Asked by Jessica Alonso on Jul 24, 2024
Verified
Suppose the rate of inflation rate is two percent and the nominal interest rate is five percent. According to the Fisher Effect, an increase in the inflation rate to six percent should cause the nominal interest rate to increase from five percent to _____ in the long run.
Inflation Rate
This is the percentage rate at which the general level of prices for goods and services is rising, eroding purchasing power.
Nominal Interest Rate
The percentage increase in money that borrowers pay lenders, not adjusted for inflation.
Fisher Effect
An economic theory stating that the real interest rate is independent of monetary measures, particularly the nominal interest rate and expected inflation rate.
- Comprehend the principles of the Fisher effect and the influence of inflation expectations on nominal interest rates.
Verified Answer
CP
Learning Objectives
- Comprehend the principles of the Fisher effect and the influence of inflation expectations on nominal interest rates.