The hypothesis that an increase in the expected inflation rate will cause the nominal interest rate to rise and the real interest rate to remain unchanged is the
A)Fisher hypothesis.
B)rational-expectations theory.
C)Okun's hypothesis.
D)Keynesian hypothesis.

Question

Quizplus · Accepted Answer

The hypothesis that an increase in expected inflation will cause an increase in nominal interest rates while the real interest rate remains unchanged is known as the Fisher hypothesis, named after economist Irving Fisher. This hypothesis is based on the idea that investors require compensation for inflationary risks, which results in higher nominal interest rates being demanded.

The Hypothesis That an Increase in the Expected Inflation Rate