CEA Policy Evaluation & Economic Forecasting 3

Question 1

The Congressional Budget Office (CBO) uses 'dynamic scoring' to:

Accepted Answer

Incorporate macroeconomic feedback effects of tax changes into revenue estimates

Answer

Dynamic scoring accounts for how tax policy changes alter economic behavior (GDP, labor supply), affecting revenue beyond static calculation.

Question 2

In program evaluation, 'deadweight loss' refers to:

Accepted Answer

The net welfare loss from market distortions caused by the policy

Answer

Deadweight loss is the welfare cost of market inefficiency created by taxes or subsidies—value destroyed that neither party captures.

Question 3

A Vector Autoregression (VAR) model is particularly useful for economic forecasting because it:

Accepted Answer

Captures interdependencies among multiple economic variables simultaneously

Answer

VAR models jointly forecast multiple variables by allowing each to depend on lagged values of all variables in the system, capturing dynamic feedback.

Question 4

Which method best handles the selection bias problem when evaluating a voluntary job-training program?

Accepted Answer

Randomized control trial or instrumental variable estimation

Answer

Selection bias arises because participants self-select; RCTs or IV estimation isolate causal effects by removing the correlation between treatment and unobserved characteristics.

Question 5

A high fiscal multiplier for government spending implies that:

Accepted Answer

An increase in spending generates a proportionally larger increase in GDP

Answer

A multiplier above 1 means the GDP increase exceeds the initial spending injection, typically because of induced rounds of consumption spending.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA Policy Evaluation & Economic Forecasting 3