Madeleine is a high school graduate deciding whether to go to university. She (like everyone else) lives for two periods after high school. In the first period, she can work (without university) for a salary of YH, or she can attend university. If she attends university, she must pay $5000 in fees (tuition, books), but she will also earn $5000 from a sum- mer job. In the second period, she will continue to earn YH if she did not attend university, or she will earn YU if she went to university. The interest rate at which money can be borrowed or invested is r.Show that she will attend university if YU . (2 1 r)YH.Explain how an increase in the interest rate would affect her decision to attend university. 3. Madeleine is a high school graduate decidingwhether to go to university. She (like everyone else)lives for two periods after high school. In the firstperiod, she can work (without university) for a salary 5.of Y₁, or she can attend university. If she attendsuniversity, she must pay $5000 in fees (tuition,books), but she will also earn $5000 from a sum-mer job. In the second period, she will continue toearn Y₁ if she did not attend university, or she willearn Y₁ if she went to university. The interest rate atwhich money can be borrowed or invested is r.Show that she will attend university ifYu > (2 + r)YH.Explain how an increase in the interest rate wouldaffect her decision to attend university.

Madeline's net [resent value of income =Income in period 1 + Income in period 2(1+r) Without…

Answered: Madeleine is a high school graduate…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter19: The Macroeconomic Perspective

Section: Chapter Questions

Problem 29P: The prime interest rate is the rate that banks charge their best customers. Based on the nominal...

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Madeleine is a high school graduate deciding whether to go to university. She (like everyone else) lives for two periods after high school. In the first period, she can work (without university) for a salary of YH, or she can attend university. If she attends university, she must pay $5000 in fees (tuition, books), but she will also earn $5000 from a sum- mer job. In the second period, she will continue to earn YH if she did not attend university, or she will earn YU if she went to university. The interest rate at which money can be borrowed or invested is r. Show that she will attend university if YU . (2 1 r)YH. Explain how an increase in the interest rate would affect her decision to attend university.

3. Madeleine is a high school graduate deciding
whether to go to university. She (like everyone else)
lives for two periods after high school. In the first
period, she can work (without university) for a salary 5.
of Y₁, or she can attend university. If she attends
university, she must pay $5000 in fees (tuition,
books), but she will also earn $5000 from a sum-
mer job. In the second period, she will continue to
earn Y₁ if she did not attend university, or she will
earn Y₁ if she went to university. The interest rate at
which money can be borrowed or invested is r.
Show that she will attend university if
Yu > (2 + r)YH.
Explain how an increase in the interest rate would
affect her decision to attend university.

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