Question

Define the discount rate. Tell who can raise the discount rate. Explain how raising the discount rate leads to a reduction in the money supply.

Answer 1

Answer: Discount rates are used to determine today's value of money paid or received at some future time.

This calculation is used in the cost-benefit analysis in order to place all economic flows of a project that occur at different points in time into a single year currency so that costs and benefits can be compared.

The rates used are typically around 10%, but try to analyze them with other rates between 5% and 15% to determine if the viability of the project is sensitive to the discount rate. It is defined by World Bank or the government of the country concerned.