Asked by Najia Calhoun on Jul 11, 2024
Verified
According to the Fisher effect, if inflation rises then the nominal interest rate rises.
Fisher Effect
The one-for-one adjustment of the nominal interest rate to the inflation rate
Inflation
A sustained increase in the general price level of goods and services in an economy over time, leading to a decrease in the currency's purchasing power.
Nominal Interest Rate
The stated interest rate without adjustment for inflation, representing the actual percentage paid or earned.
- Understand the connection between real interest rates, nominal interest rates, and inflation, as described by the Fisher effect.
Verified Answer
SM
Sydney MonseyJul 14, 2024
Final Answer :
True
Explanation :
The Fisher effect states that the nominal interest rate is equal to the real interest rate plus the expected inflation rate. Therefore, if inflation rises, the nominal interest rate must also rise to maintain the real interest rate.
Learning Objectives
- Understand the connection between real interest rates, nominal interest rates, and inflation, as described by the Fisher effect.