The Fisher effect is:
A)the one-for-one adjustment of the nominal GDP to the inflation rate
B)the one-for-one adjustment of the nominal interest rate to the nominal GDP
C)the one-for-one adjustment of the nominal interest rate to the inflation rate
D)the one-for-one adjustment of the nominal GDP to the rate of money growth

Question

Quizplus · Accepted Answer

The Fisher effect refers to the one-for-one adjustment of the nominal interest rate to the inflation rate. In other words, when the inflation rate is higher, the nominal interest rate should also be higher to compensate for the loss of purchasing power of money over time. This relationship is often used in the context of monetary policy and interest rate forecasting.

The Fisher Effect Is