Causal Inference in Economics: Master the Art of Establishing Causal Relationships

Question 1

In a randomized controlled trial (RCT), the purpose of randomization is primarily:

Accepted Answer

To ensure that the treatment and control groups are comparable, minimizing the potential for selection bias

Answer

To reduce bias caused by confounding variables that may differ between the groups

Answer

To increase the statistical power of the study

Answer

To eliminate the effects of confounding variables

Question 2

In a time series analysis, the autocorrelation function (ACF) measures:

Accepted Answer

The correlation between the current value of a time series and its previous values

Answer

The average value of a time series over time

Answer

The trend in a time series

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The seasonality of a time series

Question 3

The Granger causality test is primarily used to:

Accepted Answer

Determine whether one time series causes another

Answer

Estimate the causal effect of one time series on another

Answer

Identify the transmission mechanism between two time series

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Forecast the future values of one time series based on another

Question 4

In a regression discontinuity design, the treatment status is typically:

Accepted Answer

Determined by a natural experiment

Answer

Assigned randomly

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Based on pre-determined criteria

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Manipulated by the researcher

Question 5

A difference-in-differences (DID) analysis is commonly used to estimate the causal effect of a policy that is:

Accepted Answer

Implemented at different times in different regions

Answer

Assigned randomly to individuals

Answer

Graduated over time

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Based on a natural experiment

Question 6

What is the primary challenge in causal inference?

Accepted Answer

Distinguishing correlation from causation

Answer

Identifying the direction of causality

Answer

Controlling for confounding variables

Answer

Generalizing results to new populations

Question 7

Which assumption underlies the instrumental variables approach to causal inference?

Accepted Answer

The instrument is not correlated with the error term.

Answer

The instrument is correlated with the independent variable.

Answer

The instrument is randomly assigned to individuals.

Answer

The instrument is measured without error.

Question 8

What is the purpose of a regression discontinuity design?

Accepted Answer

To identify the causal effect of a treatment assigned discontinuously at a specific threshold

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To control for confounding variables that vary smoothly with the treatment assignment

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To analyze the effect of a time-varying treatment on an outcome

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To measure the spillover effects of a treatment on untreated individuals

Question 9

What is the significance of the Rubin Causal Model in causal inference?

Accepted Answer

It provides a theoretical framework for representing causal relationships

Answer

It outlines the necessary conditions for causal inference

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It offers a method for estimating causal effects in observational data

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It is a statistical test for identifying causal relationships

Question 10

What is the importance of external validity in causal inference?

Accepted Answer

It ensures that the results can be generalized to new populations and settings

Answer

It mitigates the risk of biased estimates due to confounding variables

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It provides a basis for predicting future outcomes

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It is a necessary condition for establishing causal relationships

Question 11

Which of the following is NOT a tool or technique used for causal inference in practice?

Accepted Answer

Factor analysis

Answer

Tree-based methods

Answer

Causal graphs

Answer

Bayesian statistics

Question 12

Which research method is seen as the most reliable for identifying causal relationships?

Accepted Answer

Randomized controlled trial

Answer

Observational study

Answer

Longitudinal study

Answer

Cross-sectional study

Question 13

What does propensity score matching aim to achieve in causal inference?

Accepted Answer

Create a comparison group similar to the treatment group

Answer

Estimate the causal effect of an intervention

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Identify and control for confounding variables

Answer

Reduce the sample size

Question 14

Which of the following is NOT a technique used to control for confounding variables in observational studies?

Accepted Answer

Randomization

Answer

Stratification

Answer

Regression analysis

Answer

Instrumental variables

Question 15

A researcher is using an observational study to establish a causal relationship. Which of the following is the primary challenge they face?

Accepted Answer

Confounding variables

Answer

Measurement error

Answer

Missing data

Answer

Data availability

Question 16

In regression analysis for causal inference, which of the following assumptions is essential?

