Reply To: Higher interest rates causing the bust


Thanks but I guess I have difficulties understanding how a change of the interest rate in general has effects the particular prices of already existing capital goods.
Imagine an entrepreneur during the boom who buys a machine that generates products worth $1000. If the interest rate is 2%, the present value of this machine is $10,000 – 2% = $9800. Let’s say the interest rate rises to 10%.
How does this increased interest rate decrease the present value of the mentioned type of machine? What are the changes in supply and demand that change the price?