In accordance with the "Fisher effect,"

Question

Quizplus · Accepted Answer

The Fisher effect primarily suggests that real interest rates are unaffected by inflation in the long run because nominal interest rates adjust to compensate for inflation expectations. Thus, if inflation is expected, lenders demand higher nominal interest rates to maintain their real return, which aligns with choices A and B. Choice C is incorrect because expecting inflation would not lead to lower interest rates; instead, it would likely cause higher nominal rates to compensate for the expected inflation, making E the correct answer.

In Accordance with the "Fisher Effect