Question

14. when computing pvnb, a. the interest rate used should be zero if the problem being investigated involves benefits for distant future generations b. a government should not use the market interest rate c. inflation should be used to properly scale future benefits d. none of the above

Answer 1

When computing pvnb, c. inflation should be used to properly scale future benefits

PVNB stands for the present value of net benefits, which is a measure used in economic analysis to evaluate the overall financial value of a project or policy over a specific period of time. It is calculated by estimating the net benefits of a project or policy at each point in time and then discounting those benefits and costs to their present value using a discount rate.

Inflation can have an impact on the monetary value and on the costs and benefits of a project. Other factors such as the market interest rate, the social discount rate, and the expected rate of return on investment also affect directly with respect to inflation. The appropriate rate to use in PVNB analysis will depend on the specific circumstances of the project or policy being evaluated.

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