During the 1990s, Canada had an average inflation rate of 1.5 percent while Columbia had an average inflation rate of 21.5 percent.You would expect that nominal interest rates in Canada are
A) less than nominal interest rates in Columbia.
B) equal to nominal interest rates in Columbia.
C) greater than nominal interest rates in Columbia.
D) unpredictably different from nominal interest rates in Columbia.
E) not comparable to nominal interest rates in Columbia.

Question

Quizplus · Accepted Answer

According to the Fisher effect, nominal interest rates are expected to be higher in countries with higher inflation rates. Therefore, nominal interest rates in Canada would be less than those in Columbia, which had a much higher inflation rate.

During the 1990s, Canada Had an Average Inflation Rate of 1.5