Explain how present value calculations are used to evaluate future possibilities in the case of oil. Give an example using a present value calculation
What will be an ideal response?
Present value calculations enable decision makers to compare the net benefits of using a natural resource today with conserving the natural resource for future use. As a result of such net benefit decisions, natural resources will be used more efficiently in the economy either in the present or in the future. For example, assume it costs $50 a barrel to pump oil today, but it costs $60 a barrel to pump it in five years. If there is a 5% interest rate, it makes more sense to pump oil today because $60 received five years in the future would be worth only $47.01 today [$60/(1 + .05)5 = $47.01].
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What is the Ricardian equivalence proposition?
a. Governments change their spending/savings to offset private households spending/saving. b. Governments and private households change their spending and saving decisions in the same direction. c. Private households change their spending/saving to offset government spending/saving. d. Private households do not take government spending/saving into consideration when making decisions.
If the United States government wants to eliminate an unfavorable balance of trade, it could
a. reduce tariffs b. encourage imports c. reduce quotas on imports d. depreciate the dollar e. increase taxes on exported goods
If the nominal interest rate is 4 percent and the expected inflation rate is 1 percent, the real interest rate is
A) 3 percent. B) 5 percent. C) 4 percent. D) 1.50 percent. E) 0.25 percent.
This group, consisting of individuals who would like to work but have not looked for work during the past four weeks, is included among
a. discouraged workers. b. the structurally unemployed. c. minimally attractive workers. d. marginally attached workers.