Which of the following states that the country with the higher interest rate should have the higher inflation?
A)the Fisher Effect
B)the International Fisher Effect
C)the Interest Rate Inflation Theory
D)the Forward Rate Theory

Question

Quizplus · Accepted Answer

The Fisher Effect states that the country with the higher nominal interest rates will experience higher inflation. This theory assumes that the real interest rate is the same across all countries, and that changes in nominal interest rate are solely based on changes in inflation expectations. Therefore, the Fisher Effect suggests that inflation and interest rates are directly related. The other answer choices, the International Fisher Effect, the Interest Rate Inflation Theory, and the Forward Rate Theory, refer to other concepts in international finance but do not directly address the relationship between inflation and interest rates in the same way as the Fisher Effect.

Which of the Following States That the Country with the Higher