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Under the Fisher Hypothesis, Inflation Rate Were Expected to Increase

Question 4

Multiple Choice

Under the Fisher hypothesis, inflation rate were expected to increase by 50 basis points, nominal rates on short-term securities would:


A) rise by 50 basis points since inflation and nominal rates are directly related.
B) fall by 50 basis points since inflation and nominal rates are inversely related.
C) fall by less 50 basis points since the Fisher hypothesis assumes a slow speed of adjustment to
Economic news.
D) rise by less than 50 basis points since the Fisher hypothesis assumes market inefficiency.

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