CEA Policy Evaluation and Analysis 4

Question 1

In difference-in-differences (DiD) estimation, the 'parallel trends' assumption requires that:

Accepted Answer

In the absence of treatment, both groups would have followed the same trend

Answer

Parallel trends assumes that the counterfactual change in outcomes for treated units equals the observed change in the control group over the same period.

Question 2

An analyst finds a statistically significant program effect with p < 0.05 but the confidence interval nearly spans zero. The most appropriate interpretation is:

Accepted Answer

The effect may be statistically significant but is small or precisely zero

Answer

With large samples, trivially small effects can be statistically significant; economic and practical significance must be assessed alongside p-values.

Question 3

Which of the following is an example of a 'deadweight loss' from a targeted subsidy program?

Accepted Answer

Benefits paid to individuals who would have taken the subsidized action anyway

Answer

Infra-marginal beneficiaries who would have acted without the subsidy receive windfall transfers that represent deadweight loss relative to a perfectly targeted program.

Question 4

The 'Local Average Treatment Effect' (LATE) in instrumental variable estimation applies specifically to:

Accepted Answer

The effect on units whose treatment status is changed by the instrument (compliers)

Answer

LATE identifies the treatment effect only for compliers — units induced to change treatment status by variation in the instrument — not for never-takers or always-takers.

Question 5

When a policy analyst applies a higher discount rate in a net present value calculation, what happens to the relative weight of future benefits?

Accepted Answer

Future benefits are discounted more steeply, reducing their present value

Answer

A higher discount rate reduces the present value of future cash flows more aggressively, making long-run benefits worth less in today's dollars.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA Policy Evaluation and Analysis 4