What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?
A)the Friedman effect
B)the Hume effect
C)the Fisher effect
D)the Ricardian equivalence effect

Question

Quizplus · Accepted Answer

The one-for-one adjustment of the nominal interest rate to the inflation rate is known as the Fisher effect, named after economist Irving Fisher. According to this effect, if inflation rises by 1%, then the nominal interest rate should also increase by 1% to maintain the same real interest rate. This effect is based on the idea that investors and lenders aim to earn a certain real return on their investments and will adjust the nominal interest rate to compensate for any changes in the inflation rate.

What Is the Name of the One-For-One Adjustment of the Nominal