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Suppose you are now working. You ask your boss for a raise and he says “I can’t give you a raise, but I could give you a $3,000 bonus if you complete an online course that would help you in the job”. Suppose the course costs $2,000 (the costs have to be paid now) and lasts for two years. Suppose that you don’t have money available to pay the costs but ask the bank for a loan. (a) What would the interest rate have to be such that you were indifferent between taking the course and not taking it? [Hint: assume you want to maximize the present value of your lifetime income and ignore any other costs of taking the course - e.g., it takes time away from other activities]. [2 points] (b) In general, why would a bank be reluctant to give you this type of loan? [2 points] [Hint: think about why, in general, it will be difficult to get a loan to fund a human capital investment]

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Chika Ilonah
Chika IlonahLv10
28 Sep 2019

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Related questions

You have the opportunity to get a VEGGIE Cafe franchise (this specializes in BOCA Veggie Burgers and other heart-healthy fast foods). You now manage three Big Bird Stick-e-Chicken shops for another owner and feel you are ready to be your own boss. You estimate your VEGGIE will gross $250,000 in annual sales. VEGGIE annual franchise fees will cost $5,000 plus another 3% of your gross sales. Advertising expenses have two parts: local advertising (which will cost $7,000 a year) and your share of National advertising (which will be 2% of gross sales). A store location (formerly a Burger Hut) is available for $6,000 a year plus a yearend rent bonus of 2% of gross sales in excess of $40,000. You will have to borrow money from a bank at 9% per annum (which will cost you $13,500 a year in interest). Your life savings of $20,000 (now earning you 5% per annum in interest) will also have to be invested in the business. NOTE: neither the bank loan principal you borrow from the bank nor the $20,000 of your own money you invest is an explicit or implicit cost. However, the interest paid on the bank loan is explicit and the interest foregone on your savings is implicit. Other estimated annual expenses are: utilities $12,000; labor $50,000; food ingredients $60,000; maintenance $9,600; liability insurance $3,000. Stick-e-Chicken pays you $12,000 a year wages plus a yearend bonus of 1% of their gross sales (last year their sales totalled $700,000). Of course, you will give up Stick-e-Chicken's salary and bonus. You estimate you can earn $10,000 more than you now earn at Stick-e-Chicken to compensate you for the additional responsibility of your own business.

a. What is the estimated explicit (accounting) cost of your proposed business? Itemize in detail.

b. What is the accounting profit you project for your business?

c. What is the total implicit cost you estimate for your venture? Itemize in detail.

d. Do you project any economic profit? How much?

 

The subject is African Economy

Would it be reasonable to restrict foreign aid so that we only give aid to nations that do not have significant levels of corruption? Why or why not? What challenges would this present and how might you suggest overcoming these challenges, if at all?

Now you will complete the assignment by preparing a short paper as follows:

In section one, identify and discuss the challenges you would identify in restricting foreign aid as described above.
In section two, give your own answer to the question, taking into account the challenges identified in section one. That is, you may answer yes or no to the initial question of whether to restrict foreign aid to nations that do not have significant levels of corruption, but your answer should address the concerns in section one regardless of which way you go.
Your short paper should not exceed two pages in length, double spaced, 10-12 pt. font, one inch margin. I will not be measuring any of these things, though, and offer them more as a guide to what I expect. If you are a bit over or under, that's okay. The substance of your answer is what I base the grade on.

what you think for this ? do you agree or disagree and why ?

I don’t think it’s wise for nations to begin raising tariffs and increasing subsidies when we are faced with a global recession. If a smaller country raises tariffs on a good they are importing, it might not have that big effect on the global economy. However, if a country like China, Japan, United States etc. decide to raise tariffs on imports, it could lead to a global increase in the average tariffs. In the article “Barriers to entry: A rise in protectionism would worsen the already grim outlook for world trade,” it talks about the worldwide average for tariffs. In 1986 they average 26%. If the big economies of the world start increasing tariffs, the rest of the world will eventually follow, leading to a global increase on tariffs. A rise in the tariffs would slow down the global economy even more in the long run. In the article it mentions how trade has picked up immensely when tariffs are lower, and the world GDP was higher compared to when tariffs are increased because countries are more willing to trade. I think they’re still benefits to be gained from trade even when a global recession may be taking place. If tariffs are increased, countries might try to specialize in goods where they don’t have a comparative advantage in. Instead of trading for that good, they will try to produce it domestically. The opportunity cost of choosing to specialize in a good when they don’t have comparative advantage is using those resources elsewhere. Perhaps for producing a good they do have comparative advantage in. Also a decline in trade because of rising tariffs means firms wouldn’t be able to benefit from economies of scale.

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