CEA Policy Evaluation & Economic Forecasting 2

Question 1

A government implements a carbon tax. Which evaluation framework best captures both market efficiency gains and distributional equity concerns?

Accepted Answer

Multi-criteria analysis incorporating efficiency and equity metrics

Answer

Multi-criteria analysis explicitly weighs both efficiency and distributional outcomes, making it superior for policies with trade-offs between these goals.

Question 2

When a forecaster says the 90% confidence interval for GDP growth is [-0.5%, 3.5%], this primarily communicates:

Accepted Answer

The uncertainty surrounding the point estimate

Answer

Confidence intervals express the uncertainty around a forecast, not certainty; a 90% CI means 90% of such intervals would contain the true value in repeated sampling.

Question 3

The 'counterfactual' in policy evaluation refers to:

Accepted Answer

What would have happened in the absence of the policy

Answer

The counterfactual is the hypothetical baseline—what outcomes would have been without the intervention—used to isolate policy effects.

Question 4

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

Accepted Answer

Both groups would have followed the same trend absent treatment

Answer

Parallel trends assumes control and treatment groups would have evolved similarly over time without the intervention, validating the counterfactual.

Question 5

Which leading economic indicator is most useful for forecasting consumer spending 6 months ahead?

Accepted Answer

Consumer confidence index

Answer

The consumer confidence index leads consumer spending because it captures households' forward-looking sentiment about income and job security.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA Policy Evaluation & Economic Forecasting 2