The Fisher effect is a theory which holds that
A) nominal rates include the real rate of interest plus past annual inflation rates.
B) nominal rates include the real rate of interest plus expected annual inflation rates.
C) real rates are always positive.
D) inflation has no impact upon interest rates.

Question

Quizplus · Accepted Answer

The Fisher effect states that nominal interest rates are composed of the real interest rate plus the expected rate of inflation.

The Fisher Effect Is a Theory Which Holds That