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The Fisher Effect States That

Question 40

Multiple Choice

The Fisher effect states that:

A) a country's "real" rate of interest is the sum of the "nominal" interest rate and the expected rate of inflation over the period for which the funds are to be lent.
B) there is a weak relationship between inflation rates and interest rates.
C) a country's "nominal" interest rate is the sum of the required "real" rate of interest and the expected rate of inflation over the period for which the funds are to be lent.
D) when investors are free to transfer capital between countries, "nominal" interest rates will be the same in every country.

Correct Answer: