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Labour Supply - Midterm 1 Practice

Q: TRUE OR FALSE A differences - in - differences estimator uses a control group to approximate what would have happened to the treatment group if the treatment (i.e. Policy change) had not occurred...

True To identify the causal effect of a treatment on the treatment group, you need to know what would have happened to that group in the alternate version of reality in which that treatment never occurred. You never observe that alternate reality, so you need to approximate it. You do this with a control group , which you assume to be on the same time path as the treatment group, but is not treated.

Q: TRUE OR FALSE The labour supply curve can never be downward sloping, because the income and substitution effects go in the same direction...

False The income and substitute effects go in opposite directions – the income effect of a wage increase tends to lower labour supply , and the substitution effect of a wage increase tends to increase labour supply . Thus, the labour supply curve could be downward sloping if the income effect is larger than the substitution effect.

Q: TRUE OR FALSE An increase in women's wages tends to lower the opportunity cost of children, since higher wages means that families can better support them.

False The opportunity cost of children refers to the money a family forgoes when they have children. Since raising children is a form of home production, having children constitutes a shift away from market work and toward home production . This is more costly the higher are wages. So long as women take time off from work to have children , an increase in women’s wages tends to raise the opportunity cost of children .

Q: TRUE OR FALSE Disability insurance benefits ALWAYS discourage eligible workers from returning to work.

False Disability insurance benefits only discourage eligible workers from returning to work if they get more utility from collecting benefits and taking T units of leisure than they had at their optimal working point. This will only happen if disability benefits are sufficiently large.

4 important questions on Labour Supply - Midterm 1 Practice

TRUE OR FALSE

A differences - in - differences estimator uses a control group to approximate what would have happened to the treatment group if the treatment (i.e. Policy change) had not occurred...

True

To identify the causal effect of a treatment on the treatment group, you need to know what would have happened to that group in the alternate version of reality in which that treatment never occurred.

You never observe that alternate reality, so you need to approximate it.

You do this with a control group, which you assume to be on the same time path as the treatment group, but is not treated.

TRUE OR FALSE

The labour supply curve can never be downward sloping, because the income and substitution effects go in the same direction...

False

The income and substitute effects go in opposite directions

– the income effect of a wage increase tends to lower labour supply, and the substitution effect of a wage increase tends to increase labour supply.

Thus, the labour supply curve could be downward sloping if the income effect is larger than the substitution effect.

TRUE OR FALSE

An increase in women's wages tends to lower the opportunity cost of children, since higher wages means that families can better support them.

False

The opportunity cost of children refers to the money a family forgoes when they have children.

Since raising children is a form of home production, having children constitutes a shift away from market work and toward home production.

This is more costly the higher are wages.

So long as women take time off from work to have children, an increase in women’s wages tends to raise the opportunity cost of children.

TRUE OR FALSE

Disability insurance benefits ALWAYS discourage eligible workers from returning to work.

False

Disability insurance benefits only discourage eligible workers from returning to work if they get more utility from collecting benefits and taking T units of leisure than they had at their optimal working point.

This will only happen if disability benefits are sufficiently large.

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Labour Economics

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Labour Supply - Midterm 1 Practice

4 important questions on Labour Supply - Midterm 1 Practice

TRUE OR FALSEA differences - in - differences estimator uses a control group to approximate what would have happened to the treatment group if the treatment (i.e. Policy change) had not occurred...

TRUE OR FALSEThe labour supply curve can never be downward sloping, because the income and substitution effects go in the same direction...

TRUE OR FALSEAn increase in women's wages tends to lower the opportunity cost of children, since higher wages means that families can better support them.

TRUE OR FALSEDisability insurance benefits ALWAYS discourage eligible workers from returning to work.

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ORACLE OCI

TRUE OR FALSE

A differences - in - differences estimator uses a control group to approximate what would have happened to the treatment group if the treatment (i.e. Policy change) had not occurred...

TRUE OR FALSE

The labour supply curve can never be downward sloping, because the income and substitution effects go in the same direction...

TRUE OR FALSE

An increase in women's wages tends to lower the opportunity cost of children, since higher wages means that families can better support them.

TRUE OR FALSE

Disability insurance benefits ALWAYS discourage eligible workers from returning to work.