Question

• Can an individual be indifferent to receiving a dollar now or a dollar one year from now? Explain with example(s).

Answer 1

An individual cannot be indifferent to receiving a dollar now or a dollar one year from now. Generally , interest rates are positive which means that the value of money decreases with time. This means that One dollar today will have more value than one dollar after one year. This is generally the case as it also happens due to inflation (rise in price of goods) . For example, if we see the price of food items 10 years ago and compare them with today's prices , we can see that the prices have been increasing steadily and accordingly the purchasing power of money also decreases with time,

So, an individual will generally prefer to have one dollar today rather than one year from now. Hence, the individual will not be indifferent.