AS.180.203
Faculty Research in Economics
Latest Midterm Exam Review
(With Solutions)
2026
1
,1. Case: A faculty research project studies the impact of minimum wage
increases on employment using panel data.
Question: Which econometric method best addresses unobserved
heterogeneity across states?
- A. OLS regression
- B. Fixed effects model
- C. Cross-sectional regression
- D. Simple averages
Answer: B
Rationale: Fixed effects control for time-invariant differences across
states.
---
2. Case: A faculty member investigates monetary policy shocks using VAR
models.
Question: What is the main advantage of VAR in this context?
- A. It isolates causal effects without assumptions
- B. It captures dynamic interrelationships among variables
- C. It eliminates endogeneity automatically
- D. It requires no data
Answer: B
Rationale: VAR models track dynamic responses of multiple variables to
shocks.
---
3. Case: Research examines the effect of education on earnings using
instrumental variables.
Question: Which instrument is most valid?
- A. Years of schooling
- B. Geographic proximity to colleges
2
, - C. Income level
- D. Age
Answer: B
Rationale: Proximity affects schooling but not directly earnings,
satisfying relevance and exogeneity.
---
4. Case: A faculty study analyzes carbon taxes on firm output.
Question: Which curve shifts in the short run?
- A. Demand curve right
- B. Supply curve left
- C. Demand curve left
- D. Supply curve right
Answer: B
Rationale: Taxes raise costs, shifting supply left.
---
5. Case: A researcher studies trade liberalization’s effect on wages.
Question: Which model is most relevant?
- A. Solow growth model
- B. Heckscher-Ohlin model
- C. IS-LM model
- D. Phillips curve
Answer: B
Rationale: HO model explains factor price changes from trade.
---
6. Case: Faculty research evaluates healthcare subsidies.
Question: Which welfare measure captures consumer benefit?
- A. Producer surplus
- B. Consumer surplus
- C. Deadweight loss
3
Faculty Research in Economics
Latest Midterm Exam Review
(With Solutions)
2026
1
,1. Case: A faculty research project studies the impact of minimum wage
increases on employment using panel data.
Question: Which econometric method best addresses unobserved
heterogeneity across states?
- A. OLS regression
- B. Fixed effects model
- C. Cross-sectional regression
- D. Simple averages
Answer: B
Rationale: Fixed effects control for time-invariant differences across
states.
---
2. Case: A faculty member investigates monetary policy shocks using VAR
models.
Question: What is the main advantage of VAR in this context?
- A. It isolates causal effects without assumptions
- B. It captures dynamic interrelationships among variables
- C. It eliminates endogeneity automatically
- D. It requires no data
Answer: B
Rationale: VAR models track dynamic responses of multiple variables to
shocks.
---
3. Case: Research examines the effect of education on earnings using
instrumental variables.
Question: Which instrument is most valid?
- A. Years of schooling
- B. Geographic proximity to colleges
2
, - C. Income level
- D. Age
Answer: B
Rationale: Proximity affects schooling but not directly earnings,
satisfying relevance and exogeneity.
---
4. Case: A faculty study analyzes carbon taxes on firm output.
Question: Which curve shifts in the short run?
- A. Demand curve right
- B. Supply curve left
- C. Demand curve left
- D. Supply curve right
Answer: B
Rationale: Taxes raise costs, shifting supply left.
---
5. Case: A researcher studies trade liberalization’s effect on wages.
Question: Which model is most relevant?
- A. Solow growth model
- B. Heckscher-Ohlin model
- C. IS-LM model
- D. Phillips curve
Answer: B
Rationale: HO model explains factor price changes from trade.
---
6. Case: Faculty research evaluates healthcare subsidies.
Question: Which welfare measure captures consumer benefit?
- A. Producer surplus
- B. Consumer surplus
- C. Deadweight loss
3
