When the Fisher Effect holds,a one-percentage-point increase in the long-run money growth rate,because it ________ expected inflation,causes ________ in the nominal interest rate in the long run.

Question

Quizplus · Accepted Answer

When the Fisher Effect holds, an increase in the long-run money growth rate leads to an equal increase in the expected inflation rate, which in turn causes an equal increase in the nominal interest rate in the long run. Therefore, a one-percentage-point increase in long-run money growth rate will cause an equally large increase in the nominal interest rate in the long run, which is described by choice E.

When the Fisher Effect Holds,a One-Percentage-Point Increase in the Long-Run