lectur4-page10 - For example, a $1 in your hand right now...

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The real interest rate is the price of money, net of inflation and risk, that people are willing to accept for deferring present consumption until some future time period. Or, think of it this way: How much would I have to pay you, net of inflation and risk, not to spend some of your money today, but defer use of that money for one year?
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Unformatted text preview: For example, a $1 in your hand right now is worth more than the promise (without risk) of a $1 in your hand a year from now. This is true even with zero inflation. People generally prefer to have something now, rather than wait and have it later. What would I have to pay you to wait and have something later rather than now? 10...
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This note was uploaded on 12/29/2011 for the course ECO 210 taught by Professor Malls during the Fall '10 term at SUNY Stony Brook.

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