According to the Fisher effect, if the "real" rate of interest in a country is 3 percent and the expected annual inflation is 8 percent, what would the "nominal" interest rate be?
A) 5.5 percent
B) 11 percent
C) 9 percent
D) 24 percent
E) 2.25 percent

Question

Quizplus · Accepted Answer

The Fisher effect states that the nominal interest rate is the sum of the real interest rate and the expected inflation rate. Therefore, 3% (real rate) + 8% (expected inflation) = 11% (nominal rate).

According to the Fisher Effect, If the "Real" Rate of Interest