When economists say "_net present value_ of future returns", are they exclusively wanting to discount the inflation effects? Or is there anything else?
To see why, consider a really simple case: you can buy a contract to receive C cash at some time T in the future. Call X how much you'd pay today to enter that contract. You can borrow X today and agree to repay it using the payout from your contract. If you can borrow at a fixed, continuously compounded rate R, then the amount you repay is X exp(RT). So your breakeven (or "fair") price would have X exp(RT) = C, i.e. X = C exp(-RT). NB, the rate you use to discount a future value to know its present value to you is R, which is _your_ rate to borrow that much money for that length of time.
There are various models that aim to recover R from other values, but ultimately it's determined by market activity. Lenders either will or will not loan you X for T time at a rate of R.
What kinds of things might impact their willingness? Definitely their perception of present and future inflation rates, but also their ability to loan at a higher rate to someone else with a similar risk profile (i.e. the "rates market" as a whole) and also specifics of your own credit risk to them. If they think you might default on the loan, they'll charge you more for that added risk.
Generally it will be your cost of capital to be used as a discount rate. Say if you borrow at 10%, then you need account for that every year you need to wait for that return.
A company with access to cheap capital can use a lower discount rate, and come up with higher net present value based on distant cash flows compared to a company that needs to pay a lot.
Net present value is a normalization measure.
Because I always discount with the rate I can borrow money at, right?
It vaguely seems like there is some opportunity cost argument to be made here...? Maybe?
For valuing an investment, you have to take into account the inflation that will happen, as well as the opportunity cost.
So if you can earn 5% on your money, but inflation is 4%, you can turn $100 into $101 today-dollars in one year.
Average bond yield is around 4% over a decade, that means that investing in a business you need to discount the growth it will have in it's cash flow by 4%.
Imagine you conclude Coca Cola can grow it's cash flow and earnings per share by 6% annually, is it an appealing investment when you get right now almost 5 on bonds? I's not really, but you would probably come to a different conclusion if Coca Cola's price felt by 15% in some market conditions.
You can use NPV to evaluate different options. If NPV of one investment is $1 and another is negative $4 then it is clear what the better investment is (all other things being equal). Do this for all your investment options and you can rank where to put your money. Of course, if isn’t that easy since two investments might have different terms, risk profiles, or different capital requirements.
For an economist (and I'm not one so I don't know), they probably use the real growth rate of the economy in their calculations, because this is what the country in question has been shown to do with its money. The real growth rate takes growth and inflation into account.