Deck 6: Human Capital

Question 1

What is implied when the wage-schooling profile is drawn as a concave (i.e., increasing at a decreasing rate) function?

A) The marginal return to schooling increases as years of schooling increases.
B) The marginal return to schooling is positive but falling as years of schooling increases.
C) Average wages fall as years of schooling increases.
D) The cost of schooling increases but at a decreasing rate.
E) The cost of schooling decreases but at an increasing rate.

Answer 1

B

Question 2

The slope of the wage-schooling locus provides an estimate of the

A) average years of education as a function of age.
B) average wage or salary of workers for a given level of schooling.
C) economic return to an additional year of schooling.
D) economic cost of an additional year of schooling.
E) marginal cost of an additional year of schooling.

Answer 2

C

Question 3

If ability is positively related to schooling, then estimating the returns to education directly from the wage-schooling profile will likely

A) underestimate the return to schooling.
B) overestimate the return to schooling.
C) underestimate the average wage.
D) overestimate the average wage.
E) underestimate the average discount rate.

Answer 3

B

Question 4

What is the stopping rule for choosing one's years of schooling?

A) end one's schooling when the return from more schooling is zero
B) end one's schooling when the cost of one more year of schooling is zero
C) end one's schooling after college
D) end one's schooling when the rate of return to one more year of schooling equals the worker's rate of discount
E) end one's schooling when the worker's rate of discount equals zero

Question 5

Which statement about human capital is false?

A) Human capital gives firms a way to differentiate between workers.
B) Workers accumulate human capital during formal education and through life experiences.
C) There is more human capital in the United States now than there was 100 years ago.
D) Human capital has a low rate of return.
E) Human capital tends to be an important determinant of one's wages.

Question 6

Selection bias is a problem when trying to estimate the return to education in a standard human capital model. In this context, what does selection bias refer to?

A) The data sample is nonrandom.
B) Workers self-select education levels and jobs based on their abilities and preferences.
C) Colleges select who they are willing to accept.
D) The wage-schooling locus does not have a constant slope.
E) The wage-schooling locus is estimated to have a negative slope.

Question 7

Which of the following reasons is not a likely explanation as to why college completion rates are greater, on average, for whites than for blacks?

A) Tuition costs are lower for whites than blacks.
B) Whites have access to more financial capital to pay for college than blacks.
C) Postcollege wages are higher for whites than for blacks.
D) Whites have greater access to higher quality public education at the elementary and secondary level.
E) Whites are more able to postpone earnings at age 18 than are blacks.

Question 8

Paula is considering going to law school. If she does, she will spend $60,000 on tuition and books to get a college education (during the first time period), $120,000 on tuition and books to get a law degree (during the second time period), and her law degree will earn her $620,000 during the remainder of her work-life (during the third time period). Paula's time preference for money is associated with a per-period interest rate of 20 percent. Approximately what is Paula's present value of obtaining a law degree?

A) $100,100
B) $210,400
C) $270,500
D) $440,000
E) $621,900

Question 9

Why might people choose to go to college?

A) A college education signals to firms that the worker is highly motivated.
B) A college education increases one's productivity, which will be rewarded in the labor market with higher wages.
C) Someone enjoys the process of becoming educated.
D) One cannot find employment.
E) All of these options are reasons people might choose to go to college.

Question 10

Which group tends to have the highest unemployment rate in the United States?

A) men
B) women
C) Blacks
D) Hispanics
E) Whites

Question 11

Labor force participation rates tend to

A) increase with education level for both men and women.
B) decrease with education level for both men and women.
C) decrease with education level for men but to increase with education level for women.
D) be unrelated to education level for both men and women.
E) be unrelated to education level for men but to increase with education level for women.

Question 12

In 2017, approximately what percent of adults in the United States had not graduated from high school?

A) 2%
B) 4%
C) 8%
D) 15%
E) 20%

Question 13

In 2017, approximately what percent of adults in the United States had received more education than a high school degree?

A) 15%
B) 25%
C) 35%
D) 67%
E) 90%

Question 14

Suppose all 18-year-olds are identical in every way except that some have easy access to credit (i.e., they face a low interest rate when borrowing money) while others have a difficult time accessing credit (i.e., they face a high interest rate when borrowing money). Which of the following statements is not true?

A) Those who have easy access to credit have a lower rate of discount than those who do not have easy access to credit.
B) Those who have easy access to credit will be more likely to go to college than those who do not have easy access to credit.
C) The present value calculation of college will be higher for those who have easy access to credit than for those who do not have easy access to credit.
D) Some people who have easy access to credit will not go to college.
E) No one without easy access to credit will go to college.

Question 15

People decide how much schooling to receive based on

A) their discount rate.
B) the marginal rate of return to schooling.
C) the present value of expected future earnings.
D) their ability to succeed in education programs.
E) All of the above factors influence how much schooling one receives.

