The Concept of Present Value Helps Explain Why

question 168

Multiple Choice

The concept of present value helps explain why

• A)investment decreases when the interest rate increases,and it also helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.
• B)investment decreases when the interest rate increases,but it is of no help in explaining why the quantity of loanable funds demanded decreases when the interest rate increases.
• C)the quantity of loanable funds demanded decreases when the interest rate increases,but it is of no help in explaining why investment decreases when the interest rate increases.
• D)None of the above are correct;the concept of present value is of no help in explaining why either investment or the quantity of loanable funds demanded decreases when the interest rate increases.

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Definitions:

Double Counting

The mistake of counting the same item or transaction more than once when calculating economic indicators, leading to inaccuracies.

Real GDP

Gross Domestic Product adjusted for inflation, providing a more accurate measure of the economic value of goods and services produced over a specific period.

Nominal GDP

The market value of all final goods and services produced within a country in a given period, measured using current prices without adjustment for inflation.

Price Inflation

The pace at which the overall price level of goods and services increases, leading to a decline in purchasing power.