1. Briefly define and explain [3 points each]
Medicare
It is the government insurance for elder that is 65+, and it covers the fee that is related to sickness (doctors’ office visits, the drug costs, and etc.), which is financed by the payrool tax

Medicaid
It is the government insurance for the poor people, which also covers the drug fee and etc.

Food Stamps (SNAP)
It is the stamps that the government issued for the poor people that they can only use the stamps for the food.

Total fertility rate
It is the number of babies that a woman gives birth to assuming the current age-specific birth rate stay constant.

2. The birth rate among unmarried teenagers in the US rose from 22 per 1000 to 31 per 1000 from 1970 to 2010, and the birth rate among all unmarried women in their childbearing years (15-45) rose from 26 to 48 per 1000 during this period. Yet the teen birth rate, the birth rate for all women 15-45 and the total fertility rate have all fallen sharply since 1970.
a. How can both the increases and the decreases be true? [10 points]
b. What changes in behavior explain these patterns?

Explain how multiple programs designed to help the poor (Food Stamps/SNAP, TANF, Earned Income Tax Credit, Housing Assistance) can result in very high marginal tax rates on poor recipients of these benefits? [3 points]

Means tested transfer programs face conflicting goals of providing enough money for people with no other source of income, not discouraging work, and minimizing total costs. Design 2 programs (benefit for families with no other income, implicit tax rate, maximum income at which individuals are no longer eligible) and explain how well they do in achieving the 3 goals. [5 points]

You estimate 2 regressions, where ln L is the natural log of the number of workers in millions and ln W is the natural log of the hourly wage: [25 points]
Labor demand ln L = 2.98 – 0,11 ln W R2 = 0.65
(1.41) (0.03)

Labor supply ln L = 2.63 + 0.10 ln W R2 = 0.58
(1.28) (0.04)

Which coefficients are statistically significant and which are not?
If the minimum wage is $7.25, how many workers will firms want to hire, how many people will want to work, and what is the unemployment rate in this labor market?
If the minimum wage is $10.00, how many workers will firms want to hire, how many people will want to work, and what is the unemployment rate in this labor market?
If the average worker in this labor market works 30 hours per week and 50 weeks per year, what are the total earnings of all minimum wage workers at $7.25 and $10.00? Give your answers in billions of dollars.
Compare the average annual earnings for all people in this labor market and the unemployment rate when the minimum wage is $7.25 and $10. Given these numbers, should the minimum wage be raised to $10?
What percent of the change in annual earnings from increasing the minimum wage did the CBO estimate would go to workers in poor families?
Draw a supply-demand diagram, labeling all relevant values of L and W.
5. The Earned Income Tax Credit gives workers 20% of their earnings for earnings up to $12,000 and begins to reduce the credit by 33% for every dollar of earnings above $16,000. For an individual who earns $12 an hour and can work a maximum of 4000 hours in a year
Draw the budget constraints before and after this EITC goes into effect. Label the number of hours of work and money income for each kink in the budget constraint.
Draw indifference curves before and after the EITC goes into effect
Explain the income and substitution effects of the EITC
State how hours of work and money income will change (more, less, no change)
for 3 different people. A does not work at all before the EITC. B works 1200 hours. And C works 2000 hours. [15 points]

6. A training program for high school dropouts has the following costs and effects in years 12, 2, 3, and 4. After the 4th year, the effects go to zero (to keep the calculations simple). All these costs and benefits occur at the end of years 12, 2, 3, or 4. Assume that each crime costs $30,000 for jail costs and legal costs and inflicts $20,000 in costs to the victim. The discount rate used by the government to evaluate training programs is 10%. Calculate the present value of the program. [15 points]
Year 1 2 3 4
Cost per student $15,000 – – –
Change in earnings -$10,000 $5000 $5000 $3000
Change in crimes/100 students 3 3 3 0
Change in welfare transfers 0 -500 -500 -300
Change in taxes paid -2000 1000 1000 500

7. Suppose estimates of the benefits of reducing crime of the training program in Q6 come from the following regression on a sample of participants in the program and other high school dropouts from the same communities, age, sex, and ethnicity, where P=1 for participants and P=0 for nonparticipants. [7 points]

Crimes = 1.07 – 3.21P – .34 Ed – .05 Age + .28 Nonwhite R2 = .15
(.52) (1.27) (.52) (.02) (.22)

Which coefficients are statistically significant?
What is wrong with this equation?

8. Suppose the estimate of the effect of the program on participants comes from a regression of the participants’ earnings in the year before the program (T-1), the year of the program (T1), and the next 3 years (T2), (T3), and (T4). Earn = earnings in thousands of dollars. [8 points]

Earn = 13 – 10 T1 + 18 T2 + 18 T3 + 16 T4 R2 = .27
(6.1) (7.8) (8.2) (9.2) (10.3)

Why is there no variable for the year before the program?
What is wrong with this regression?