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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 individual's earnings, not only for those years absent from the labor force but for all subsequent years as well. |
| | 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. Half the population is smart, and each smart person has a marginal product of 3. The remaining half of the population is dumb, and dumb people have a marginal product of 1. The product market is competitive, with each unit of output selling for $4. If the labor market is competitive and there is no way to determine how productive a worker is, how much will the firm pay each worker? |
| | A) | $2 |
| | B) | $4 |
| | C) | $6 |
| | D) | $8 |
| | 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. What values of y allow for education to serve as a signal of productivity? |
| | A) | 0 ≤ y |
| | B) | 2 ≤ y ≤ 6 |
| | C) | 2 ≤ y ≤ 4 |
| | D) | 6 ≤ y ≤ 12 |
| | E) | 4 ≤ y |
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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, one 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 (and costs associated with) 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 one more year of schooling. |
| | B) | the monetary gains from each additional year of schooling as more schooling is acquired. |
| | C) | the cost of obtaining one more year of school. |
| | D) | both (A) and (B). |
| | E) | all of the above. |
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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) | borrowing constraints. |
| | D) | preferences. |
| | E) | all of the above. |
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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) | preferences are uncorrelated with ability. |
| | D) | both (A) and (B). |
| | E) | all of the above. |
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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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