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Intermediate Macro Econ 202

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All questions are in the attached docx file. DO NOT USE AI. Make sure to follow the instructions on question 1-3 very closely. Lecture 7 & 8 mentioned in the homework is also attached for reference.

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Chapter 7 The Labor Market, Wages, and Unemployment Macroeconomics, 6th edition © 2024 by W. W. Norton & Company 7.1 Introduction In this chapter, we learn • how a supply-and-demand model helps us understand the labor market. • how labor market distortions like taxes and firing costs affect employment in the long run. • how to compute present discounted values, and how to value your human capital • why the return to a college education has risen enormously over the past half-century. 7.2 The U.S. Labor Market In the U.S. labor market, • wages account for two-thirds of per capita GDP. • average wages have grown 2 percent per year for the last century. The employment-population ratio: • Fraction of the civilian population over the age of 16 that is working • Has been increasing over time • Decreases during recessions Ratio of Employment to Population in the United States, 1960–2023 The Composition of the U.S. Labor Force, January 2023 The U.S. Labor Market The unemployment rate • The fraction of the labor force that is unemployed 𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 unemployment rate = × 100 𝑙𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 A person is unemployed if he or she • does not have a job that pays a wage or salary, • has actively looked for a job in the last 4 weeks, and • is available to work. The U.S. Unemployment Rate The Dynamics of the Labor Market • For most people, periods of unemployment are relatively short. • However, a significant fraction remain unemployed for long periods of time. • Many countries have developed social safety nets. • Job creation and job destruction occur each month in the United States. 7.3 Supply and Demand Downward-sloping labor demand • Diminishing marginal product of labor (MPL) Upward-sloping labor supply curve • Price of leisure is higher when wages are higher. The intersection of labor supply and demand determines: • level of employment • wage rate The Labor Market A Change in Labor Supply If the government collects a tax on wages • the labor supply curve shifts left. • a worker receives less money and supplies less labor— this applies to any wage. • To be in equilibrium, firms must raise wages. An Income Tax at Rate 𝝉 A Change in Labor Demand If the government creates regulations making it harder to fire workers, • firms will demand fewer workers. • labor demand shifts left, o wages and employment fall. • Initially, the unemployment rate rises o but recovers as discouraged workers drop out of the labor force. A Reduction in Labor Demand Wage Rigidity Wage rigidity • Wages fail to adjust after a shock to labor demand or supply. What happens if wages do not fall in the above demand shock example? • The labor market will not clear; this results in a larger fall in employment. A Reduction in Labor Demand with Wage Rigidity Case Study: Supply and Demand Shocks in the U.S. Labor Market Rise in employment-population ratio: Increase in female workers Supply shocks: Changes in social norms Demand shock: Reduced discrimination against women Rising unemployment in the 1960s and 1970s: Baby-boomer generation entering the workforce Supply shock: Younger workers have higher unemployment rates. Different Kinds of Unemployment Cyclical unemployment: • Associated with short-run fluctuations in output The natural rate of unemployment: • Rate that would prevail with no cyclical unemployment • Frictional unemployment: o Workers between jobs in the dynamic economy • Structural unemployment: o Labor market failure to match workers and firms 𝑎𝑐𝑡𝑢𝑎𝑙 𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 = 𝑓𝑟𝑖𝑐𝑡𝑖𝑜𝑛𝑎𝑙 + 𝑠𝑡𝑟𝑢𝑐𝑡𝑢𝑟𝑎𝑙 + 𝑐𝑦𝑐𝑙𝑖𝑐𝑎𝑙 natural 7.4 The Bathtub Model of Unemployment Bathtub model • States how employment and unemployment evolve over time • (1) Et + Ut = L̅ • Where Et = the number of employed people Ut = the number of unemployed people L̅ = the number of people in the labor force Bathtub Model of Unemployment (1 of 3) Bathtub model equation • (2) ҧ 𝑡 ∆𝑈𝑡+1 = 𝑠𝐸 ҧ 𝑡 − 𝑓𝑈 • Where ∆𝑈𝑡+1 : change in unemployment over time 𝑠:ҧ job separation rate 𝑓:ҧ job finding rate Bathtub Model of Unemployment (2 of 3) Solving the model: • Set the change in unemployment to zero ҧ 𝑡 0 = 𝑠𝐸 ҧ 𝑡 − 𝑓𝑈 ҧ 𝑡 = 𝑠(L̅ ҧ -Ut)- 𝑓𝑈 = 𝑠L̅ ҧ -(𝑓 ҧ + 𝑠)ҧ 𝑈𝑡 Solve the equation for 𝑈𝑡 gives the number of people unemployed in steady state U*: ഥ ҧ 𝑠 L U* = ҧ ҧ 𝑓+𝑠 Bathtub Model of Unemployment (3 of 3) The unemployment rate is the fraction of the labor force that is unemployed: ∗ 𝑠ҧ = ҧ ҧ 𝐿ത 𝑓+𝑠 𝑈 * u≡ To alter the natural rate of unemployment: • Change the job-finding rate. • Change the job separation rate. Policies along these lines can have unintended consequences. 