EC 420, Fall 2009
Final Exam
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Show all work for each question, providing explanations wherever necessary. You may use the course textbook, but no notes. Total point value: 40
1. (5 points) Suppose we are interested in estimating the effect of the “Cash for Clunkers” (CFC) program on monthly sales of automobiles in the U.S., in billions of dollars (CARSALES). We estimate a distributed lag regression model with a two-order lag, where CFCt is a dummy variable that is equal to one if the program is in effect in month t and zero if not:
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a. We estimate α0, α1, α2 and α3 to be 1.0, 0.4, -0.3 and 0.0, respectively. What is the estimated effect of the government putting the Cash for Clunkers program into effect in July 2009 and then stopping the program after that one month (so that the program is only in effect in July)? Specifically, what are the estimated levels of monthly sales in billions of dollars in June, July, August, September, and so on? (3 points)
Estimated monthly sales in June = $1 billion.
Estimated monthly sales in July = $1.4 billion.
Estimated monthly sales in August = $0.7 billion.
Estimated monthly sales in September = $1 billion.
Estimated monthly sales in October and all months after that = $1 billion.
b. What is the effect of the government permanently implementing the plan, i.e., starting it in July 2009 and never stopping it? Again, what are the estimated levels of sales in June, July, August, September, and so on? (2 points)
Estimated monthly sales in June = $1 billion.
Estimated monthly sales in July = $1.4 billion.
Estimated monthly sales in August = $1.1 billion.
Estimated monthly sales in September = $1.1 billion.
Estimated monthly sales in October and all months after that = $1.1 billion.
2. (6 points) Suppose you want to see how an individual’s religious background influences the amount they give to charity. You have a sample of 1000 people,...