As the interest rate increases,the present value of future sums decrease,so firms will find fewer investment projects profitable.

Question

Quizplus · Accepted Answer

This is because the higher the interest rate, the more expensive it is to borrow money and invest in projects, which reduces the profitability of potential investments. Similarly, as interest rates rise, the discount rate used in present value calculations increases, reducing the present value of future cash flows and making investment projects less attractive.

As the Interest Rate Increases,the Present Value of Future Sums