Accepted Answer

Exogeneity of explanatory variables

Answer

Linearity of the relationship

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Homoscedasticity of the error term

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Independence of observations

Question 17

Which advantage does the difference-in-differences approach offer in causal inference?

Accepted Answer

It controls for time-invariant unobserved factors

Answer

It requires a large sample size

Answer

It can be used with non-experimental data

Answer

It is robust to measurement error

Question 18

What is the central assumption in using propensity score matching for causal inference?

Accepted Answer

The treatment and control groups are balanced on observed characteristics

Answer

The treatment assignment is random

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The outcome variable is normally distributed

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There are no unobserved confounding variables

Question 19

What is the fundamental distinction between cross-sectional and longitudinal studies?

Accepted Answer

Cross-sectional studies collect data from a sample at a single point in time, while longitudinal studies collect data from the same sample over time

Answer

Longitudinal studies collect data from a sample at a single point in time, while cross-sectional studies collect data from the same sample over time

Answer

Cross-sectional studies are more expensive than longitudinal studies

Answer

Longitudinal studies are more difficult to conduct than cross-sectional studies

Question 20

What is the primary aim of sensitivity analysis in causal inference?

Accepted Answer

To evaluate the robustness of the estimated causal effect to differing assumptions

Answer

To identify the most significant confounding variables

Answer

To enhance the precision of the estimated effect

Answer

To reduce bias

Question 21

In an experiment, which group serves as the benchmark against which the treatment group is compared?

Accepted Answer

Control group

Answer

Treatment group

Answer

Placebo group

Answer

Observation group

Question 22

How do existing knowledge and theoretical frameworks impact the design and interpretation of causal studies?

Accepted Answer

They guide hypothesis development and research design choices.

Answer

They eliminate the need for data collection, allowing causal inference based solely on prior knowledge.

Answer

They ensure the accuracy and objectivity of causal study findings.

Answer

They make it unnecessary to consider alternative explanations for observed outcomes.

Question 23

In regression analysis, which of the following is a key assumption?

Accepted Answer

The error term is unrelated to the independent variables

Answer

The error term is normally distributed

Answer

The independent variables are correlated

Answer

The dependent variable is continuous

Question 24

True or False: Natural experiments involve external events affecting only one group, providing a quasi-experimental setting for causal inference.

Accepted Answer

True

Answer

False

Question 25

True or False: Correlation necessarily implies causation.

Accepted Answer

False

Answer

True

Question 26

In a causal inference study, what is the initial step?

Accepted Answer

Defining the research question

Answer

Collecting data

Answer

Analyzing data

Answer

Drawing conclusions

Question 27

Which causal inference method is most suitable for observational data?

Accepted Answer

Panel data analysis

Answer

Time series analysis

Answer

Cross-sectional analysis

Answer

Regression discontinuity design

Question 28

What is crucial for ensuring the internal validity of an experiment?

Accepted Answer

Both options 2 and 3

Answer

Matched comparison groups

Answer

Large sample size

Answer

Random allocation of participants to treatment and control groups

Question 29

Which element is essential for establishing a causal relationship?

Accepted Answer

Temporal precedence of the supposed cause relative to the outcome

Answer

Absence of alternative explanations for the outcome

Answer

Strong correlation between supposed cause and outcome

Answer

Co-occurrence of supposed cause and outcome

Question 30

In a regression discontinuity design, the discontinuity in the treatment assignment variable is generally determined by:

Accepted Answer

A threshold value on a continuous variable

Answer

A random lottery

Answer

Matched comparison group

Answer

A predetermined time point

Question 31

What is a common challenge encountered in propensity score matching?

Accepted Answer

Both options 1 and 2

Answer

Inadequate overlap of propensity scores between treatment and control groups

Answer

Unobserved confounding variables

Answer

Limited sample size

Question 32

In an instrumental variables (IV) analysis, what is a key requirement for the validity of the instrument?

