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Contents

Preface 31

Part One Introduction and Review

Chapter 1 Economic Questions and Data 47

1.1 Economic Questions We Examine 47

Question #1: Does Reducing Class Size Improve Elementary School Education? 48
Question #2: Is There Racial Discrimination in the Market for Home Loans? 49
Question #3: How Much Do Cigarette Taxes Reduce Smoking? 49
Question #4: By How Much Will U.S. GDP Grow Next Year? 50
Quantitative Questions, Quantitative Answers 51

1.2 Causal Effects and Idealized Experiments 51

Estimation of Causal Effects 52
Forecasting and Causality 53

1.3 Data: Sources and Types 53

Experimental Versus Observational Data 53
Cross-Sectional Data 54
Time Series Data 55
Panel Data 57

Chapter 2 Review of Probability 60

2.1 Random Variables and Probability Distributions 61

Probabilities, the Sample Space, and Random Variables 61
Probability Distribution of a Discrete Random Variable 62
Probability Distribution of a Continuous Random Variable 65

2.2 Expected Values, Mean, and Variance 65

The Expected Value of a Random Variable 65
The Standard Deviation and Variance 67
Mean and Variance of a Linear Function of a Random Variable 68
Other Measures of the Shape of a Distribution 69

2.3 Two Random Variables 72

Joint and Marginal Distributions 72

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