If the inflation rate is 2% and the nominal interest rate is 4% and the money growth rate increases to 5%, then we would expect the inflation rate to be:

Question

Quizplus · Accepted Answer

The Fisher equation states that the nominal interest rate is equal to the real interest rate plus the expected inflation rate. If the inflation rate is 2% and the nominal interest rate is 4%, then the real interest rate is 2%. If the money growth rate increases to 5%, then we would expect the inflation rate to increase to 5%.

If the Inflation Rate Is 2% and the Nominal Interest