7.5 Labor Markets around the World Since 1980: • Unemployment in Europe is well above the rate in the United States. European unemployment has increased because of • adverse shocks and high oil prices • inefficient labor market institutions: o higher unemployment o welfare benefits Unemployment in the United States, Europe, and Japan Hours Worked per Person Labor Markets around the World GDP per capita is lower in Europe. Why? • People work fewer hours. If working less is voluntary: • Europeans enjoy leisure more. • Welfare is likely improved. If working less is due to distortions in the labor market: • This outcome is likely not welfare enhancing. Case Study: Efficiency of Wages and Henry Ford Ford instituted a five-dollar-a-day minimum wage. The theory of efficiency wages: • Paying a wage greater than the market equilibrium wage may actually increase profits. 7.6 How Much Is Your Human Capital Worth? The present discounted value of your lifetime income is likely greater than $1 million. Present discounted value: • The value of money you would need to put in the bank today to equal a given future value • Tells how much a future payment or a future flow of payments is worth today 𝑓𝑢𝑡𝑢𝑟𝑒 𝑣𝑎𝑙𝑢𝑒 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝑒𝑑 𝑣𝑎𝑙𝑢𝑒 = (1 + 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒)𝑇 Present Discounted Value (1 of 2) To calculate the value of a stream of equal payments over a given number of years: • Arrange the sum of each period’s present discounted values into a geometric series. • Use the formula for a sum of a geometric series to calculate the present discounted value of the stream of payments. If a is some number between 0 and 1, then calculating a geometric series is: 𝑛+1 1−𝑎 1 + 𝑎 + 𝑎2 + ⋯ +𝑎𝑛 = 1−𝑎 Present Discounted Value (2 of 2) The series for $100 initial payment for 20 years: 𝑝𝑑𝑣 = 𝑝𝑑𝑣0 + 𝑝𝑑𝑣1 + 𝑝𝑑𝑣2 + ⋯ + 𝑝𝑑𝑣19 $100 $100 $100 = $100 + + + ⋯+ 2 (1+𝑅) (1+𝑅) (1+𝑅)19 1 1 1 = $100 × [1 + + ⋯+ ] 1+𝑅 1+𝑅 2 (1+𝑅)19 From the previous slide: If a = 1/(1 + R), then: 𝑝𝑑𝑣 = $100 × 1 ]20 1+𝑅 1 1−(1+𝑅) 1−[ Present Discounted Value: Example 1 Letting the interest rate R = 0.10 What is the pdv on $100 over 20 years? 1 𝑝𝑑𝑣 = $100 × 𝑝𝑑𝑣 = $100 × 𝑝𝑑𝑣 = $936 1−[ 1+𝑅 ]20 1 1−(1+𝑅) 1 ]20 1+0.1 1 1−(1+0.1) 1−[ Present Discounted Value: Example 2 Assume: • The average income is $100,000 • No wage growth • An interest rate of 3 percent • A lifetime work span of 45 years The pdv of this stream of payments is $2.53 million. 1 𝑝𝑑𝑣 = $100 × 1−[ 1+0.03 ]45 1 1−(1+0.03) = $2.53 million 7.7 The Rising Return to Education The premium to having a college degree: • Has been rising rapidly over the last forty years • Far outweighs the forgone wages and tuition costs The Rising Return to Education Theoretically, ↑ wages ↑ supply of college graduates ↓ wages? Why has not this happened? In practice, ↑ wages ↑ supply of college graduates ↑ demand for educated workers Change in demand > supply ↑ wages? Understanding the Rising Return to Education Case Study: Income Inequality Rising college premium is one cause of rising income inequality. Early 1900s • Most inequality associated with capital income Recently • Most inequality associated with salaries and business income Income Inequality in the United States and France 7.8 Economic Growth and Income Inequality So far, we have explored growth as an average income per person. Evidence suggests that economic growth may not be equally distributed. Economic Growth and Income Inequality Credits This concludes the Lecture PowerPoint presentation for Chapter 7, The Labor Market, Wages, and Unemployment, of Macroeconomics, 6e by Charles I. Jones For more resources, please visit http://digital.wwnorton.com/macro6 Copyright © 2024 W. W. Norton & Company Chapter 