[jmherbener]

People’s time preferences determine both the pure rate of interest and the amount of present money exchanged for future money. The same pure rate of interest is earned on every exchange of present money for future money, whether loans in the credit market or investments in production. If time preferences become higher, then interest rates will be higher and the amount of present money exchanged for future money will be smaller. In your example, since investors can earn 10 percent instead of 2 percent by lending into credit markets, they will reduce their demands for capital goods which reduces their prices. Capital goods prices will fall until investing in them also earn the 10 percent interest rate.