Test on Instrumental Variables for Causal Inference

Instrumental Variables for Causal Inference: Student Guide

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Question 1 of 50%

When comparing people who chose more schooling to those who chose less, the observed difference in earnings solely reflects the causal effect of schooling, without interference from factors like ability.

Test: Instrumental Variables

20 questions

Question 1: When comparing people who chose more schooling to those who chose less, the observed difference in earnings solely reflects the causal effect of schooling, without interference from factors like ability.

A. Ano

B. Ne

Explanation: Comparing people who chose more schooling versus those who chose less yields a biased comparison because people who choose more schooling often differ in ability, family background, and motivation, and these differences also affect earnings, contaminating the observed effect.

Question 2: In the instrumental variables approach, the variable Z should affect the outcome Y only through its effect on the variable X.

A. Ano

B. Ne

Explanation: The study materials state under '2. The IV idea' that 'Z affects Y only through X. It has no other path.' This is known as the Exclusion assumption.

Question 3: Never-takers are the people who respond to the encouragement of an instrument, doing X if and only if encouraged.

A. Ano

B. Ne

Explanation: Compliers are defined as the people who respond to the encouragement of an instrument, doing X if and only if encouraged. Never-takers are those who would not do X even if encouraged.

Question 4: A classic 'good instrument' recipe includes variation in the treatment variable (X) that is strong enough to move X meaningfully.

A. Ano

B. Ne

Explanation: A good instrument's recipe includes variation in the treatment variable (X) that is strong enough to move X meaningfully.

Question 5: A good Instrumental Variables (IV) story often involves using a macro variable to instrument for another macro variable, as this typically strengthens the exclusion restriction.

A. Ano

B. Ne

Explanation: The study materials state that whenever an IV story involves a 'macro' variable affecting another 'macro' variable, the exclusion restriction is almost certainly violated, making it a bad IV story. A good IV story requires the instrument to affect the outcome only through the treatment variable, which is implausible with macro-on-macro instrumentation.