Question

Assuming that Intel needs to borrow money in the bond market to build a new chip-making factory, an increase in interest rates affects Intel's decision about whether to build the factory, because now the cost of borrowing money becomes ________.

Answer 1

The cost of borrowing money becomes greater.

Step-by-step explanation:

To borrow money from the bond the firm Intel needs to issue bonds. Then, it needs to pay interest on these bonds. This interest is the cost of borrowing.

When there is an increase in the interest rate in the market, the firm will be required to more interest. This increases the cost of borrowing from the bond market.

The returns from the new factory may not be able to cover this increased cost of borrowing. As a result the firm will be discouraged from borrowing.