The Fisher effect
A)says the government can generate revenue by printing money.
B)says there is a one for one adjustment of the nominal interest rate to the inflation rate.
C)explains how higher money supply growth leads to higher inflation.
D)explains how prices adjust to obtain equilibrium in the money market.

Question

Quizplus · Accepted Answer

The Fisher effect refers to the idea that there is a one-to-one adjustment of the nominal interest rate to the inflation rate. In other words, if inflation goes up by 1%, the nominal interest rate should also go up by 1% to maintain the same real interest rate. This effect was named after economist Irving Fisher, who first proposed it in the early 20th century. The Fisher effect is important for understanding the relationship between inflation and interest rates, and for predicting how changes in one variable might affect the other.

The Fisher Effect