Economics Assignments

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 short-run 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 one-standard 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 Soviet-style socialism solve these three problems?
Can you think of any reason inherent in a centrally planned economy (soviet-style 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_twhere π_tstands for actual inflation and π^e_tstamds 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^USwhere i^USstandsfor 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^Gwhere i^Gstands for the nominal interest rate, π^G stands for the inflation rate, eprr^Gfor 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 + φ₁π_t-1^US + φ₂π_t-2^US + φ₃π_t-3^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?