Question

Consider a model with two periods—the first time period is the four years after high school and the second time period is the next 40 years. A person without a college education receives $120,000 of income during the first period and $1.2 million of income during the second period. A college graduate pays $200,000 during the first period to obtain a college degree and forgoes all earnings but then earns $2 million of income during the second period. Will the individual work or go to college in the first period if her individual rate of return between the two periods is 40%? Show your calculations.

          Consider a model with two periods—the first time period is the four years after high school and the second time period is the next 40 years. A person without a college education receives $120,000 of income during the first period and $1.2 million of income during the second period. A college graduate pays $200,000 during the first period to obtain a college degree and forgoes all earnings but then earns $2 million of income during the second period. Will the individual work or go to college in the first period if her individual rate of return between the two periods is 40%? Show your calculations.

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consider a model with two periodsthe first time period is the four years after high school and the second time period is the next 40 years a person without a college education receives 12000 35587

Added by Anthony R.

Principles of Economics

Gregory Mankiw 8th Edition

Instant Answer

Solved by Expert Akash M

09/20/2023

Step 1

For the person without a college education: Present value of income in the first period = $120,000 Present value of income in the second period = $1.2 million / (1 + 0.4)^4 = $1.2 million / 1.4^4 = $1.2 million / 2.744 = $437,956.20 Total present value of income Show more…

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Consider a model with two periods—the first time period is the four years after high school and the second time period is the next 40 years. A person without a college education receives $120,000 of income during the first period and $1.2 million of income during the second period. A college graduate pays $200,000 during the first period to obtain a college degree and forgoes all earnings but then earns $2 million of income during the second period. Will the individual work or go to college in the first period if her individual rate of return between the two periods is 40%? Show your calculations.

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