What is the Fisher effect?
A) the tendency of nominal interest rates to fall with higher expected inflation rates
B) the tendency of nominal interest rates to rise with higher expected inflation rates
C) the tendency of real interest rates to fall with higher expected inflation rates
D) the tendency of real interest rates to rise with higher expected inflation rates

Question

Quizplus · Accepted Answer

The Fisher effect is the tendency of nominal interest rates to rise with higher expected inflation rates. This occurs because lenders demand compensation for the expected loss of purchasing power due to inflation, which leads to an increase in nominal interest rates.

What Is the Fisher Effect