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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Suppose that Intel is considering building a new chip-making factory.

a. Assuming that Intel needs to borrow money in the bond market, why would an increase in interest rates affect Intel’s decision about whether to build the factory?

b. lf Intel has enough of its own funds to finance the new factory without borrowing, would an increase in interest rates still affect Intel’s decision about whether to build the factory? Explain.

Subpart (a):

To determine

The impact of the interest rate on investment.

Explanation

Investment is an asset or an item purchased today in the hope that it will generate income in the future. In that sense, the spending of capital on the purchase of new physical capitals refers to the equipment and the buildings and so forth.

When the company needs to borrow the capital in order to finance the investment of the company, the interest rate plays a vital role...

Subpart (b):

To determine

The impact of the interest rate on investment.

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