Deck 9: Investments in Human Capital: Education and Training

Question 1

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

Answer 1

C

Question 2

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

Answer 2

C

Question 3

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

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

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

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 6

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 7

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 8

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 9

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 10

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 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

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

A) 75%
B) 60%
C) 40%
D) 15%

Question 13

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

Question 14

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 15

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 16

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 17

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 18

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 19

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

Question 20

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 21

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 is a cost of going to college.

Question 22

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 23

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 24

Age/earnings profiles fan out by educational attainment level.According to human capital theory,this phenomenon occurs because

A) males earn more than females on average.
B) workers "signal" their interest in working to employers.
C) workers invest less in post-school job training as they age.
D) workers who invest more in schooling will also invest more in post-school job training.

Question 25

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 26

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) Earnings of high school graduates decrease.
D) Educational reforms cause going to college to be fun and enjoyable.

Question 27

A nation shifts from a very progressive tax system (with a higher tax rate on higher incomes)to a tax system that taxes 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 28

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 the wage rate compare to the new long run level?

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

Question 29

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 be 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 30

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) a decrease in the internal rate of return to college
D) a decrease in the earnings of high school graduates

Question 31

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

A) On-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 32

Suppose an individual expects to receive a payment of $5,000 in 10 years.What is the present value of the payment if the discount rate is 8%? What is the present value of the payment if the discount rate is 4%? What principle is illustrated by this example?

Question 33

What is the internal rate of return on an investment in human capital? Suppose the internal rate of return on a particular investment in human capital is 10%.Kate has a discount rate of 5%,and William has a discount rate of 15%.Which individual undertakes the investment in human capital? Explain why.

Question 34

Suppose that a technological innovation causes the price of capital to decrease and that,in turn,this causes the demand for college graduates to increase and the demand for high school graduates to decrease.Use human capital theory to predict the effect of the technological innovation on college enrollment rates of 18-year olds.Explain using either the present value method or the internal rate of return method.

Question 35

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 36

What are the costs of obtaining a college education? What are the benefits of obtaining a college education? In determining whether or not an individual should invest in a college education,why is it not appropriate to compare the total dollar value of the benefits to the total dollar value of the costs.

Question 37

Suppose that it costs $15,000 per year to obtain a four-year college education.Assume that the real interest rate is 5% and that there are 45 years beyond college graduation during which an individual will work.What after-tax returns on the investment are necessary to justify making the investment on purely monetary grounds? If the post-schooling period were changed by 5 years in either direction,how would your calculation change? What does the latter exercise show?

Question 38

What is meant by the term present oriented? How is an individual's degree of present orientation captured in the human capital investment model? If,other things equal,an individual is more present oriented,how does this affect the likelihood that the individual will invest in additional schooling? Explain using the present value method.

Question 39

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 40

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 41

After first controlling for the effects of age,race,gender,union status,and location on earnings,suppose that a researcher estimates the rate of return to an additional year of schooling to be 8%.Note that the researcher did not control for unobserved differences in individual cognitive ability.Why is failure to control for cognitive ability among individuals in the sample a potential problem for the credibility of the researcher's estimate of the rate of return to schooling?

Question 42

Plot an age/earnings profile for a "typical" college graduate.How does human capital theory explain the shape of the age/earnings profile?

Question 43

Age/earnings profiles for full-time,year-round female workers are flatter than age/earnings profiles for full-time,year-round male workers with comparable education.How does human capital theory account for this phenomenon?

Question 44

Age/earnings profiles "fan out" by education level.Agree or disagree? Explain your reasoning.