Provide an example of something that is correlated with GDP per capita wherethe causation only runs from the something to the GDP per capita and not viceversa, i.e. Y a§ects GDP per capita but GDP per capita does not a§ect Y. Brieáyexplain. (b)(bonus, and likely impossible) Provide an example of something that is correlatedwith GDP per capita where the causation only runs from GDP per capita to thesomething and not vice versa, i.e. GDP per capita a§ects Y, but Y does not a§ectGDP per capita. Brieáy explain.
Econ 311
Adrienne Lucas
ProblemSet2
Work in groups of up to 3 and turn in one problem set per group.Please write your names alphabetically by surname and box or highlight any Önal numerical answers.
1. The correlates of GDP per capita.
(a)Provide an example of something that is correlated with GDP per capita wherethe causation only runs from the something to the GDP per capita and not viceversa, i.e. Y a§ects GDP per capita but GDP per capita does not a§ect Y. Brieáyexplain.
(b)(bonus, and likely impossible) Provide an example of something that is correlatedwith GDP per capita where the causation only runs from GDP per capita to thesomething and not vice versa, i.e. GDP per capita a§ects Y, but Y does not a§ectGDP per capita. Brieáy explain.
2. Empirical evaluation. You have been hired to evaluate a randomized controlled trial(RCT) of a literacy intervention in India. 200 schools were selected to participate inthe study. 100 schools were randomly selected to be treated while the other 100 schoolswere control schools. All students in each school were administered a basic literacytest. At the baseline, 34% of the control school students and 32% of the treatmentschool students were ìliterate.îAt the endline, 42% of the control school students and48% of the treatment school students were ìliterate.î
(a)By how many percentage points did the intervention increase literacy?
(b)While your RCT was ongoing, the amount that the state government providedto each school increased. This a§ected all schools in the study equally. Doesthis a§ect the ability of your RCT to Önd the e§ect of the program? BRIEFLYexplain.
3. Given the Solow model, a production functiony=Ak1=3;depreciation =, and aninvestment rate=.
(a)Draw the basic Solow model from class, labeling all lines, axes, and the steadystate.
(b)Start a new diagram. Assume a country in its steady state is hit by an earthquakethat destroys physical capital but does not kill anyone. Draw a Solow model thatdescribes the transition of the country from (1) its original steady state to (2) itsimmediate post-earthquake state to (3) its Önal steady state.1
(b)Start a new diagram. The investment in the economy is di§erent than the basicmodel. Consider a level of subsistence consumption,c. If income per workeris less than or equal toc, people will consume all of their income. If incomeper worker is abovec, then all income per worker in excess ofcwill be splitbetween consumption and investment, with a fractionsgoing to investment. Usea diagram to analyze the possible steady-states of this economy. Under whatcircumstances does growth in output per capita occur? [Hint: this question hasan ìinterestingîinvestment line, but di§erent than the one in class]
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Provide an example of something that is correlated with GDP per capita wherethe causation only runs from the something to the GDP per capita and not viceversa, i.e. Y a§ects GDP per capita but GDP per capita does not a§ect Y. Brieáyexplain. (b)(bonus, and likely impossible) Provide an example of something that is correlatedwith GDP per capita where the causation only runs from GDP per capita to thesomething and not vice versa, i.e. GDP per capita a§ects Y, but Y does not a§ectGDP per capita. Brieáy explain.
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