The Fisher Effect states that a country's nominal interest rate (i)is the sum of the required real rate of interest (r)and the expected rate of inflation (I)over the period for which the funds are to be lent.

Question

Quizplus · Accepted Answer

This is the correct definition of the Fisher Effect. It suggests that nominal interest rates in a country will increase to offset any expected inflation, to ensure lenders are receiving a consistent real rate of return on their investments.

The Fisher Effect States That a Country's Nominal Interest Rate