Deck 9: Investments in Human Capital: Education and Training

Question 1

Fewer women leaving the labor market to raise children has given women the incentive to acquire ________ on-the-job training early in their careers, yielding age-earnings profiles which are ________ than they were about twenty years ago.

A) more; steeper
B) more; flatter
C) less; steeper
D) less; flatter

Answer 1

A

Question 2

Present-oriented people discount future earnings ________ forward-looking people.

A) at the same rate as
B) at a higher rate than
C) at a lower rate than
D) at a higher or lower rate than

Answer 2

B

Question 3

Approximately ________ of all wealth in the United States is in the form of human capital.

A) 60%
B) 45%
C) 30%
D) 15%

Answer 3

A

Question 4

If both the demand for and the supply of college graduates shift to the left, then the equilibrium wage would ________ and the number of college graduates would ________.

A) increase, change ambiguously
B) change ambiguously, increase
C) decrease, change ambiguously
D) change ambiguously, decrease

Question 5

Firms use signals to estimate productivity so that they can

A) pay a low wage to all workers.
B) pay the same wage to all workers.
C) save on the costs of more accurate estimates.
D) minimize labor costs.

Question 6

The psychic costs of college are usually lowest for

A) students with relatively high ability.
B) students from poor backgrounds.
C) students with average or low ability.
D) students who are at the margin in terms of attending college or not.

Question 7

Which of the following is NOT an expense of acquiring human capital?

A) purchase of textbooks
B) anxiety caused by final exams
C) any wages foregone to attend school
D) cost of food and housing while attending school

Question 8

Which of the following is NOT an investment in human capital?

A) buying stock in a company that publishes textbooks
B) attending college
C) learning how to operate new computer software
D) moving to another state in search of better job opportunities

Question 9

Nina (age 19) would be more likely to obtain a college education if

A) her discount rate was lower.
B) the supply of others with a college education was greater.
C) she expected to retire at a younger age.
D) she was older.

Question 10

Increased grants and loans for college expenses would ________ the number of college graduates, while ________ wages paid to college graduates.

A) increase; increasing
B) decrease; decreasing
C) increase; decreasing
D) decrease; increasing

Question 11

Before biases are considered, the monetary rate of return to investments in education is

A) lower than that of most other investments.
B) higher than that of most other investments.
C) about the same as that of most other investments.
D) higher for women, but lower for men.

Question 12

Workers with relatively high levels of natural ability are quite likely to attend college. This can cause ________ bias when estimating educational returns because ________.

A) an upward; ability increases earnings
B) a downward; ability increases earnings
C) an upward; other benefits of college are ignored
D) a downward; other benefits of college are ignored

Question 13

Women generally receive ________ on-the-job training than men, causing their age-earnings profiles to be ________ than those of men.

A) less; flatter
B) less; steeper
C) more; flatter
D) more; steeper

Question 14

Since 1980, the college enrollment rate of both male and female recent high school graduates has ________, while the ratio of earnings of college to high-school graduates has ________.

A) increased; increased
B) increased; decreased
C) decreased; decreased
D) decreased; increased

Question 15

Students who attend college because they enjoy the lifestyle and freedom are treating college

A) as an investment good.
B) as an inferior good.
C) as a consumption good.
D) as a normal good.

Question 16

If average lifetime earnings of both high school and college graduates double, then the number of people attending college will consequently

A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease.

Question 17

In the labor market, signals are

A) any personal characteristic viewed as an indicator of productivity.
B) any acquired characteristic viewed as an indicator of productivity.
C) any personal characteristic which is proven to increase productivity.
D) any acquired characteristic which is proven to increase productivity.

Question 18

Employees tend to obtain on-the-job training

A) at an increasing rate during their careers.
B) all at once, early in their careers.
C) only at the end of their careers.
D) over a number of years, at a declining rate over their careers.

Question 19

Suppose the wages of both high school and college graduates decrease by $2,000 per year. In response to the opportunity cost, the number of people attending college will consequently ________, while in response to the earnings differential between high school and college graduates, college enrollments will ________.

A) increase; decrease
B) increase; increase
C) increase; remain unchanged
D) decrease; remain unchanged

Question 20

Human capital is

A) any machinery owned by individuals.
B) any investment in a worker's skills.
C) capital used for training workers.
D) a small portion of all capital in existence.

