Reply To: Low interest rates and prices of durable goods


The discounted marginal product of producer goods is discussed in the lecture on the prices of producer goods.

The interest rate permits one to calculate the amount of money in the future one can obtain by trading a sum of money in the present inter-temporally. For example, if the interest rate is 10%, then $1,000 lent today will accumulate into $1,100 in one year (1,000×1.10=1,100) . Likewise, if one is to receive $1,100 in one year, it would be worth $1,000 today (1,100 divided by 1.10=1,000). The lower (higher) the interest rate the lighter (heavier) the discount of future money and the more (less) a given amount of future money is worth in present money. If the interest is 5%, then 1,100 to be received in a year would be worth $1,047.62 (1,100 divided by 1.05=1,047.62).