Question 1

Which of the following best describes the difference between correlation and causation in economic research?

Accepted Answer

Correlation means that two variables move together, while causation means that one variable directly affects the other.

Question 2

Suppose a study finds a positive correlation between ice cream sales and drowning incidents. Which concept best explains why this does not mean ice cream sales cause drownings?

Accepted Answer

Omitted variable bias, because a third factor (such as hot weather) affects both variables.

Question 3

A model in economics is best described as:

Accepted Answer

A simplified description of reality used to explain and predict economic phenomena.

Question 4

If the average annual earnings for a college graduate are $$66,600 and for a high school graduate are 41$$,800, what is the percentage increase in earnings from high school to college graduation?

Accepted Answer

$$\frac{66,600}{41,800} = 1.59$$, or a 59% increase.

Question 5

Which of the following is an example of a natural experiment in economics?

Accepted Answer

A government changes the minimum school leaving age, and researchers compare outcomes for students affected and unaffected by the law.

Question 6

In the production function $$Y = F(N, K, B)$$, where $$Y is $$output, $$N is $$the number of employees, $$K is $$capital, and $$B is $$beauty capital, what does $$F_B \u003e 0$$ imply?

Accepted Answer

An increase in beauty capital $$B$$ increases output $$Y.$$

Question 7

A randomized controlled trial (RCT) is considered the gold standard for causal inference because:

Accepted Answer

Random assignment ensures that treatment and control groups are, on average, identical except for the intervention.

Question 8

If a model predicts that each additional year of education increases earnings by 10%, what would be the predicted earnings after 4 years, starting from $15 per hour?

Accepted Answer

$$15 	imes 1.1^4$ = 21.97$$

Question 9

Which of the following is an example of reverse causality?

Accepted Answer

Assuming that wealth causes health, when in fact health may also cause wealth.

Question 10

According to Acemoglu, Johnson, and Robinson, which factor is considered the fundamental cause of long-run economic growth?

Accepted Answer

Institutions, because they shape incentives and the distribution of resources.

Question 11

Which of the following best describes the free-rider problem?

Accepted Answer

Individuals benefit from resources or services without paying for them, leading to under-provision.

Question 12

If the mean wage of five workers is $$30 and the wages are 26$$, $$24, 8$$, $$35, and 57$$, what is the median wage?

Accepted Answer

$26

Question 13

Which of the following is NOT a property of a good economic question?

Accepted Answer

It cannot be answered empirically.

Question 14

During the COVID-19 pandemic, which group experienced the highest unemployment rates according to the data?

Accepted Answer

Individuals with less than a high school diploma.

Question 15

Which of the following statements about the scientific method in economics is correct?

Accepted Answer

It involves developing models and testing them with data.

Question 16

A study finds that people just over the age of 40 are more likely to be tested for heart attacks than those just under 40, even though they are otherwise similar. This is an example of:

Accepted Answer

A natural experiment exploiting a discontinuity at age 40.

Question 17

If a firm chooses $$N$$, $$K$$, and $$B to $$maximize profits $$\pi = PY - C(N, K, B)$$, what does it mean if $$C_B \u003e 0$$?

Accepted Answer

Increasing beauty capital $$B$$ increases the firm's costs.

Question 18

Which of the following is a key critique of external validity in mask studies conducted in Denmark and Bangladesh?

Accepted Answer

The results may not generalize to populations outside Denmark or Bangladesh.

Question 19

If a country has high average protection against expropriation risk, what does the empirical evidence suggest about its GDP per capita?

Accepted Answer

It is likely to have a higher GDP per capita.

Question 20

Which of the following best describes the 'tragedy of the commons'?

Accepted Answer

Overuse of a common resource leads to its depletion.

Economic Methods, Models, and Evidence-Based Questions in Microeconomics

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