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Source: Board of Governors, Federal Reserve Bank, USA.

Source: Board of Governors, Federal Reserve Bank, USA.

1.5. Suppose you were to develop an economic model of criminal activities, say, the hours spent in criminal activities (e.g., selling illegal drugs). What variables would you consider in developing such a model? See if your model matches the one developed by the Nobel laureate economist Gary Becker.17

1.6. Controlled experiments in economics: On April 7, 2000, President Clinton signed into law a bill passed by both Houses of the U.S. Congress that lifted earnings limitations on Social Security recipients. Until then, recipients between the ages of 65 and 69 who earned more than $17,000 a year would lose 1 dollar's worth of Social Security benefit for every 3 dollars of income earned in excess of $17,000. How would you devise a study to assess the impact of this change in the law? Note: There was no income limitation for recipients over the age of 70 under the old law.

17G. S. Becker, "Crime and Punishment: An Economic Approach," Journal of Political Economy, vol. 76, 1968, pp. 169-217.

36 PART ONE: SINGLE-EQUATION REGRESSION MODELS

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