Suppose the U

question 24

Multiple Choice

Suppose the U.S. Federal Reserve raised its interest rate by 1 percentage point between 2014 and 2015, but the Bank of Canada made no change in its interest rate. You estimate the following model in an attempt to assess the effect of the change in interest rate on the unemployment rate: Unemployment_it = β₀ + β₁U.S._it + β₂Y2015_it + β₃U.S._it × Y2015_it + U_it
Here, U.S._it is a dummy variable equaling one if the observation is in the U.S. and Y2015_it is a dummy variable equaling one if the observation is in 2015. Which of the following variables may generate an endogeneity problem when attempting to use the estimate for the diff-in-diff (β₃) as the effect of the interest rate change?

• A) Changes in the U.S. fiscal policy between 2014 and 2015
• B) Changes in overall level of trade in North American between 2014 and 2015
• C) The difference in average labor force participation between U.S. and Canada
• D) Changes in international immigration laws between 2014 and 2015

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Definitions:

Financing Activities

Transactions that involve raising capital or repaying funds, such as issuing stock or taking out loans.

Operating Activities

Transactions and events that affect net income, related to the primary operations of the business.

Contingent Activities

Contingent activities are actions or events that may occur but their happening is dependent upon certain conditions or situations being met.

Financing Activities

Financing activities are transactions involving obtaining or repaying capital, including issuing equity, borrowing loans, and paying dividends.