The Government Runs an Experiment Where a Random Sample of 200

question 30

Multiple Choice

The government runs an experiment where a random sample of 200 adults over 40 get a 5% tax cut and a random sample of 200 adults under 40 get no tax cut. Their results show that spending, on average, increased 8% with a 5% tax cut. They conclude that a 5% tax cut for all adult Americans will increase spending by 8%. Why is this logic flawed?

• A) The effect of the treatment on the treated may not be the average treatment effect.
• B) A 5% tax cut for all Americans suffers from selection bias.
• C) The measured effect of the treatment on the treated may be biased.
• D) The logic is not flawed.

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Definitions:

Variable Costs Per Unit

The costs that vary directly in proportion to changes in the level of production or sales volume.

Activity

A task, action, or operation performed in a business or industrial context, often contributing to a larger set of operations.

Committed Fixed Costs

Expenses that a company has an obligation to pay, regardless of the level of production or sales activity, such as rent, insurance, and salaries.

One-Year

A period of time consisting of 12 consecutive months.