8 Inflation Macroeconomics, 6th edition © 2024 by W. W. Norton & Company 8.1 Introduction In this chapter, we learn • what inflation is, and how costly it can be. • how the quantity theory of money and the classical dichotomy help us understand inflation. • the relationship of interest rates and inflation through the Fisher equation. • the important link between fiscal policy and high inflation. Inflation (1 of 2) Inflation • Percentage change in the overall price level Hyperinflation • Episode of extremely high inflation • Greater than 500 percent per year Inflation (2 of 2) Inflation rate: annual percentage change in the price level 𝑃𝑡+1 − 𝑃𝑡 𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒 = × 100 𝑃𝑡 where 𝑃𝑡 is the price level in year t The Consumer Price Index (CPI) • Price index for a bundle of consumer goods Inflation Rate in the United States The Percentage of Countries Experiencing High Inflation Case Study: How Much Is That? (1 of 2) We can use the CPI to evaluate the value of a good in 1950 in today’s dollars. Case Study: How Much Is That? (2 of 2) Find the price of the good in 1950 in 2022 dollars. 100 𝑖𝑛 2022 𝑑𝑜𝑙𝑙𝑎𝑟𝑠 0.27 in 1950 dollars × = 3.28 in 2022 dollars 8.23 𝑖𝑛 1950 𝑑𝑜𝑙𝑙𝑎𝑟𝑠 Real difference is not as large as the nominal. Other price indexes • The CPI excluding food and energy prices • The GDP deflator 8.2 The Quantity Theory of Money We often think of money as paper currency. Historically: • Money was backed by gold. Today: • Currency is “fiat money.” o Paper that the government declares worth a certain price • Money has value because of social convention. Measures of the Money Supply (1 of 2) The monetary base includes currency and accounts (reserves). Banks hold accounts with the economy’s central bank. Under the Ample Reserves Framework, seen in the US and most major economies, the banking system holds ample reserves and earns interest on reserve balances. Measures of the Money Supply (2 of 2) Case Study: Digital Cash Electronic forms of currency • Debit cards, PayPal, travelers’ checks, Venmo, Bitcoin • Makes up most money in advanced economies The Quantity Equation Connects money and inflation Velocity of money • The average number of times per year that each piece of paper currency is used in a transaction The amount of money used in purchases is equal to nominal GDP. 𝑀𝑡 𝑉𝑡 = 𝑃𝑡 𝑌𝑡 Money Velocity Price Real supply of money level GDP The Classical Dichotomy and Constant Velocity (1 of 2) The classical dichotomy: • In the long run, the real and nominal sides of the economy are completely separate. In the quantity theory of money: • Real GDP assumed as exogenously given • Determined by real forces In other words: 𝑌𝑡 = 𝑌ത𝑡 The Classical Dichotomy and Constant Velocity (2 of 2) The velocity of money: • Exogenously given constant • Assumed to be constant over time 𝑉𝑡 = 𝑉 The money supply: • Determined by the central bank • Monetary policy exogenously given 𝑀𝑡 = 𝑀t The Quantity Theory of Money The Quantity Theory for the Price Level To solve the model • Plug in all the exogenous variables. • Solve for the price level. ഥ𝑡 𝑉ത 𝑀 𝑃𝑡∗ = 𝑌ത𝑡 Prices will rise as a result of • Increases in the money supply • Decreases in real GDP In the long run, the key determinant of the price level is the money supply. The Quantity Theory for Inflation (1 of 2) %∆𝑀 + %∆𝑉 = %∆𝑃 + %∆𝑌 We can express the quantity equation in terms of growth rates 𝑔. 𝑔ҧ𝑀 + 𝑔ҧ𝑉 = 𝑔𝑃 + 𝑔ҧ𝑌 Where: 𝑔𝑉 = 0 and 𝑔𝑝 = 𝜋 We assume 𝜋 ∗ = 𝑔ҧ𝑀 − 𝑔ҧ𝑌 The Quantity Theory for Inflation (2 of 2) Quantity Theory of Money: 𝜋 ∗ = 𝑔ҧ𝑀 − 𝑔ҧ𝑌 Changes in the growth rate of money lead to one-for-one to changes in the inflation rate. • Empirically, holds up both in U.S. and worldwide data Deflation: • Occurs when inflation rates are negative 𝑔ҧ𝑀 < 𝑔ҧ𝑌 Money Growth and Inflation in the United States, 1870–2012 Money Growth and Inflation around the World, 1990–2021 Revisiting the Classical Dichotomy (1 of 2) When all prices in the economy double, relative prices are unchanged. When the relative prices of goods are unchanged, nothing real is affected. Revisiting the Classical Dichotomy (2 of 2) The neutrality of money says that changes in the money supply • have no real effects on the economy. • affect only prices. Empirically • Holds in the long run • Does not hold in the short run o Nominal prices do not respond immediately to changes in the money supply. 