Swiss Economicblogs.org
Most people assume that prices move as a result of changes in the money supply. Instead, let’s look at the effect of changes in interest. To start, consider a hamburger restaurant. Suppose that the average profit in the burger business is ten percent of invested capital. If MacDowell’s is thinking about expanding, it has to consider the interest rate. Why? Typically, most of the capital to expand a business is borrowed. MacDowell’s has to borrow the cash to build out its new store. If the...
Read More »Falling Interest Causes Falling Profits
