The economist Irving Fisher,after whom the Fisher effect is named,explained why interest rates ________ as the expected rate of inflation ________,everything else held constant.
A)rise;increases
B)rise;stabilizes
C)fall;stabilizes
D)fall;increases

Question

Quizplus · Accepted Answer

According to the Fisher effect, interest rates will rise as the expected rate of inflation increases, everything else held constant. This is because lenders will require compensation for the loss of purchasing power caused by inflation. Thus, they will demand higher interest rates to ensure they maintain their real return on investment.

The Economist Irving Fisher,after Whom the Fisher Effect Is Named,explained