Costs in any Economic Analysis are __ year costs and __ value.

Costs in any Economic Analysis are __ year costs and __ value.

• A. current year costs and present value
• B. base year costs and nominal value
• C. base year costs and present value
• D. current year costs and future value

Answer: (C)

The main idea is making costs comparable over time by applying two concepts: price-level consistency and the time value of money. In economic analysis, all costs across different years are expressed in base year dollars to remove the distortions from inflation, so you’re comparing like with like. At the same time, future costs are also evaluated in present value terms, which discounts them back to today to reflect that money now is worth more than money later. Putting both ideas together—base year costs for price level consistency and present value for the time value of money—gives a coherent way to analyze and compare options over time.

The main idea is making costs comparable over time by applying two concepts: price-level consistency and the time value of money. In economic analysis, all costs across different years are expressed in base year dollars to remove the distortions from inflation, so you’re comparing like with like. At the same time, future costs are also evaluated in present value terms, which discounts them back to today to reflect that money now is worth more than money later. Putting both ideas together—base year costs for price level consistency and present value for the time value of money—gives a coherent way to analyze and compare options over time.