Economists recently define interest rate as "a discount rate used to reduce a future value to present" instead of defining it like "price of capital (cost of borrowing)". Show how interest rate could be used as "discount rate" and explain how this definition creates a problem.

Economists recently define interest rate as "a discount rate used to reduce a future value to present" instead of defining it like "price of capital (cost of borrowing)". Show how interest rate could be used as "discount rate" and explain how this definition creates a problem.

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter16: Interest, Rent, And Profit

Section: Chapter Questions

Problem 3QP

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Economists recently define interest rate as "a discount rate used to reduce a future value to present"
instead of defining it like "price of capital (cost of borrowing)". Show how interest rate could be used as
"discount rate" and explain how this definition creates a problem.

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