Economics
Assignments
Assignment
No. 1
1. Please write
a brief but complete answer to the following questions:

How is economics
like a science?

Why is economics
a ìsocialî science?

Why do economists
sometimes offer conflicting advice to policymakers?

Should an
economic model describe reality exactly?
2. Discuss each
of the following statements from the standpoints of equity and efficiency.

ìEveryone in
society should be guaranteed the best health care possible.î

ìWhen
workers are laid off, they should be able to collect unemployment benefits
until they find a new job.î
3. Classify
each of the following statements as positive or normative. Explain.

Society faces
a shortrun tradeoff between inflation and unemployment.

In a market,
when quantity supplied exceeds quantity demanded, price tends to fall.
 When determining tax rates, the
government should take into account the income needs of individuals.

The Federal
Reserve should reduce the rate of growth of money.
 Lower tax rates encourage more
work and more saving.
4. Classify
the following topics as relating to microeconomics or macroeconomics.

A familyís
decision about how much income to spend on food.

The effect
of government regulations on auto emissions.

The impact
of higher public saving on economic growth.

A monopolistís
decision about how many units to sell.

The relationship
between the inflation rate and the unemployment rate.
5. STATA exercise:
After reading the paper by Gwartney and Haworth, ìEmployer Costs and Discrimination:
The Case of Baseballî use the file Dataset1.dta, to do the following.

Create summary
statistics for the three variables Balack47, Black52 and Won.

Create a graph
with Won on the vertical axis and Black47 on the horizontal axis.

Run a simple
regression with Won as the dependent variable and Black47 as the independent
variable.
a. What percent
of the total variation in the variable Won is explained by Black47?
b. What is
the impact of an additional black player year on the percentage of games
won? What would be the impact of a onestandard deviation change in
additional black player years on the percentage of games won? What
would be the predicted percentage of games won for a team that remained
all white?
c. Test the
null hypothesis that Black47 has a zero effect on the percentage of games
won using a 5% level of significance.
Add the predicted
regression line to the graph you drew earlier.
Assignment
No. 2
1.
Using an Internet mapping page (an example is mapquest.com), create a map
of your neighborhood and answer the following questions:

How is the
map like a model?

What are the
limitation s of the map?

Could you use
this map to determine change in elevation in your neighborhood? Distance
from one place to another? Traffic speed? What do your answers
suggest about what to consider when using a map or a model?
2.
ìThe Economic Report of the Presidentî contains statistical information about
the economy as well as the Council of Economic Advisersí analysis of current
policy issues. Find a recent copy of this annual report at the library
or visit http://w3.access.gpo.gov/eop/ and read
a chapter about an issue that interests you. Summarize the economic
problem at hand and describe the councilís recommended policy.
3.
Would you expect economists to disagree less about public policy as time goes
on? Why or why not? Can their differences be completely eliminated?
Why or why not?
4.
Please write brief but complete answers.

What is the
basic economic problem?

What three
problems must any economic system solve?

How does capitalism
solve these three problems?

How did Sovietstyle
socialism solve these three problems?

Can you think
of any reason inherent in a centrally planned economy (sovietstyle socialism)
that would make innovation difficult? Can you think of any reason
inherent in a capitalist country that would foster innovation?
5.
Why do most economists oppose trade restrictions?
6.
STATA exercises:

Go to the
web site of the Federal Reserve Bank of Saint Louis and look for the FRED
database (www.stls.frb.org).
Download the series of quarterly data for US real gross domestic product
in chained 1996 dollars form1950:1 to 2001:1.

Plot the series
against time.

Compute the
series of log GDP and do a time plot for it. Compare this graph to
the previous one.

Decompose the
series into trend and cycle using a linear deterministic trend model, i.e.
run the following regression: y_{t} = α + β_{t}
+ ε_{t}. Now use your estimates and fitted values to
find the trend and the cycle of the original series. (NOTE: Define
the trend as the fitted values of the regression above (a + b_{t})
where a and b are the OLS estimates for α and β, and define the
cycle as y_{t} minus the trend.)

Plot in the
same graph the trend (predicted values and the original data against time.

Plot the cycle
against time. What can you say about the stationarity of the cycle
(detrended) series?
Assignment
No. 3
1.
Please write brief but complete answers.

What is a competitive
market? Briefly describe the types of markets other than perfectly
competitive markets.

What is the
demand curve? Why does it slope downward?

Define the
equilibrium of a market. Describe the forces that move a market toward
its equilibrium.

Describe the
role of prices in market economies.
2.
During the 1990s, technological advance reduced the cost of computer chips.
How do you think this affected the market for computers? For computer
software? For typewriters?
3.
STATA exercise: To do this exercise you should have read the paper by
Romer and Romer published in the AER.

Download the
data file, inflation.xls or inflation.dta.

Plot both series
against time, i.e. do two plots: in the first one, graph expected
inflation against time and, in the second one, plot actual inflation against
time.

Test the hypothesis
that the survey data for inflation expectations is rational. In order
to do this, follow the steps below:
i.
Run the following regression using simple OLS: π_{t}
= α + βπ^{e}_{t} + ε_{t }where
π_{t }stands for actual inflation and π^{e}_{t
}stamds for the survey expected inflation.
ii.
Test the hypothesis that a=0 (where a is the estimate for the intercept).
iii.
Test the hypothesis that b=1, where b is the estimate for β.
iv.
Notice that if you reject the hypothesis above, you can conclude (in a rough
sense) that the survey is not rational. What do you conclude from
your tests above?
4. STATA
exercise. To do this exercise you should have read the article by Cumby
and Mishkin in JIMF.
1.
Download the data set Int.xls or Int.dta.
2.
Find the ex post real interest rate series for the US. In other words, find:
eprr^{US} = i^{US}  π^{US }where i^{US }stands^{
}for the nominal interest rate in the US. Once you have the series
plot it, together with the inflation series, in a graph against time.
3.
Find the ex post real interest rate series for Germany. In other words,
find: eprr^{G} = i^{G}  π^{G }where i^{G
}stands for the nominal interest rate, π^{G} stands for
the inflation rate, eprr^{G }for the ex post real interest rate.
Once you get the series plot it together with the German inflation series
in a graph against time.
4.
Regress the US ex post interest rate (eprr^{US} ) on:
a.
The nominal interest rate (i_{t}^{US})
b.
A time trend (t)
c.
The three lagged inflation variables: Usinfl_1, Usinfl_2, Usinfl_3.
In other words, run the following regression using OLS: eprr_{t}^{US}
= α + βi_{t}^{US} + δt + φ_{1}π_{t1}^{US}
+ φ_{2}π_{t2}^{US} + φ_{3}π_{t3}^{US}
+ ε_{t}. Show the estimates and standard errors for each
of the coefficients.
5.
Find the fitted values from the previous regression (part 4) and call the
predicted values ìprrUSî.
6.
Regress German ex post real interest rates (eprr^{G}) on prrUS and
a constant, i.e., run the following regression: eprr^{G} = v
+ γ prrUS + ε.
7.
Test the null hypothesis that v=0 (from regression estimates in part 6)
8.
Test the null hypothesis that γ = 1 (from regression estimates in part
6)
9.
Notice that testing for v = 0 and γ = 1 is equivalent to test for the
equalization of real rates in the US and Germany. Would you conclude,
from your results above, that they are equalized?