Assume the market interest rate of loan depends on the quantity and quality of applicants’ collateral. Parents include children’s education achievements as normal goods in their utility function. And government starts to offer education loan with zero interest rate. What will happen to the intergenerational link in skills in the country if education is the main determinant of income? Explain.  

Answer rating: 100% (QA)

The market interest rate that an unrelated lender would demand in making an otherwise similar loan t... View the full answer