Time Value of Money- Macroeconomics

Mr. Clifford introduces the concept of the time value of money, explaining the importance of understanding how money's value changes over time. He discusses future and present value calculations, using examples to illustrate how interest rates affect these values. The video emphasizes making informed financial decisions by comparing present and future values, and introduces the concept of compound interest, highlighting its significance in financial planning.

Why is it important to know the interest rate when deciding between receiving money now or in the future?

• It determines the future value of money.

• It helps in calculating taxes.

• It affects the currency exchange rate.

• It is required for budgeting purposes.

What is the future value of $100 today if the interest rate is 10% for one year?

• $105

• $120

• $110

• $100

How do you calculate the present value of a future amount?

• Subtract the interest rate from the future amount.

• Divide the future amount by 1 plus the interest rate.

• Add the future amount to the interest rate.

• Multiply the future amount by the interest rate.

If you need $200 in two years, how much should you invest today at a 10% interest rate?

• $180

• $165

• $150

• $200

In the scenario of choosing between $100 now or $200 in two years, which option is better at a 10% interest rate?

• Neither is beneficial

• $200 in two years

• $100 now

• Both are equal