Policy Evaluation & Economic Forecasting Flashcards
7 cards from real CEA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Policy Evaluation & Economic Forecasting flashcards as text
The Congressional Budget Office (CBO) uses 'dynamic scoring' to:
Answer: Incorporate macroeconomic feedback effects of tax changes into revenue estimates
Dynamic scoring accounts for how tax policy changes alter economic behavior (GDP, labor supply), affecting revenue beyond static calculation.
In program evaluation, 'deadweight loss' refers to:
Answer: The net welfare loss from market distortions caused by the policy
Deadweight loss is the welfare cost of market inefficiency created by taxes or subsidies—value destroyed that neither party captures.
A Vector Autoregression (VAR) model is particularly useful for economic forecasting because it:
Answer: Captures interdependencies among multiple economic variables simultaneously
VAR models jointly forecast multiple variables by allowing each to depend on lagged values of all variables in the system, capturing dynamic feedback.
Which method best handles the selection bias problem when evaluating a voluntary job-training program?
Answer: Randomized control trial or instrumental variable estimation
Selection bias arises because participants self-select; RCTs or IV estimation isolate causal effects by removing the correlation between treatment and unobserved characteristics.
A high fiscal multiplier for government spending implies that:
Answer: An increase in spending generates a proportionally larger increase in GDP
A multiplier above 1 means the GDP increase exceeds the initial spending injection, typically because of induced rounds of consumption spending.
In Bayesian forecasting, the 'prior distribution' represents:
Answer: Beliefs about parameters before observing new data
The prior encodes what is known or believed about parameters before incorporating new evidence, which is then updated via Bayes' theorem.
The 'policy lag' that refers to the time between recognizing a problem and implementing a policy response is called the:
Answer: Inside lag
The inside lag covers recognition, decision, and implementation delays within government before a policy is enacted.