If current market rates on Treasury bonds are 6 percent and the real growth of the economy has and will be expected to grow at 3 percent. According to the Fisher effect, what is the expected rate of inflation?
A) 3%
B) 9%
C) higher than 6%
D) close to zero

Question

Quizplus · Accepted Answer

According to the Fisher effect, the nominal interest rate (6%) is the sum of the real interest rate (3%) and the expected inflation rate. Therefore, the expected rate of inflation is 3%.

If Current Market Rates on Treasury Bonds Are 6 Percent