What does a low discount rate mean to an economist studying climate change? The

Question

What does a low discount rate mean to an economist studying climate change? The damages that will be caused to future generations by our CO2 are highly costly today, so it would be optimal to spend much money now to reduce the future climate changes The damages that will be caused to future generations by our CO2 have very little value today, but it would still be optimal to spend a very large amount of money now to reduce the future climate changes The damages that will be caused to future generations by our CO2 are costly today, so it would be optimal to spend no money at all now to reduce the future climate changes The damages that will be caused to future generations by our CO2 have very little value today, so it would be optimal to spend no money at all now to reduce the future climate changes You are very unlikely to get good buys at the store if you go shopping early in the morning.

Explanation / Answer

A low discount rate according to an economist studying climate change will be -

The damages that will be caused to future generations by our CO2 have very little value today, but it would still be optimal to spend a very large amount of money now to reduce the future climate changes.

Explanations:

The discount rate is the interest rate that the Federal Reserve's would charge to commercial banks on their received loans. It is also used in cash flow analysis to determine the present value of future cash flows. Usually when it comes to a lowered discount rate banks founds it as less expensive so they will borrow loans which will continue the money supply and banks will also take initiative for more future investments.

Now in our case, the economist who is studying climate change would found it (with a low discount rate) more optimal to spend a large amount of money for taking different preventive measures and actions which will reduce the future climate change.

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