If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation:

Question

Quizplus · Accepted Answer

According to the Fisher equation, the nominal interest rate is the sum of the real interest rate and the inflation rate. If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate increases by 1 percent (2% - 1% = 1%).

If the Real Interest Rate Declines by 1 Percent and the Inflation