Question

Explain why a dollar today is worth more than a dollar tomorrow.

Answer 1

Answer :-

A dollar today is worth more than a dollar tomorrow . The concept behind this is called 'time value of money'. Time Value of money means that the value of money in present is more than the value of same amount of money in future. For example :-

Suppose you have to receive $1000 from your friend and your friend says you have the option to take $1000 today or take $1000 after one year.

Any rational person would choose to take $1000 today because if you take $1,000 today , you can invest that money in an account and earn money.

The main reason behind time value of money is that the money can earn interest over time

Another reason could be inflation that means increase in prices over time and it will lead to less purchasing power.

So, because of earning capacity of money and inflation , the dollar today is worth more than a dollar tomorrow.