Mario thinks that nominal interest rates will increase or decrease by the same amount that the expected inflation rate increases or decreases. Economists would say that Mario believes in:
A) the money illusion.
B) interest reform.
C) the Fisher effect.
D) the classical dichotomy.

Question

Quizplus · Accepted Answer

The Fisher effect states that the nominal interest rate adjusts one-for-one with changes in expected inflation, which is exactly what Mario believes.

Mario Thinks That Nominal Interest Rates Will Increase or Decrease