The Fisher Effect says that:
A) the supply of funds always outweighs the demand.
B) the inflation rate increases with the real interest rate.
C) the nominal interest rate increases with the rate of inflation.
D) the income effect outweighs the substitution effect.

Question

Quizplus · Accepted Answer

The Fisher Effect states that the nominal interest rate is equal to the sum of the real interest rate and the expected inflation rate, implying that the nominal interest rate increases with the rate of inflation.

The Fisher Effect Says That