Question 16

Present value calculations allow one to determine the

A) return to an uncertain asset.
B) present-day costs and/or benefits of various options.
C) utility value of a particular option.
D) social cost of financial calculations.
E) real wage.

Question 17

What does not enter into the present value calculation of a college degree?

A) the cost of college tuition
B) the cost of books
C) wages of college graduates
D) lifetime wages of noncollege graduates
E) the value of one's scholarships

Question 18

The wage-schooling locus is

A) downward sloping because education is generally productive.
B) upward sloping because education is generally productive.
C) backward bending.
D) horizontal because wages are unrelated to schooling.
E) vertical because education is a public good.

Question 19

In order to use schooling as a signal,

A) the signal must be costlier for low-skilled workers than for high-skilled workers.
B) the cost of purchasing the signal must not be so costly that high-skilled workers do not value obtaining it.
C) firms must be able to easily verify each worker's amount of schooling.
D) some people must choose to not complete schooling.
E) All of these are required for schooling to serve as a signal.

Question 20

Why do workers typically pursue their education while young?

A) There is more time to benefit from the higher wages that are typically associated with more education.
B) All of their friends pursue education while young.
C) Living expenses are low for a younger person.
D) Parents force their children to attend college immediately after high school.
E) They are more likely to receive a scholarship.

Question 21

The wage-schooling locus fails to allow researchers to test the theory that people choose education levels to maximize lifetime earnings because of self-selection. In this context, self-selection refers to

A) firms paying more educated workers a higher wage than they pay less educated workers.
B) college graduates selecting their occupation later in life.
C) people letting their ability dictate, in part, how much education they complete.
D) college students completing high-wage majors.
E) firms hiring workers of varying ability.

Question 22

As the interest rate increases,

A) the present value of future benefits increases.
B) the present value of future benefits decreases.
C) the discount rate decreases.
D) the future return to an investment decreases.
E) the present value of a future investment increases.

Question 23

Twin studies are helpful in producing an unbiased estimate of the returns to schooling, because twins are likely to

A) achieve the same amount of education.
B) earn comparable wages.
C) have similar abilities.
D) work in the same occupation.
E) work in the same industry.

Question 24

Which of the following has not been identified by research that tries to address the self-selection issue regarding the returns to schooling?

A) When both a high school graduate and a college graduate are placed in the type of job that high school graduates typically fill, the high school graduate would be more productive.
B) When both a high school graduate and a college graduate are placed in the type of job that college graduates typically fill, the college graduate would be more productive.
C) There are many kinds of ability that are rewarded in the workplace.
D) In general, workers appear to choose schooling amounts that maximize lifetime income.
E) All of the above have been identified by the research on the returns to schooling.

Question 25

Holding all else fixed, the greater is one's discount rate,

A) the more years of schooling one completes.
B) the fewer years of schooling one completes.
C) the greater is one's wage.
D) the more patient one is.
E) the more valuable is education.

Question 26

Roughly speaking, the estimated return to a year of education in the United States is roughly

A) 0%
B) 3%
C) 9%
D) 20%
E) 50%

Question 27

Suppose 40 percent of all potential workers are highly skilled and contribute $50,000 to the firm each year. The remaining 60 percent of potential workers are less-skilled and contribute only $30,000 to the firm each year. Schooling costs a highly skilled worker y per year, while it costs a less-skilled worker 2y per year. What range of y will support a signaling equilibrium?

A) $0 < y < $50,000
B) $5,000 < y < $10,000
C) $5,000 < y < $20,000
D) $10,000 < y < $20,000
E) $20,000 < y < $50,000

Question 28

The general schooling model predicts that schooling increases

A) as both ability and the discount rates increase.
B) as ability increase but as the discount rate decreases.
C) as ability decreases but as the discount rate increases.
D) as both ability and the discount rate decrease.
E) when ability is held constant and the discount rate increases.

Question 29

Suppose 40 percent of all potential workers are highly skilled and contribute $50,000 to the firm each year. The remaining 60 percent of potential workers are less skilled and contribute only $30,000 to the firm each year. When schooling is not used as a signaling device, how much is the firm willing to pay a worker chosen at random?

A) $30,000
B) $34,000
C) $38,000
D) $42,000
E) $50,000

Question 30

The general consensus from analysis of the Tennessee Student/Teacher Achievement Ratio (STAR) experiment suggests that students assigned to small classrooms of 13-17 students, compared to other students assigned to classrooms of 22-27 students, experienced

A) no change in academic achievement or college attendance.
B) an increase in both academic achievement and college attendance.
C) greater self-confidence.
D) higher likelihood of dropping out of school before graduating high school.
E) more friendships.