The Fisher effect says that
A)the nominal interest rate adjusts one for one with the inflation rate.
B)the growth rate of the money supply is negatively related to the velocity of money.
C)real variables are heavily influenced by the monetary system.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The Fisher effect states that the nominal interest rate adjusts one for one with the inflation rate. This means that if inflation increases by 2%, then nominal interest rates will also increase by approximately 2%. Option B refers to the quantity theory of money, where the growth rate of the money supply is related to the velocity of money. Option C is a general statement about the influence of monetary policy on real economic variables, but it is not specifically related to the Fisher effect.

The Fisher Effect Says That