Question 21

For educational investment to be explained using hedonic theory, the costs of education

A) must be the same for present- and future-oriented people.
B) must decrease with age.
C) must be identical for all workers.
D) must vary between workers.

Question 22

Which of the following will increase the likelihood a person will go to college?

A) an increase in the interest rate (or discount rate)
B) a decrease in the years spent working after graduating
C) an decrease in the internal rate of return to college
D) a decrease in the earnings of high school graduates

Question 23

Which of the following best explains why the most rapid increase in a person's wages usually occur at younger ages, giving a concave shape to the age/earnings profile?

A) Oon-the-job training is free.
B) On-the-job training usually declines with age.
C) People who have more human capital are more likely to acquire more on-the-job training.
D) People with children cut back their hours of work.

Question 24

A college education for Bill, using the market rate of interest of 5%, has a net present value of $50,000. Which of the following is an internal rate of return consistent with this present value?

A) 4%
B) 5%
C) 6%
D) -5%

Question 25

The market for engineers is initially in equilibrium. The demand curve for engineers shifts up. Assume the naive cobweb model holds such that in the first period, the labor supply is fixed, in the next period, wages are fixed, and so on. In period three, how will wages compare to its new long run level?

A) Wages will be below its long run level.
B) Wages will equal its long run level.
C) Wages will be above its long run level.
D) uncertain (need more information)

Question 26

Studies of federally-sponsored training programs for "disadvantaged" workers show that

A) the rates of return have been very high for all groups.
B) training has significantly decreased women's wages.
C) rates of return have been negative for men.
D) training has significantly increased men's wages.

Question 27

For education to serve as a signal

A) education must increase productivity.
B) productivity and educational costs must be negatively related.
C) productivity and educational costs must be unrelated.
D) the acquisition of education must not increase wages.

Question 28

In the signaling model, assume high school graduates are paid a stream of income whose present value is $200,000. College graduates are paid a stream of income whose present value is X. College education costs higher-productivity workers $50,000 and lower-productivity workers $150,000. What value of X will cause higher-productivity workers to go to college and lower-productivity workers to not go to college?

A) $225,000
B) $475,000
C) $700,000
D) $275,000

Question 29

The wages paid by two careers, X and Y, have the same present value. Which of the following increase the likelihood that career X will pay more in wages over time (summed over the lifetime without discounting)?

A) Career X has an earlier retirement age.
B) Career X pays a much steadier wage.
C) Career X has fewer hours of work per year.
D) Career X pays the majority of its wages at a later age.

Question 30

John is trying to decide whether to go to college or to start working right out of high school. College as an investment is most likely justified when ________ is greater than the cost of going to college.

A) the present value of the difference between what John would earn as a college graduate and what he would earn as a high school graduate
B) the present value of what John would earn as a college graduate
C) the sum of lifetime earnings as a college graduate
D) the difference between the sum of lifetime earnings as a college graduate and the sum of lifetime earnings as a high school graduate.

Question 31

A nation shifts from a very progressive tax system (with a higher tax rate on higher incomes) to a tax system that tax all wages at the same rate. Both systems collect about the same revenues. This shift is likely to

A) decrease the fraction of the population getting more education.
B) increase the fraction of the population getting more education.
C) have no effect on the fraction of the population getting more education.
D) increase the fraction of the population wanting to work long hours.

Question 32

Which of the following is a cost of going to college?

A) the cost of living in a dorm
B) the cost of college cafeteria food
C) the cost of dating while in college
D) None of the above are costs of going to college.

Question 33

Mary can take a class that costs $10,000. The class teaches her a skill that will only be useful during the second year after training. What must the minimum pay for the skill in the second year for Mary to take the class? She could alternatively invest the $10,000 and earn an annual rate of return of 20%.

A) $4,000
B) $4,400
C) $14,000
D) $14,400

Question 34

Which of the following would likely, in the long run, reduce the observed rate of return from going to college?

A) Funds available to support college students become less available.
B) People going to college start to work longer hours.
C) Earning of high school graduates go down.
D) Educational reforms cause going to college to be fun and enjoyable.