The Fisher effect indicates that an increase in the expected inflation rate will cause the real rate of interest to:
A) remain relatively constant.
B) increase by the same amount.
C) decrease by the same amount.
D) become unpredictable.

Question

Quizplus · Accepted Answer

The Fisher effect suggests that the nominal interest rate adjusts to expected inflation, keeping the real interest rate relatively constant.

The Fisher Effect Indicates That an Increase in the Expected