Accepted Answer

Both options 1 and 2

Answer

The instrument strongly predicts the outcome variable

Answer

The instrument correlates with the treatment variable but not with the outcome variable

Answer

The treatment variable is randomly assigned

Question 33

In a meta-analysis, what aspect is essential when evaluating the variability of effect sizes across studies?

Accepted Answer

Study characteristics and moderators

Answer

Statistical significance

Answer

Sample size

Question 34

In the context of causal inference research, which ethical principle is of particular importance?

Accepted Answer

Respect for participant autonomy

Answer

Non-maleficence

Answer

Beneficence

Answer

Justice

Question 35

A researcher wants to study the impact of a new job training program on worker productivity. To ensure a valid comparison, which of the following groups is the most appropriate control group?

Accepted Answer

Workers with similar characteristics who did not participate in the training program.

Answer

Workers randomly selected from the general population.

Answer

Workers who participated in a different job training program.

Answer

Workers in a different industry with similar characteristics.

Question 36

Which of the following is NOT a potential threat to the internal validity of a causal inference study?

Accepted Answer

A large sample size.

Answer

Measurement error.

Answer

Selection bias.

Answer

Confounding variables.

Question 37

A study finds a strong correlation between ice cream sales and crime rates. Which of the following is the most likely explanation for this correlation?

Accepted Answer

Both ice cream sales and crime rates are influenced by warmer weather during summer months.

Answer

There is no causal relationship; the correlation is purely coincidental.

Answer

Crime rates cause people to buy more ice cream.

Answer

Eating ice cream causes people to commit crimes.

Question 38

A company implements a new marketing campaign and observes a significant increase in sales. To establish a causal link between the campaign and the sales increase, what should the company do?

Accepted Answer

Compare sales data before and after the campaign, controlling for other potential factors affecting sales.

Answer

Assume that the campaign was the only factor influencing sales.

Answer

Conduct a survey asking customers if the campaign influenced their purchase decisions.

Question 39

Why is a randomized controlled trial (RCT) considered the 'gold standard' for causal inference?

Accepted Answer

It randomly assigns individuals to treatment and control groups, minimizing selection bias.

Answer

It uses large sample sizes, ensuring statistically significant results.

Answer

It eliminates all potential confounding variables.

Answer

It is easy to implement and requires minimal resources.

Question 40

A study finds that individuals with higher levels of education earn higher wages. Which of the following is the most plausible causal explanation for this finding?

Accepted Answer

Education increases skills and knowledge, making individuals more productive and thus more valuable to employers.

Answer

Higher wages cause individuals to pursue more education.

Answer

Individuals with higher innate abilities are more likely to both pursue education and earn higher wages.

Question 41

A company is considering implementing a new training program for its employees. To assess the potential impact of the program on employee performance, which of the following methods is most appropriate?

Accepted Answer

A quasi-experimental design, comparing the performance of employees who received the training to those who did not, while controlling for other relevant factors.

Answer

Observing employee performance over time before and after the training program is implemented.

Answer

A survey asking employees about their satisfaction with the training program.

Question 42

Which of the following is an example of a natural experiment that can be used to study causal relationships in economics?

Accepted Answer

The impact of a sudden increase in the minimum wage on employment levels in a specific region.

Answer

An analysis of the correlation between interest rates and economic growth across different countries.

Answer

A survey asking consumers about their preferences for different products.

Question 43

Which of the following statements is TRUE about causal inference?

Accepted Answer

It is a complex process that requires careful consideration of alternative explanations and rigorous analysis.

Answer

It is always easy to establish causal relationships from observational data.

Answer

Correlation always implies causation.

Question 44

Ice cream sales and crime rates are positively correlated. What explains this relationship BEST?

Accepted Answer

Spurious correlation: a third variable, likely temperature, influences both.

Answer

Causation: higher ice cream sales directly lead to increased crime rates.

