Question

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

Answer 1

If interest rates increase, the cost of borrowing money to build the factory becomes higher, so the returns from building the new plant may not be sufficient to cover the costs. Thus, higher interest rates make it less likely that Intel will build the new factory.