# aem 250 hw 7 - 3. Using a zero discount rate implies that...

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3. Using a zero discount rate implies that we weight future and present net benefits equally. This indicates that the availability of oil is divided evenly between the 35 periods. Therefore, if the discount rate is zero, the equilibrium allocation for oil is 100 units. When natural resources are allocated over a long period of time, problems arise regarding the discount rate used and whether we should/have the right to discount the benefits of future generations. Discount rates used are generally set according to standard commercial rates of interest which gives a low weight to the well being of future generations. 4. Value of Agricultural Sector Output: \$800 million Value of Mining Sector Output: \$450 million Value of Industrial Sector Output: \$750 million Gross Investment (I g ): \$550 million Net foreign Borrowing (NFB): \$110 million Depreciation of Manufactured Capital (D m ): \$150 million GDP (product approach) = \$800 + 450 + 750 = \$2000 million NDP = GDP – Dm = 2000 – 150 = \$1850 million NI = Ig – Dm = \$550 – 150 = \$400 million

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## This note was uploaded on 09/08/2008 for the course AEM 250 taught by Professor Poe,g. during the Spring '08 term at Cornell University (Engineering School).

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aem 250 hw 7 - 3. Using a zero discount rate implies that...

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