Big Tech Firms Turn to Borrowing EconEye Admin 9 months ago Despite high interest rates, big tech firms have turned to borrowing to build a greater number of AI data centers which are believed to be highly rewarding in the future.—economist.com Answer the following questions to check your understanding of the story. Does borrowing to build a greater number of AI data centers respond to the real interest rate or the nominal interest rate? Borrowing to build a greater number of AI data centers responds to ___________. a) both the real interest rate and the nominal interest rate b) the nominal interest rate c) the real interest rate d) neither the real interest rate nor the nominal interest rate Wrong! - The decision of investors to build more AI data centers is made in response to the opportunity cost of borrowing. What is the opportunity cost of borrowing? Well Done! - Investors respond to the real interest rate because it the opportunity cost of borrowing—the real rate of return that the borrower would have received by saving or investing those funds. What was the real interest rate on business borrowing in August 2025? a) 5.35% b) 8.25% c) 2.45% d) 2.9% Wrong! - How do we use the nominal interest rate and the inflation rate to calculate the real interest rate? Good Job! - The real interest rate is approximately equal to nominal interest minus the inflation rate, which is 5.35% – 2.9% = 2.45%. If a high real interest rate leads to decreased borrowing, why are AI tech firms borrowing more? AI tech firms are borrowing more because ______________. a) they are very likely to be able to repay their loans b) their expected profit exceeds the real interest rate c) the real interest rate is low d) the inflation rate is high Wrong! - Firms are borrowing more to invest in capital? Why do firms invest in capital? That's Right! - Firms invest in capital only if they expect to earn a profit. AI tech firms are borrowing more because their expected profit exceeds the real interest rate. Restart quiz {{#message}}{{{message}}}{{/message}}{{^message}}Your submission failed. The server responded with {{status_text}} (code {{status_code}}). Please contact the developer of this form processor to improve this message. Learn More{{/message}}{{#message}}{{{message}}}{{/message}}{{^message}}It appears your submission was successful. Even though the server responded OK, it is possible the submission was not processed. Please contact the developer of this form processor to improve this message. Learn More{{/message}}Submitting… Share this: Share on Facebook (Opens in new window) Facebook
