Is there any risk or variability in the outcomes of their decision?

QUESTION #1

Preface:

Suppose Maria’s parents want to pay for her undergraduate education at Bard College, which is a small liberal arts school in Upstate New York. Suppose that tuition costs $35,000 for the 1st year. Maria’s parents are willing to pay up to $40,000 for the 1st year of tuition.

Maria’s parents have $35,000 in an FDIC insured certificate of deposit (CD) that contractually pays 5% over the course of the next year. Another bank will give Maria’s parents a $35,000 student loan at 3% interest with no money down. The loan is only for 1 year and the interest payment and principal payment are due at the end of the year.

Instructions:

Use the information in the preface to answer the following questions in an essay format:

1) Should Maria’s parents take out a student loan, or should they pay the tuition with the balance in their bank account? Explain and defend your reasoning as to why Maria’s parents should either take out a student loan or pay the tuition with the balance in their bank account. Please make sure that you utilize concepts from the course to defend your answer.

2) Is there any risk or variability in the outcomes of their decision? Explain your reasoning.

Your essay needs to be a minimum of two paragraphs with size 12 font. You can include equations in your response if it aids your explanations.

QUESTION #2

Boskin Commission Inflation Essay Questions

The Senate Finance Committee created the Boskin Commission in 1996, which consisted of five prominent economists, to report on any biases in the Consumer Price Index (CPI). The Boskin Commission concluded that the CPI overstated inflation by 1.1 percentage points, meaning that if the official CPI stated inflation rate was 3.0%, then the true rate of inflation was 1.9% (3.0%-1.1%) in the eyes of the Boskin Commission.

The following tables detail the average nominal yearly wages of workers with only a high school degree and the average real wages (2016 dollars) for the years 1980-2016. The first table’s CPI is based on the Bureau of Labor Statistic’s CPI data and the second table is based on the Boskin Commission’s CPI.

Instructions:

Use the information in the preface to answer the following questions in an essay format:

1) How would the 1.1 percentage point reduction in the CPI inflation rate revise or change the level of wages in the United States? Were individual’s incomes higher or lower than what economists previously had thought under the Bureau of Labor Statistics’ (BLS) prior formulation of the CPI?

2) How would the 1.1 percentage point reduction in the CPI inflation rate revise or change the rate of real wage growth in the United States over the previous decades? Why would it revise or change the rate of real wage growth?

Your essay needs to be a minimum of three paragraphs with size 12 font. You can include equations in your response if it aids your explanations.

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