Which of the statements below is FALSE?
A)The Fisher Effect is the relationship between three items: the nominal rate,the real rate,and inflation.
B)In the Fisher Effect,r* is the real interest rate.
C)The product of the real rate and the inflation rate can be thought of as the additional compensation needed for the fact that the interest being earned during the year is not subject to inflation.
D)In the Fisher Effect,r is the nominal interest rate.

Question

Quizplus · Accepted Answer

The Fisher Effect describes the relationship between nominal interest rates, real interest rates, and inflation, but it does not define the product of the real rate and the inflation rate as additional compensation for inflation's effect on interest earned. Instead, it illustrates how nominal interest rates are adjusted to account for inflation, with the real interest rate essentially reflecting the true cost of borrowing after adjusting for inflation.

Which of the Statements Below Is FALSE