Real World Graduation: Question 8

RealWorldGraduation_Question_8   <– PDF

A reputable pollster takes an opinion poll of 1000 people. The poll consists of only one question, and it is about the probable success of a proposed government policy.  None of the respondents were familiar with the policy, but were familiar with the issue that the policy addressed.  The respondents of the poll are asked to give their opinion as one of the following choices.  The percent of the respondents that gave each answer is indicated in parentheses.  The choices were:

a) Virtually no chance of success (3%);

b) Small chance of success (31%);

c) Good chance of success (64%); and

d) Virtually guaranteed success (2%).

The reputable pollster calculates that his margin of error is about 4%. How accurate is the poll as an indicator of how successful the policy will be if it is enacted?

a) The probability of success is 96% (100% – 4%), because the answers have to be corrected for the pollster’s estimated error.

b) The policy will be 64% successful because that choice got the highest percentage.

c) It has a good chance of succeeding because that choice got the highest percentage, but is not necessarily 64% probable.

d) The probability of success is always 50-50 no matter what the poll says.

e) The policy will never be enacted because the people who responded to the poll did not achieve the required two-thirds (66%) majority in their opinion.

(The answer is shown on p. 2 of the PDF.)

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Real World Graduation: Question 7

RealWorldGraduation_Question_7   < PDF

A reputable economic research organization conducted a survey of prices in 2004. They found that median prices of the following items increased as follows:

  1. Unleaded gasoline, from $1.59 per gallon to $1.88 per gallon; an increase of 18.23% [1]
  2. Single-family homes, from $243,756 to $264,540; an increase of 8.52% [2]
  3. Soybeans, from $6.08 per bushel to $7.56 per bushel; an increase of 24.34% [3]
  4. Flour, 5-lb bag, from $1.55 to $1.65; an increase of 6.45% [4]

From these statistics, what is the approximate inflation rate from 2003 to 2004:

a) The inflation rate should include only the data for gasoline, soybeans, and flour, since those are common products that people use directly or indirectly every day; the inflation rate is approximately 16.3% = ((18.23 + 24.34 + 6.45)/3)

b) Only the data for single-family homes should be used, since homes are purchased on long-term mortgages (usually 30 years), and are therefore a better predictor of long-term inflation. The long-term inflation rate is the most important metric.  Therefore the inflation rate for 2003-2004 is approximately 8.5%.

c) Only the data for unleaded gasoline should be used because it is the only one of these that most people have to buy directly. Most people do not buy homes every year, and the prices of soybeans and flour are not useful because they are only components in items purchased by most people (i.e., flour is used in making bread, but there are other costs besides flour that contribute to the increase price of bread, such as sugar, butter, and fuel).  Therefore, the inflation rate for 2003 – 2004 is approximately 18.23%.

d) All of the data should be used, but not equally weighted, since some of these are purchased frequently, and some infrequently, and some are used more than others. For example, gasoline is purchased frequently, and homes infrequently.  No data was provided on the pro-rated amount of usage, so the most that can be inferred about inflation during this period is that was somewhere between 6.45% and 24.34%.

e) Only the data for soybeans and sugar should be used, since they are basic commodities that are used in a large number of products, and represent structural trends in the economy. Therefore, the inflation rate was approximately 15.39% (the average of 24.34 and 6.45)

[1]        Energy Information Administration

[2]        Federal Housing Finance Board; see about.com/US Government info (The New York Times Company)

[3]        farmdoc Project, College of Agricultural, Consumer and Environmental Sciences, University of Illinois at Urbana-Champaign

[4]        Wisconsin Farm Bureau Federation

(See answer on p. 2 of the PDF.)

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Real World Graduation, Question 6

RealWorldGraduation_Question_6   <– PDF

A person wishes to donate $100 to a charity. What percentage of the $100 will actually go to the cause for which the charity was established?

  1. a) All of it (100%) will go for the cause, because that’s what charities are legally required to do
  2. b) None of it (0%), because all charities are rip-offs
  3. c) There are always some expenses associated with fundraising, but these are regulated, and charities are required to spend more than 90% of contributions on the cause.
  4. d) There are always some expenses associated with fundraising, but these are regulated, and charities are required to spend more than 80% of contributions on the cause.
  5. e) There are always some expenses associated with fundraising, but these are regulated, and charities are required to spend more than 70% of contributions on the cause.

(Answer on p. 2 of the PDF.)

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Real World Graduation, Question 5

RealWorldGraduation_Question_5   <– PDF

A study by the U. S. Department of Education in 2006 [1] reported that college tuition, fees, and room and board are continuing to rise. The data in Figure 5-1 shows the costs of tuition, fees, books, and room and board for in-state students attending public four-year universities, living on-campus.  A separate study [2] concluded that a college graduate with a 4-year degree in 2005 will earn 63% more than a person with only a high school diploma (approximately $57,000 per year vs. $35,000 per year).  This means, on average, that a college graduate earns approximately 75% more over their working lifetimes ($2.1 M vs. $1.2 M) as compared to a person with only a high-school diploma.  Given the costs of a college education shown in Figure 5-1, and the earnings benefits of a college education, what is a good federal policy regarding college costs?

  1. a) The federal government should ensure all tuition, fees, and room-and-board is free.
  2. b) Congress should enact price controls on tuition, fees, and room and board to keep the annual rate of increase at or below the rate of inflation.
  3. c) Congress should pass a law requiring that tuition costs be frozen at the rates that prevailed during the freshman year.
  4. d) Attendance at college should be mandatory so that everyone’s income will rise.
  5. e) Some combination of a), b), and c) should be adopted to improve the current system.

School Year    Tuition & Fees ($)    % Increase in Tuition & Fees     Room & Board ($)     % Increase in Room & Board

1998-1999          3640                                –                                             4985                                           –

1999-2000          3768                            3.52                                          5144                                         3.19

2000-2001              3979                        5.60                                         5342                                         3.85

2001-2002              4273                         7.39                                         5675                                         6.23

2002-2003             4686                         9.67                                         5918                                         4.28

2003-2004             5363                        14.45                                        6316                                          6.73

2004-2005             5939                         10.74                                        6649                                         5.27

2005-2006             6399                           7.75                                        7025                                         5.65

Figure 5-1

(Answer on p. 2 of the PDF)

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