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1 | |
Human-capital theory suggests that: |
| | A) | the growth rate in earnings tends to be smaller the more educated a person becomes because of diminishing marginal returns. |
| | B) | the decision to be absent from the labor force reduces an individuals earnings, not only for those years absent from the labor force, but for all subsequent years. |
| | C) | expenses incurred when making human capital investments (e.g., room and board) are not crucial in calculating the net present value. |
| | D) | both (A) and (B). |
| | E) | all of the above. |
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2 | |
Suppose that there are smart and dumb people in the world. Smart people have a marginal product of 3 and dumb people a marginal product of 1. Years of schooling (y) provides a signal of intelligence in that it costs smart people y/3 dollars and dumb people y dollars to go to school. Assuming that the firm is competitive and the price of the output is 1, the firm must require less than how many years of schooling in order that smart people will find it in their best interest to go to school. |
| | A) | 1 |
| | B) | 2 |
| | C) | 4 |
| | D) | 6 |
| | E) | 12 |
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3 | |
Suppose that there are smart and dumb people in the world. Smart people have a marginal product of 3 and dumb people a marginal product of 1. Years of schooling (y) provides a signal of intelligence in that it costs smart people y/3 dollars and dumb people y dollars to go to school. Assuming that the firm is competitive and the price of the output is 1, the firm must require more than how many years of schooling in order that dumb people will find it in their best interest not to go to school. |
| | A) | 1 |
| | B) | 2 |
| | C) | 4 |
| | D) | 6 |
| | E) | 12 |
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4 | |
Obtaining a Ph.D. is a more attractive investment: |
| | A) | the higher the market rate of interest. |
| | B) | the larger the earnings of persons with a masters degree. |
| | C) | the older the person. |
| | D) | the longer the persons expects to work. |
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5 | |
The opportunity cost of a college education includes: |
| | A) | the forgone earnings that a high school graduate could earn. |
| | B) | tuition, books, and other fees. |
| | C) | rent, food, and clothing. |
| | D) | both (A) and (B). |
| | E) | all of the above. |
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6 | |
According to the schooling model, Madison Haley should invest in a college education if: |
| | A) | the sum of the earnings of college graduates is greater than those of a high school graduate. |
| | B) | the stream of earnings of college graduates is greater than those of a high school graduate. |
| | C) | the net present value of the stream of earnings of college graduates is greater than that of high school graduates. |
| | D) | if she faces a higher interest rate than those individuals who typically go to college. |
| | E) | none of the above. |
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7 | |
The slope of the wage-schooling locus indicates: |
| | A) | how much a worker's earnings would increase if he or she were to obtain more schooling. |
| | B) | the monetary gains from each additional year of schooling as more schooling is acquired. |
| | C) | both (A) and (B). |
| | D) | neither (A) nor (B). |
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8 | |
The schooling model predicts that the level of schooling differs between individuals because of differences in: |
| | A) | ability. |
| | B) | the rate of discount. |
| | C) | both (A) and (B). |
| | D) | neither (A) nor (B). |
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9 | |
Ability bias in the estimation of the return to schooling occurs if: |
| | A) | people face unobserved differences in the discount rate. |
| | B) | people have unobserved differences in ability. |
| | C) | both (A) and (B). |
| | D) | neither (A) nor (B). |
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10 | |
If ability and schooling are positively correlated then ability bias will tend to: |
| | A) | overstate the return to schooling. |
| | B) | understate the return to schooling. |
| | C) | reduce the variance in the observed return to schooling. |
| | D) | increase the measurement error in the return to schooling. |
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