Question

Investment in children's education is analogous to which activity of a firm?

Options

• Firms reducing wages to cut current costs

• Firms paying dividends to shareholders

• Firms investing in capital goods, which raises future income

• Firms spending on advertisements to increase present sales

Answer 1

Spending on children's education is treated as an investment, just like firms investing in capital goods. In both cases, the expenditure incurred today is expected to raise future income, making education a source of human capital.