Low interest rates and prices of durable goods

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    In the lecture on the Business Cycle you say that prices of durable goods increase because of low interest rates. Why does their present value increase exactly? You are referring to several previous lectures where you discuss the discounted marginal product. Which lectures are these?


    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).

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