8.3 Real and Nominal Interest Rates The real interest rate • is equal to the marginal product of capital. • is paid in goods. The nominal interest rate • is the interest rate on a savings account. • is paid in dollars. The Fisher Equation (1 of 2) The Fisher equation 𝑖≈𝑅+ 𝜋 where • 𝑖: nominal interest rate • 𝑅: real interest rate • 𝜋: inflation rate The nominal interest rate is generally high when inflation is high. The Fisher Equation (2 of 2) If 𝑖 ≈ 𝑅 + 𝜋 then 𝑅 ≈ 𝑖 − 𝜋 Empirically • The real interest rate has been negative. • This implies that in the short run the real interest rate need not equal the MPK. Real and Nominal Interest Rates in the United States 8.4 Costs of Inflation Individuals who are hurt during inflation: • An individual who has a pension that is not indexed to inflation • A bank that issues loans at fixed rates but that pays interest rates that move with the market • An individual with a variable rate mortgage Costs of Inflation (1 of 3) Large surprise inflations can lead to large distributions in wealth. • People with debts can pay back their loans with new cheaper dollars. • Creditors wind up losers. Costs of Inflation (2 of 3) Taxes • Based on nominal incomes Economic decisions • Based on real variables Tax distortions are more severe when inflation is high. Costs of Inflation (3 of 3) Inflation also distorts relative prices. • Some prices are faster at adjusting to inflation than other prices. Shoe leather costs of inflation • People want to hold less money when inflation is high. Menu costs • The costs to firms of changing prices frequently Case Study: The Wage-Price Spiral and President Nixon’s Price Controls Unions negotiate higher w Inflation Unions demand higher w Higher firm costs Firms increase prices President Nixon’s Price Controls • Froze wages and prices for 90 days to break the spiral • High unemployment resulted from an expansionary policy that brought the return of inflation. 8.5 The Fiscal Causes of High Inflation The government budget constraint 𝐺 = 𝑇 + ∆𝐵 + ∆𝑀 Where G government uses of funds T tax revenue ∆𝐵 change in the stock of government debt ∆𝑀 change in the amount of new money issued by government The Inflation Tax (1 of 2) Seigniorage and the inflation tax • Names for the revenue that the government obtains from printing more money (ΔM) The inflation tax • Shows up as a rise in the price level. • Is paid by people holding currency. The Inflation Tax (2 of 2) If a government runs large budget deficits, as debt rises, • lenders may worry government will have trouble paying back loans. • they may stop lending to the government altogether. Debt solution: Raising taxes? • May not be politically feasible. The government may resort to printing currency to finance its budget. • Lenders to the government will be paid back in currency that is worth less than the dollars lent. Central Bank Independence Monetary policy • Conducted by Federal Reserve Fiscal policy • President and Congress Central bank independence • An attempt to prevent fiscal considerations from leading to excessive inflation Case Study: Episodes of High Inflation (1 of 2) Episodes of high inflation tend to recur. Hyperinflation can stop just as quickly as it starts. Countries experiencing hyperinflation typically raise about 5 percent of GDP from the inflation tax. • Argentina raised 10 percent of GDP this way. Hyperinflations in Argentina, Brazil, and Russia High Inflation in Mexico, Nigeria, and Venezuela Case Study: Episodes of High Inflation (2 of 2) Hyperinflation • Ends when the rate of money growth falls rapidly. o The government gets its finances in order through lower spending, higher taxes, and new loans. The coordination problem • People build their expectations into the prices they set. 8.6 The Great Inflation of the 1970s During the Great Inflation, • the rate peaked below 15 percent. • the inflation tax was a small fraction of government spending. Inflation rose in the 1970s because • OPEC coordinated increases in oil prices. • the Fed increased the money supply too rapidly. • policymakers were concerned about the productivity slowdown. Credits This concludes the Lecture PowerPoint presentation for Chapter 8, Inflation, of Macroeconomics, 6e by Charles I. Jones For more resources, please visit http://digital.wwnorton.com/macro6 Copyright © 2024 W. W. Norton & Company
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Explanation & Answer

