This chapter discussed natural and randomized experiments. How does a natural experiment differ from a randomized one? Which one is likely to yield more accurate results?
What will be an ideal response?
A natural experiment is an empirical study in which some process – out of the control of the experimenter – has assigned subjects to control and test groups in a random or nearly random way. The process of randomization involves the assignment of subjects by chance, rather than by choice, to a test group or control group. The test group and the control group are treated identically, except along a single dimension that is intentionally varied across the two groups. The impact of this variation is the focus of the experiment. Both types of experiments can yield accurate results. Natural experiments are likely to be used when there are budget or time constraints to conducting a randomized experiment.
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Which of the following is an example of foreign direct investment?
A. Dr. Gareau, a French biologist, buys $5,000 worth of shares of Toyota. B. Ford buys a controlling interest in Peugeot Citroën, a French automobile company. C. Wells Fargo Bank buys $10 million worth of Bank of England T-Bills. D. Ford motor company puts $10 million from its pension fund into a mutual fund containing shares of foreign companies.
If consumer purchases of a good are not very sensitive to the price of the good, this is illustrated by a
a. demand curve that is relatively flat (more horizontal). b. demand curve that is relatively steep (more vertical). c. supply curve that is relatively flat (more horizontal). d. supply curve that is relatively steep (more vertical).