According to the Fisher effect, an increase in the rate of inflation from three per cent to four per cent will _____.
A)increase the nominal interest rate by seven percentage points
B)increase the real interest rate by three percentage points
C)decrease the nominal interest rate by three percentage points
D)increase the nominal interest rate by one percentage point

Question

Quizplus · Accepted Answer

According to the Fisher effect, the nominal interest rate will increase by the same amount as the increase in inflation. Therefore, an increase in inflation from three per cent to four per cent will increase the nominal interest rate by one percentage point.

According to the Fisher Effect, an Increase in the Rate