According to the Fisher effect,the nominal interest rate will:
A) rise as unexpected inflation increases.
B) fall as unexpected inflation increases.
C) rise as expected inflation increases.
D) fall as expected inflation increases.

Question

Quizplus · Accepted Answer

The Fisher effect suggests that nominal interest rates will increase in response to anticipated inflation. Therefore, as expected inflation increases, nominal interest rates will also increase. Unexpected inflation can cause confusion and uncertainty in financial markets, leading to fluctuations in nominal interest rates. However, the Fisher effect primarily focuses on the relationship between expected inflation and nominal interest rates.

According to the Fisher Effect,the Nominal Interest Rate Will