Question

1. Now that the social security system's earnings test has been eliminated, the social security system generates a(n) _____ effect that generally _____ hours for individuals that are eligible

A.

income; reduces

B.

substitution; reduces

C.

income; increases

D. substitution; increases

2. Prior to an expanded child care subsidy program in Illinois, the labor force participation rate of single mothers in Illinois was 45% and in Wisconsin was 48%. After Illinois expanded its child care subsidy program, the participation rate increased to 58% in Illinois and to 51% in Wisconsin. The expanded child care program in Illinois is estimated to increase labor force participation of single mothers by how much according to a difference-in-differences estimator?

	A.	0.07
	B.	0.06
	C.	0.1
	D.	0.03
	E.	0.13

4.

The elasticity of substitution is

	A.	the percentage change in capital over the percentage change in labor.
	B.	the change in capital over the change in the price of labor.
	C.	the percentage change in the price of capital over the percentage change in the price of labor.
	D.	the change in the price of capital over the change in the price of labor.
	E.	the percentage change in the capital/labor ratio resulting from a 1 percent change in the relative price of labor.

Answer 1

Part-1) Solution: substitution; reduces

Explanation: The substitution effect associated with a benefit reduces the causes individuals to work more hours when eligible for the benefits for social security.

Part-2) Solution: 0.1

Working:

	Illionisis	Wisconsin
Before subsidy program	45	48
Adter subsidy program	58	51
	13	3

13 -3 = 10 or 0.1

Part-3) Solution: the percentage change in the capital/labor ratio resulting from a 1 percent change in the relative price of labor

Explanation: A measure of the responsiveness of the capital-labor ratio divide by a change in the price of labor relative to capital