Policy Evaluation & Economic Forecasting Flashcards
7 cards from real CEA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Policy Evaluation & Economic Forecasting flashcards as text
When evaluating a minimum wage increase, a 'bunching estimator' identifies the effect by examining:
Answer: Excess mass in the wage distribution at the new minimum
Bunching estimators exploit the spike in the wage distribution exactly at the minimum wage to infer the employment and wage effects of the policy.
The Taylor Rule provides a framework for setting:
Answer: The federal funds rate based on inflation and output gap deviations
The Taylor Rule prescribes an interest rate that responds to deviations of inflation from target and output from potential, guiding central bank decisions.
An economic analyst uses a DSGE model. What distinguishes it from a purely statistical model?
Answer: It is grounded in microeconomic theory about agent optimization and market clearing
DSGE models derive dynamics from explicit optimization by households, firms, and policymakers, making them theoretically consistent and useful for structural policy analysis.
The 'Lucas critique' warns policy evaluators that:
Answer: Estimated behavioral relationships break down when policy changes, because agents adjust expectations
Lucas argued that using historical reduced-form relationships to simulate policy is flawed because private sector expectations—and thus behavior—change in response to policy shifts.
A sunflower (spaghetti) chart displaying multiple GDP forecast paths from different models is most useful for:
Answer: Communicating forecast uncertainty and the range of plausible outcomes
Fan or spaghetti charts show the distribution of forecast paths, making the range of uncertainty visible to policymakers and the public.
In cost-benefit analysis, the social discount rate is used to:
Answer: Convert future costs and benefits to present value for comparison
The social discount rate reflects society's time preference and is applied to future cash flows to make them comparable to present values.
Which scenario is an example of 'regulatory capture' undermining policy evaluation?
Answer: An industry-funded study that systematically understates a regulation's costs is used in the official RIA
Regulatory capture occurs when the regulated industry unduly influences the evaluative process, biasing analysis to favor industry interests over the public interest.