if interest rates rise, an economy's production function will tend to shift upward?

Question

true or false

Answer 1

False. Production function is solely a technological relationship between combinations of inputs, capital and labor, and cam shift only through capital saving, labor saving or all input saving technical/ production process improvements, innovations or technological inventions. Interest rate changes cannot cause any shift in the production function. Interest rate increase can make capital costlier and encourage relatively labor-intensive production. If that happens, economy may sue more labor and less capital to produce the same level of output. Thus the economy will move from one point of production possibility frontier to another, i.e., operate with different combinations of input to get the output generated by the same production function. This is not any shift in the production function but substitution on capital by labor within the same production function..
However continuous rise in interest rates may encourage technologists to innovate and invent such technologies that make capital more productive. Since capital becomes costlier, inventors will try finding out new technologies that produces more output per unit of labor. If such technologies are more efficient than the existing technologies, this will alter the relationship between combinations of inputs and output generation. So, in a indirect long drawn process, interest rate increases to high levels may induce technological progress which in turn may cause a shift in the production function.

Answer 2

False. If interest rates rise, the cost of doing business rises. If costs are added to sales prices, prices go up and the sales start to drop. So the economy goes down.

Answer 3

Not sure exactly what you're asking, but if interest rates rise, business is less likely to borrow money for expansion.

Answer 4

No.Money would like to make use of the interest rather than creating production.