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Author Question: Interest rates are positive because inflation makes purchases more expensive in the future than ... (Read 58 times)

abc

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on: Jul 1, 2018
Interest rates are positive because inflation makes purchases more expensive in the future than today.
 
  Indicate whether the statement is true or false

Question 2

If the interest rate is positive, the future value of an interest bearing investment is always larger than the present value.
 
  What will be an ideal response?


Anonymous

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Reply #1 on: Jul 1, 2018
Answer to Question 1

False. Even if inflation were zero, interest rates would be positive since people prefer present consumption to future consumption.

Answer to Question 2

True. FV = PV  (1 + i)t. If the interest rate is positive, the future value will always be greater than the present value.


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