You Have Just Won a Lottery That Promises to Pay

question 7

Multiple Choice

You have just won a lottery that promises to pay you $1,000,000 in 5 years. What is the present value of this lottery win at the continuously discounted rate of 10%?

• A) $621,000
• B) $606,531
• C) $648,720
• D) $904,837

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Definitions:

Corporate Profits

The surplus income of corporations after all expenses have been met, indicative of corporate health.

Inflationary Gap

Occurs when equilibrium GDP is greater than full-employment GDP.

Equilibrium GDP

The level of Gross Domestic Product where aggregate supply equals aggregate demand, indicating a stable economy with no tendency for change in the price level or output.

Multiplier

Any change in spending (C, I, or G) will set off a chain reaction leading to a multiplied change in GDP. Equation is 1/(1 - MPC).