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Chapter 29: Problem 13

If there were no inflation, a dollar today would be worth (LO5) a) exactly the same as a dollar received in the future b) more than a dollar received in the future c) less than a dollar received in the future

Short Answer

Expert verified
In a situation with no inflation, the purchasing power of money remains constant over time, meaning that a dollar today would be worth exactly the same as a dollar received in the future. Therefore, the correct answer is: a) exactly the same as a dollar received in the future

Step by step solution

01

Scenario A: A dollar today is worth exactly the same as a dollar received in the future

Inflation refers to the general increase in prices and fall in the purchasing power of money over time. If there is no inflation, it means that the purchasing power of money remains constant over time. This means that a dollar today will have the same purchasing power in the future. So, in a no-inflation scenario, a dollar today is worth exactly the same as a dollar received in the future. This matches with option A.
02

Scenario B: A dollar today is worth more than a dollar received in the future

If there is deflation, which is the opposite of inflation, the purchasing power of money increases over time. In this case, a dollar today would be worth less than a dollar received in the future. This scenario contradicts option B.
03

Scenario C: A dollar today is worth less than a dollar received in the future

If there is inflation, the purchasing power of money decreases over time, meaning a dollar today would be worth more than a dollar received in the future. This scenario also contradicts option C. Considering the analysis of all three scenarios, we can conclude that:
04

Answer

A dollar today would be worth (LO5) a) exactly the same as a dollar received in the future

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