Attached.

Intermediate Macroeconomics

Complete the following questions. Submit an individual Word or PDF document on Canvas. Use
this document to create your final submission. Try using Lectures 7 and 8 as much as possible to
support your answers.
1. (10 points) Using data for the USA from https://fred.stlouisfed.org, do the following:
a. Using FRED’s “Edit Graph” feature, graph the nominal interest rate (series DTB3)
and inflation (series CPIAUCSL) on the same plot. Make sure the units for the
nominal interest rate are “Percent” and for inflation are “Percent Change from Year
Ago”. The frequency for both should be “Annual”, and the aggregation method
should be “Average”.
Answer:

Source: FRED and author’s calculations.
b. On the same plot, graph the real interest rate using the nominal interest rate,
inflation, and Fisher equation. Make sure the units are “Percent”, the frequency is
“Annual”, and the aggregation method is “Average”.
Answer:

Source: FRED and author’s calculations.
c. Comment on what you see.
Answer:
The graph makes it clear that real interest rates can change noticeably over time
in response to changes in inflation and nominal interest rates, which reflect the
effects of economic events such as recessions or expansions. This dynamic affects
important financial choices like saving and investing.
d. Download your work as a CSV or Excel file. In the file, remove rows/years where
any of the 3 variables are missing. You should be left with data for 1954 to 2023.
Using this data, calculate the present discounted value (pdv) of $1,000,000 in 1954
if the money is received in 2023.
Answer:
observation_date
1954-01-01
1955-01-01
1956-01-01
1957-01-01
1958-01-01
1959-01-01
1960-01-01
1961-01-01
1962-01-01
1963-01-01
1964-01-01
1965-01-01
1966-01-01
1967-01-01
1968-01-01

DTB3_CPIAUCSL_PC1
0.57640
1.98180
1.14728
-0.16812
-0.96347
2.45403
1.38069
1.28213
1.59629
1.89996
2.22365
2.37039
1.86635
1.50890
1.09291

CPIAUCSL_PC1
0.4
-0.3
1.5
3.4
2.7
0.9
1.5
1.1
1.2
1.3
1.3
1.6
3.0
2.8
4.2

Discount rate (%)
0.5764
1.9818
1.14728
-0.16812
-0.96347
2.45403
1.38069
1.28213
1.59629
1.89996
2.22365
2.37039
1.86635
1.5089
1.09291

1969-01-01
1970-01-01
1971-01-01
1972-01-01
1973-01-01
1974-01-01
1975-01-01
1976-01-01
1977-01-01
1978-01-01
1979-01-01
1980-01-01
1981-01-01
1982-01-01
1983-01-01
1984-01-01
1985-01-01
1986-01-01
1987-01-01
1988-01-01
1989-01-01
1990-01-01
1991-01-01
1992-01-01
1993-01-01
1994-01-01
1995-01-01
1996-01-01
1997-01-01
1998-01-01
1999-01-01
2000-01-01
2001-01-01
2002-01-01
2003-01-01
2004-01-01
2005-01-01
2006-01-01
2007-01-01
2008-01-01
2009-01-01
2010-01-01
2011-01-01
2012-01-01
2013-01-01
2014-01-01
2015-01-01
2016-01-01
2017-01-01
2018-01-01

