Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
Question
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Chapter 14, Problem 1CQQ
To determine

Calculation of present value of money.

Expert Solution & Answer
Check Mark

Answer to Problem 1CQQ

Option “b” is correct.

Explanation of Solution

Option (b):

Present value of money can be calculated as follows.

Present value=Future value(1+Interest)Time period100=100(1+0)10100=1001100=100

Thus, the option “b” is correct.

Option (a):

The present value would be less than $100 if the interest rate is positive. Thus, option ‘a’ is incorrect.

Option (c):

The present value is greater than $100, if the interest rate is negative. Thus, the option “c” is incorrect.

Option (d):

The present value can be determined by using future value, interest rate, and the time period. Thus, the option “d” is incorrect.

Economics Concept Introduction

Concept introduction:

Present value: Thepresent value refers to the today’s value of the future amount that adjusted with the existing interest rate.

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