According to the Fisher effect, which of the following inflation rates affects interest rates?
A) the actual current inflation rate
B) the inflation rate of the previous year
C) the expected inflation rate
D) the gap between the current rate and the previous year's rate

Question

Quizplus · Accepted Answer

The Fisher effect posits that real interest rates are unaffected by inflation in the long term, meaning that nominal interest rates adjust to reflect expected inflation rates. This implies that the expected inflation rate is what influences nominal interest rates, not past or current inflation rates directly.

According to the Fisher Effect, Which of the Following Inflation