1.23134
0.50731
0.10770
0.78889
0.77672
-3.16529
-3.35521
-0.79829
-1.20860
-0.45160
-1.19876
-2.10984
3.65787
4.44505
5.45811
5.17208
3.94323
4.02535
2.19915
2.56840
3.32047
2.07726
1.15977
0.38969
0.02747
1.65665
2.68418
2.06873
2.72451
3.22895
2.44527
2.45312
0.58272
0.00965
-1.28964
-1.29293
-0.21667
1.50791
1.49140
-2.44364
0.47088
-1.49812
-3.08681
-1.98559
-1.40889
-1.58274
-0.06911
-0.95124
-1.19732
-0.50269

5.4
5.9
4.2
3.3
6.3
11.0
9.1
5.8
6.5
7.6
11.3
13.5
10.4
6.2
3.2
4.4
3.5
1.9
3.6
4.1
4.8
5.4
4.2
3.0
3.0
2.6
2.8
2.9
2.3
1.5
2.2
3.4
2.8
1.6
2.3
2.7
3.4
3.2
2.9
3.8
-0.3
1.6
3.1
2.1
1.5
1.6
0.1
1.3
2.1
2.4

1.23134
0.50731
0.1077
0.78889
0.77672
-3.16529
-3.35521
-0.79829
-1.2086
-0.4516
-1.19876
-2.10984
3.65787
4.44505
5.45811
5.17208
3.94323
4.02535
2.19915
2.5684
3.32047
2.07726
1.15977
0.38969
0.02747
1.65665
2.68418
2.06873
2.72451
3.22895
2.44527
2.45312
0.58272
0.00965
-1.28964
-1.29293
-0.21667
1.50791
1.4914
-2.44364
0.47088
-1.49812
-3.08681
-1.98559
-1.40889
-1.58274
-0.06911
-0.95124
-1.19732
-0.50269

2019-01-01
2020-01-01
2021-01-01
2022-01-01
2023-01-01

0.24922
-0.89445
-4.63717
-5.96691
0.94261

1.8
1.2
4.7
8.0
4.1
PDV

0.24922
-0.89445
-4.63717
-5.96691
0.94261
660,274.6234

2. (10 points) Suppose a college education raises the average person’s wage by $30,000 per
year, from $40,000 to $70,000. Assume the interest rate is 3% and there is no growth in
wages, then answer the following.
a. Suppose you are a high school senior deciding whether or not to go to college.
What is the present discounted value (pdv) of your labor income if you forgo
college and start work immediately, assuming you work for 50 years?
Answer:
40,000 is the annual wage,
R is the interest rate (3% or 0.03),
50 is the total number of years worked.
𝑝𝑑𝑣 = $40,000 𝑥

1
)〗50
1+0.03
1
1−(
)
1+0.03

1−(〖

= $1,060,066

b. As an alternative, you could pay $20,000 per year in college tuition, attend for 4
years, and then earn $70,000 per year after you graduate. What is the present
discounted value of your labor earnings under this plan? (Compute this value from
the point of view of a high school senior.)
Answer:
(pdv) of total income is:
𝑝𝑑𝑣 = $70,000 𝑥 (〖

1

1+0.03

)〗4

1
)〗46
1+0.03
1
1−(
)
1+0.03

1−(〖

= $1,587,113

Need to substract (pdv) of total tuition paid for four years from this:
𝑝𝑑𝑣 = $20,000 𝑥

1
)〗4
1+0.03
1
1−(
)
1+0.03

1−(〖

= $76,572

Thus, (pdv) of total net income is:
(pdv) = $1,587,113 − $76,572 = 1,510,541

c. Discuss the economic value of a college education.
Answer:
A college education increases lifetime earnings by $450,475 compared to starting
work immediately after high school, even after accounting for tuition costs and
delayed entry into the workforce (The net PDV of income after attending college is
$1,510,541,...

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