Question

College students often borrow money to attend school. Generally, the plan is to pay loans back through future earnings. In this way, capital markets and labor markets are intimately connected. Assume that the market for education and the market for college educated labor are perfectly competitive. Show what happens to the market for education, and the market for college educated labor if the government increases the number of very low interest loans.

who gains and who loses by this policy?

Producers of Schooling- gain or lose
college graduates - gain or lose
consumers of education (without loans)- gain or lose
Employers of college graduates- gain or lose

Answer 1

Answer: See Explanation

Step-by-step explanation:

Based on the information provided in the question, the people who gain will be:

1. Producers of Schooling - Since the college students often borrow money to attend school, this ultimately means that there'll be an increase in the number of students who wants to go to college. This is beneficial to the producers of schooling as they'll get more students and make more revenue.

2. Employers of college graduates- Since the college students often borrow money to attend school, this ultimately means that there'll be an increase in the supply of labor. Since there is an increase, there will be a reduction in the wage rate as supply of labor will be more than the demand.

The losers will be:

1. College graduates - They are losers because they'll get a lower pay due to the rise in the number of people that'll graduate from college.

2. Consumers of education (without loans)- They're also losers as there'll be an increase in supply of labor and decrease in wage rate offered.

2.