In a recent benefit-cost analysis of a proposed regulation that generated positive net benefits in the present but negative net benefits in the future, the government used a 7% social discount rate

Economics Aug 28, 2020

In a recent benefit-cost analysis of a proposed regulation that generated positive net benefits in the present but negative net benefits in the future, the government used a 7% social discount rate. If it had instead used a 8% social discount rate, the net present value of the policy would have been ______; if it had used a 6% social discount rate, the net present value would have been ______.

Select one:

a. lower; lower.

b. lower; higher.

c. higher; higher.

d. higher; lower.

Clear my choice

Expert Solution

The correct option is b). lower; higher, because the NPV and discount rate is inversely related to each other. The government used a 7% social discount rate if the discount rate is higher than the 7% the NPV is lower and if the discount rate is lower than the 7% the NPV is higher.

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