The economist Irving Fisher,after whom the Fisher effect is named,explained why interest rates ________ as the expected rate of inflation ________.
A) rise; increases
B) rise; stabilizes
C) rise; decreases
D) fall; increases
E) fall; stabilizes

Question

Quizplus · Accepted Answer

According to the Fisher effect theory, interest rates rise as the expected rate of inflation increases. This is because lenders and investors require compensation for the expected erosion of purchasing power caused by inflation.

The Economist Irving Fisher,after Whom the Fisher Effect Is Named,explained