Which of the following refers to the theory that the real interest rate in Canada should equal that in the rest of the world?
A)the Fisher effect
B)the theory of Ricardian equivalence
C)the theory of purchasing power parity
D)interest rate parity

Question

Quizplus · Accepted Answer

Interest rate parity is the theory that the real interest rate in Canada should equal that in the rest of the world. The Fisher effect is the theory that the nominal interest rate in a country is equal to the sum of the real interest rate and the expected inflation rate, while the theory of Ricardian equivalence suggests that the method of financing government spending does not affect the economy in the long run. The theory of purchasing power parity states that the exchange rate between two currencies should be equal to the ratio of the price levels in the two countries.

Which of the Following Refers to the Theory That the Real