When interest rates rise, farm profits
A) Increase because the value of farm assets varies directly with interest rates.
B) Decrease because the value of farm assets varies directly with interest rates.
C) Decrease because interest rates represent a major cost for farm production.
D) Are not affected.

Question

Quizplus · Accepted Answer

When interest rates rise, the cost of borrowing money for farm production increases, which leads to a decrease in farm profits. This is because interest rates represent a major cost for farm production. Therefore, choice C is the best answer. Choices A, B, and D are incorrect because they do not account for the impact of higher interest rates on the cost of borrowing and, therefore, on farm profits.

When Interest Rates Rise, Farm Profits