ECON MACRO
5th Edition
ISBN: 9781337430401
Author: William A. McEachern
Publisher: Cengage Limited
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Question
Chapter 18, Problem 3.4P
To determine
Whether
Concept Introduction:
The variation or equilibrium in the purchasing power of currencies of two or more countries for a set of goods is known as Purchasing Power Parity. It is determined by the economic stability of a country and factors such as inflation and deflationinfluence the purchasing power of the currency.
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Dummy variables
News reports claim that in the last year television watching has increased. You believe that
rising unemployment during Covid may be one of the causes for this. Suppose you are
interested in looking at the effect of being unemployed on the hours spent watching Netflix
per day. You collect data on 10,000 people from Chicago who are between the age of 20 and
60. You define the dummy variable Unemployed which takes the value 1 for those who are
unemployed and 0 for those who are employed.
Equation 1:
Hours spent watching Netflix₁ = ßo + B₁Unemployed; + ε¿
Following is the output for equation 1:
reg hours spent_watching_netflix unemployed
Source
SS
df
MS
Number of obs
10,000
F(1, 9998)
=
14314.03
Model
Residual
3539.70065
2472.39364
9,998
1 3539.70065
.247288822
Prob F
R-squared
==
0.0000
=
0.5888
Total
6012.09429
9,999 . 601269556
Adj R-squared
Root MSE
=
0.5887
.49728
hours spen~x
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
unemployed
cons
1.189908 .0099456 119.64…
Dummy variables
News reports claim that in the last year television watching has increased. You believe that
rising unemployment during Covid may be one of the causes for this. Suppose you are
interested in looking at the effect of being unemployed on the hours spent watching Netflix
per day. You collect data on 10,000 people from Chicago who are between the age of 20 and
60. You define the dummy variable Unemployed which takes the value 1 for those who are
unemployed and 0 for those who are employed.
Equation 1:
Hours spent watching Netflix₁ = ßo + B₁Unemployed; + ε¿
Following is the output for equation 1:
reg hours spent_watching_netflix unemployed
Source
SS
df
MS
Number of obs
10,000
F(1, 9998)
=
14314.03
Model
Residual
3539.70065
2472.39364
9,998
1 3539.70065
.247288822
Prob F
R-squared
==
0.0000
=
0.5888
Total
6012.09429
9,999 . 601269556
Adj R-squared
Root MSE
=
0.5887
.49728
hours spen~x
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
unemployed
cons
1.189908 .0099456 119.64…
17. The South African government's distributive stance is clear given its prioritisation of social
spending, which includes grants and subsidised goods. Discuss the advantages and
disadvantages of an in-kind subsidy versus a cash grant. Use a graphical illustration to
support your arguments.
[15]
18. Redistributive expenditure can take the form of direct cash transfers (grants) and/or in-kind
subsidies. With references to the graphs below, discuss the merits of these two transfer
types in the presence and absence of a positive externality.
[14]
19. Expenditure on education and healthcare have, by far, the biggest redistributive effect in
South Africa' by one estimate dropping the Gini-coefficient by 10 percentage points.
Discuss the South African government's performance in health and education provision by
evaluating both the outputs and outcomes in these areas of service delivery. [15]
20. Define the following concepts and provide an example in each case: tax rate structure,
general…
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