The Fisher effect ________.
A)comes from combining the Fisher equation and the classical dichotomy
B)predicts that in the long run nominal rates will rise with increases in expected inflation
C)shows that in high inflation we typically see high nominal interest rates
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The Fisher effect is a concept in economics that describes the relationship between real and nominal interest rates under the influence of inflation. It combines the Fisher equation, which relates nominal interest rates, real interest rates, and expected inflation, with the classical dichotomy, which separates real and nominal variables. It predicts that nominal interest rates will rise with increases in expected inflation, a phenomenon observed in economies experiencing high inflation, where nominal interest rates are typically high to compensate for the loss of purchasing power.

The Fisher Effect ________