Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 27, Problem 3TY
To determine
Find the new equilibrium when consumer spending continues to be exactly three-quarters of disposable income.
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Problem 1
Regression Discontinuity
In the beginning of covid, the US government distributed covid stimulus payments. Suppose
you are interested in the effect of receiving the full amount of the first stimulus payment on
the total spending in dollars by single individuals in the month after receiving the payment.
Single individuals with annual income below $75,00 received the full amount of the stimulus
payment.
You decide to use Regression Discontinuity to answer this question. The graph below shows
the RD model.
3150
3100
3050
Total Spending in the month after receiving the stimulus payment
2950
3000
74000
74500
75000
75500
76000
Annual income
a. What is the outcome? (5 points)
b. What is the treatment? (5 points)
C. What is the running variable? (5 points)
d. What is the cutoff? (5 points)
e. Who is in the treatment group and who is in the control group? (10 points)
f. What is the discontinuity in the graph and how do you interpret it? (10 points)
g. Explain a scenario which can…
Problem 2
Difference-in-Difference
In the beginning of 2005, Minnesota increased the sales tax on alcohol. Suppose you are
interested in studying the effect of the increase in sale taxes on alcohol on the number of car
accidents due to drinking in Minnesota. Unlike Minnesota, Wisconsin did not change the
sales tax on alcohol. You decide to use a Difference-in-difference (DID) Model. The numbers
of car accidents in each state at the end of 2004 and 2005 are as follows:
Year
Number of car
accidents in Minnesota
Number of car
accidents in Wisconsin
2004
2000
2500
2005
2500
3500
a. Which state is the treatment state and which state is the control state? (10 points)
b. What is the change in the outcome for the treatment group between 2004 and 2005?
(5 points)
C. Can we interpret the change in the outcome for the treatment group between 2004
and 2005 as the causal effect of the policy on car accidents? Explain your answer. (10
points)
d. What is the change in the outcome for the control…
Environmental Economics
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Economics: Principles & Policy
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