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Suppose That a Technological Innovation Causes the Price of Capital

question 43

Essay

Suppose that a technological innovation causes the price of capital to decrease and that,in turn,this causes the demand for college graduates to increase and the demand for high school graduates to decrease.Use human capital theory to predict the effect of the technological innovation on college enrollment rates of 18-year olds.Explain using either the present value method or the internal rate of return method.


Definitions:

Keynesian Approach

An economic theory proposing that government intervention through fiscal policies (spending and taxes) can affect the overall level of economic activity, stabilizing the economy.

Fiscal Policy

Government strategies used to influence economic conditions through spending and taxation.

Budget Deficits

The situation where a government's expenditures exceed its revenues, leading to the accumulation of debt.

Demand-Side Economics

Macroeconomic policy that focuses on shifting the aggregate demand curve as a way of promoting full employment and price stability

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