The interest rate is 5 percent. How does $500 to be received a year from today compare in value to $500 right now?
What will be an ideal response?
With an interest rate of 5 percent, $500 deposited in the bank right now will be worth $525 one year from today. (To calculate this amount, the future value is $500(1 + r) = $500(1 + .05 ) = $525.) The $500 received one year from today, however, has a present value of $500/(1 + r) = $500/(1 + .05 ) = $476.19. So, $500 today is worth more than $500 a year from now.
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In economics, the term "free rider" refers to
A) a person who evades taxes. B) one who waits for others to produce a good and then enjoys its benefits without paying for it. C) a supervisor who delegates menial time-consuming activities to others. D) one who volunteers her services.
Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then
a. the central bank would have to decrease the money supply which would decrease output. b. the central bank would have to decrease the money supply which would increase output. c. the central bank would have to increase the money supply which would decrease output. d. the central bank would have to increase the money supply which would increase output.