with) interpreting a regression coefficient estimate as a causal effect.
(c) Provide a clear and specific example of a regression equation that might suffer from this problem. and briefly explain how your example illustrates this problem.
(d) Provide I possible solution to this problem, and amend your regression equation from (c) to implement this solution.
3. Suppose you have a sample of children ranging from 5 to 18 years of age. You run a regression of math scores on height and get a statistically significant positive coefficient estimate. Your re¬search assistant concludes that height has a causal effect on mathematical ability - being taller makes children better at math. Bad luck for everyone who is short. Would you agree with your research assistant's interpretation of the regression results? If so, explain why. If not, offer a more likely explanation for the positive correlation and suggest how you could alter your regression to address this.
4. Select the type of data set you want to discuss for this question (clearly circle your choice): Cross-sectional data / Time series data / Longitudinal (panel) data.
(a) Provide a concrete example of this type of data.
(b) List one possible concern for the error terms from an appropriate regression using this type of data.
(c) List one method of statistically testing for this concern in your error terms.
(d) Briefly describe how you would interpret the results of this test. Specifically, what would you look for to indicate the presence of the concern listed in part (b)?
II. Current Policy Issues
1. Harvard economist and former Treasury secretary Larry Summers recently sated: -We are living in a singularly brittle context in which we do not have a basis for assuming that monetary policy will be able as rapidly as possible to lift us out of the next recession." Briefly explain what he means by this statement. A complete answer should address current economic conditions and the specific concern regarding monetary policy to which he is referring.
2. Consider the role of the Federal Reserve in the U.S. economy.
(a) What is the current state of the U.S. economy (i.e., where is the current economy with regard to business cycles)?
(b) What are the two main policy objectives of the Federal Reserve?
(c) Briefly explain how a persistently low rate of inflation affects the Federal Reserve's ability to achieve each of the two policy objectives.
3. President Trump has recently imposed tariffs on steel and aluminum. There are strong and oppos¬ing views among policy-makers regarding whether to increase free trade or to implement more protectionist policies.
(a) Pick one product, steel or aluminum. Specifically identify 2 groups within the US. that will benefit from these tariffs on the product Specifically identify 2 groups within the U.S. that will be harmed by these tariffs on the product. Briefly state the economic theory behind each of your answers.
(b) Offer an economic explanation for why there are such strong and opposing political view points regarding international trade policies.
4. President Trump continues to re-negotiate NAFTA, which governs free-trade anions the U.S., Canada, and Mexico.
(a) Briefly discuss the pros and cons of international free-trade from an economic perspective.
(b) As an economic policy adviser to a congressman. would you recommend supporting greater free-trade through NAFTA and/or similar deals with other countries? Are there certain con-ditions or other policies that must be paired with free-trade deals before you would recom-mend supporting them? Briefly justify your answer using appropriate economic analysis.
5. The Patient Protection and Affordable Care Act includes an individual mandate requiring individ¬uals to purchase health insurance or pay a fine.
(a) Discuss the economic justification (or lack there of) behind mandating that all citizens pur¬chase health insurance or pay a fine.
(b) In economic terms. briefly explain how the individual mandate works to incentivize greater health insurance coverage.
6. One major concern is that insurance companies are currently exiting Affordable Care Act market places (state exchanges).
(a) Given what you know about economic theory and empirical evidence, briefly offer one clear explanation for why insurance companies are exiting many of these ACA market places.
(b) Given what you know about economic theory and empirical evidence on the topic, briefly explain what effects this might have on health insurance premiums and rates of health insur¬ance coverage among those individuals relying on the ACA market places (state exchanges) for health insurance coverage.
7. Milton Friedman famously wrote, "The consumer is protected from exploitation by a given seller by the existence of other sellers from whom he can buy." Consider the U.S. Food and Drug Ad-ministration (FDA) together with this quote. Offer a clear, well-justified, economic argument either for or against the existence of the FDA.
8. Pure economic theory suggests that full-information is efficient. Consider this statement as it applies to the electronic collection and use of personal data by companies.
(a) Briefly discuss one market failure in the market for personal data that suggests the above statement may be incorrect.
(b) Briefly discuss one economic benefit and one economic cost to consumers created by com¬panies having access to personal data.
(e) To what extent do you think the federal government should intervene and regulate the market for electronic collection and use of personal data? Offer a concrete policy recommendation. and support your answer with a well-justified argument.
9. Case and Dutton (2015) note that morbidity and mortality rates have recently increased for U.S. white, non
-Hispanics, ages 45-54. This tuns opposite the general trend of falling death rates among other demographic groups and across other developed counties.
(a) What are the main causes of death that the authors find have been increasing for this demo¬graphic group (U.S. whites ages 45-54)?
(b) Given the cited causes of death. offer one possible explanation or cause of this trend in mor¬tality and morbidity among whites ages 45-54. And, make a specific suggestion for how you could use data to test if your suggested explanation is a driving force behind this trend.
10. Consider the impact of an influx of immigrants on the U.S. economy.
(a) Offer an economic argument for why one might expect wages and employment to decrease among U.S. citizens.
(b) Despite the theory described in (a), many researchers have failed to find clear evidence that immigration, on average, negatively impacts the wages and employment of U.S. citizens. Offer an economic reason for why this might be the case.
(e) Broadly considering the economic effects, would you recommend supporting more or less open immigration policies? Are there certain conditions or types of immigrants that you recommend targeting? Briefly justify your answer using appropriate economic analysis
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