From Chapter Three and Four

1. A researcher conducted a cross-sectional analysis of children and found that the average test performance of children with divorced parents was lower than the average test performance of children of intact families. This researcher then concluded that divorce is bad for childrens test outcomes. What is wrong with this analysis?

2. CT provided a gas tax holiday in 2022 by $0.50/gallon. However, Rhode Island did not give any gasoline tax holidays to its citizens. Below is the table of the gasoline tax by the two states and related gasoline consumption.

CT	2021	2022	Difference
Gasoline Tax/Gallon	$0.50	$0.00
Gasoline Consumption	1.5 million gallons	1.4 million gallons
Rhode Island	2021	2022	Difference
Gasoline Tax/Gallon	$0.75	$0.75
Gasoline Consumption	1.0 million gallons	0.70 million gallons
Difference in Difference

a. Calculate the Difference-in-Difference estimate for the tax rebate in CT

b. Why do you think the tax rebate (i.e. lower gasoline prices) in CT lowered the gasoline consumption? Explain what other factors in 2022 may have impacted a positive relationship between gasoline price and consumption. (Note: Remember a demand curve has a negative relationship between price and quantity demanded.)

3. USA has $30 trillion dollar of federal debt which around 125% of the US GDP. Answer the following questions regarding federal debt.

a. What is the difference between federal debt and federal deficit?

b. What are the risks of federal govt paying the debt by printing more US dollar?

c. What are positive points of borrowings or maintaining large federal debt?

d. What are the negative points of borrowings or maintaining large federal debt?