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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An increase in the nominal interest rate increases the quantity of credit card services because
A) bank profits go up. B) of intertemporal substitution. C) the opportunity cost of making transactions with money has risen. D) the substitution effect is greater than the income effect.
According to supply-siders, an switch from taxing income to taxing consumption to will
a. lead to a permanent increase in output-per-worker. b. lead to a temporary increase in output-per-worker. c. lead to a decline in output-per-worker. d. not change output-per-worker.