Which of the following statements best captures the intuitive reason behind discounting?
A) Since incomes rise over time, discounting means that we place less weight on benefits and costs today and more weight on benefits in the future.
B) Since dollars today can be invested, to obtain $1 in the future we have to give up less than $1 today. Hence future benefits and costs are given more weight than benefits and costs today.
C) Since investments yield a return, we have to give up less than $1 today to obtain $1 in future benefits. Hence we place less weight on future benefits and costs than we would on benefits and costs that dollars occur today.
D) Since dollars today can be invested, yielding a positive return, discounting places more weight on future returns.
Answer: C
You might also like to view...
The value-added approach of calculating GDP:
A. is an alternative, and equally valid, way of avoiding the problem of double-counting. B. lets us break down the total value paid and see how much of it was created at each step of the production process. C. is especially useful when thinking about services involved in the resale of existing goods. D. All of these are correct.
The difference between Gross National Product and Net National Product is the
a. rate of inflation. b. statistical discrepancy encountered in calculating GDP. c. difference between real versus nominal GDP. d. depreciation of the economy's capital stock.
Explain the concept of sunk costs with an example
Economic welfare is generally measured by (i) profit. (ii) total surplus. (iii) the price consumers pay for the product
a. (i) and (ii) only b. (ii) and (iii) only c. (ii) only d. (i), (ii), and (iii)