Question

As one progresses through his or her working life, the average income tends to _____, holding the level of education constant.

Question 13 options:

a)	fall then rise

b)	constantly fall

c)	rise then fall

d)	constantly rise

Brett won a scholarship competition that will award him with $1,000 today and another $1,000 next year. What is the present value of the scholarship money if the interest rate is 10%?

Question 14 options:

a)

$2,100

b)

$1,736

c)

$2,000

d)

$1,909

Which statement about economic profit is false?

Question 15 options:

a)	Economic profit tells firms which products consumers like.

b)	Economic profit promotes the efficient use of resources.

c)	Economic profit provides firms with incentives to innovate.

d)	All firms are guaranteed to earn economic profit.

When interest rates rise, how does this affect the present value of human capital investment?

Question 16 options:

a)	It makes human capital investment more worthwhile.

b)	It has no effect on present value and human capital investment.

c)	It makes human capital investment less worthwhile.

d)	It raises the present value.

Answer 1

13) If education is constant, then average income should fall with time because new information should be added in the pool of skills to have a higher income. Option B

14) present value of the scholarship money = 1000 + 1000/(1+10%) = 1000 + 909 = 1909. Option D

15) Firms also bear economic losses when there are more firms than what the market can accomodate. Option D

16) Higher interest rate will reduce the present value of human capital making it less worthwhile. Option C.