Mary has two possible career paths. She can become either a biologist or a concert pianist. Mary lives for 2 periods. In the first period, she gets the appropriate education for her career. In the second period, she works in the labor market. If Mary becomes a biologist, she will spend $15,000 on education in the first period and earn $475,000 in the second period. If she becomes a concert pianist, she will spend $38,000 on education in the first period, and then she will earn $500,000 in the second period.
a) Suppose Mary can lend and borrow money at a market interest rate of 10 percent between the two periods. Which career will she pursue? Briefly explain your answer. b) Suppose the market interest rate falls to 2 percent. Would Mary choose a different career path than in (a)? Briefly explain why this is the case.
Mary has two possible career paths. She can become either a biologist or a concert pianist. Mary lives for 2 periods. In the first period, she gets the appropriate education for her career. In the second period, she works in the labor market. If Mary becomes a biologist, she will spend $15,000 on education in the first period and earn $475,000 in the second period. If she becomes a concert pianist, she will spend $38,000 on education in the first period, and then she will earn $500,000 in the second period.
a) Suppose Mary can lend and borrow money at a market interest rate of 10 percent between the two periods. Which career will she pursue? Briefly explain your answer. b) Suppose the market interest rate falls to 2 percent. Would Mary choose a different career path than in (a)? Briefly explain why this is the case.