Question 45

Researchers study a marketing campaign's effect on sales by randomly assigning customers to receive it or not.  Which causal inference method is being used?

Accepted Answer

Randomized controlled trial

Answer

Regression discontinuity design

Answer

Instrumental variable analysis

Answer

Natural experiment

Question 46

What is the PRIMARY purpose of a control group in a causal inference study?

Accepted Answer

To provide a baseline for comparison, isolating the treatment's effect.

Answer

To ensure the study meets ethical guidelines.

Question 47

What is the key advantage of using a natural experiment for causal inference?

Accepted Answer

It allows studying causal effects when random assignment is impractical.

Answer

It guarantees the most ethical approach to causal inference.

Answer

It is always the most precise method for causal inference.

Question 48

A study WITHOUT a control group finds lower heart disease rates in people taking a vitamin.  What's the MOST likely explanation for this finding?

Accepted Answer

Reverse causality: those with lower heart disease risk might be more inclined to take vitamins.

Answer

The vitamin directly causes a reduction in heart disease rates.

Question 49

A study observes decreased employment after a new minimum wage law. What additional data is MOST helpful to determine if the law CAUSED this decrease?

Accepted Answer

Employment trends in comparable regions without the new minimum wage law.

Answer

The number of businesses that closed after the law was implemented.

Answer

The average wage increase for workers after the law's implementation.

Question 50

A researcher wants to determine the impact of a job training program on employee productivity. They randomly assign employees to either receive the training or not. Which causal inference method is employed here?

Accepted Answer

Randomized Controlled Trial (RCT)

Answer

Regression Discontinuity

Answer

Difference-in-Differences

Answer

Propensity Score Matching

Question 51

A researcher aims to study the effect of minimum wage increases on employment. They analyze data from different states that implemented minimum wage increases at varying times. Which causal inference method is most suitable for this study?

Accepted Answer

Difference-in-Differences

Answer

Regression Discontinuity

Answer

Natural Experiment

Answer

Instrumental Variables

Question 52

A researcher hypothesizes that unobserved factors, such as innate ability, may influence both education level and income. Which causal inference method is appropriate for addressing this issue?

Accepted Answer

Instrumental Variables

Answer

Difference-in-Differences

Answer

Randomized Controlled Trial (RCT)

Answer

Regression Discontinuity

Question 53

Which of the following is NOT a crucial assumption for valid causal inference?

Accepted Answer

Perfect Measurement

Answer

Temporal Ordering

Answer

Exogeneity of Treatment

Answer

Absence of Confounding Factors

Question 54

In a regression model examining the relationship between advertising spending and sales, what does the coefficient on advertising spending indicate?

Accepted Answer

Estimated change in sales for a unit increase in advertising spending, holding other factors constant.

Answer

Average sales across all levels of advertising spending.

Question 55

What is the purpose of a control group in an experimental study?

Accepted Answer

To provide a baseline for comparison to assess the treatment effect.

Answer

To ensure a large enough sample size for statistical significance.

Answer

To increase the statistical power of the study.

Question 56

Which of the following is NOT a common challenge in establishing causal relationships in economic data?

Accepted Answer

Abundant data availability.

Answer

Confounding variables.

Answer

Reverse causality.

Answer

Limited data availability.

Question 57

A researcher finds a strong positive correlation between ice cream sales and crime rates. Can they conclude that eating ice cream causes crime?

Accepted Answer

No, correlation does not imply causation. There might be other factors, such as hot weather, that influence both ice cream sales and crime rates.

Answer

Yes, because there is a strong positive correlation between the two variables.

Question 58

What is the distinction between internal validity and external validity in causal inference?

Accepted Answer

Internal validity refers to the extent to which a study can establish a causal relationship, while external validity refers to the generalizability of the findings to other populations or settings.

Answer

Internal validity is about the reliability of the data, while external validity is about the accuracy of the measurements.