The Fisher hypothesis holds that
A)in the long run the nominal interest rate equals the real interest rate.
B)the yield to maturity equals the real interest rate.
C)the nominal interest rate equals the coupon rate if the bond is held to maturity.
D)the nominal interest rate rises or falls point-for-point with expected inflation.

Question

Quizplus · Accepted Answer

The Fisher hypothesis states that the nominal interest rate will rise or fall point-for-point with the expected inflation rate. This suggests that if inflation expectations increase, nominal interest rates will increase as well. Therefore, choice D is the correct answer.

The Fisher Hypothesis Holds That