Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 26 - Part IX - Saving, Investment, and the Financial System - Problems and Applications - Page 568: 6

Answer

a) An increase in the interest rate would increase the cost (to Intel) to build the factory. If the factory would have made money (before the increase) and now loses money, Intel would not want to build the factory.

Work Step by Step

b) The increased interest rate would still affect Intel's decision. Intel does have an opportunity cost when it uses the funds to build the factory, so that should be considered when Intel builds the factory.
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