In countries where inflation is expected to be high,interest rates also will be high,because investors want compensation for the decline in the value of their money.This relationship is referred to as the

Question

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The relationship described in the question is known as the Fisher effect. According to the Fisher effect, nominal interest rates in a country are equal to the sum of the real interest rate and expected inflation. Therefore, if inflation is expected to be high, interest rates will also be high to compensate for the decline in the value of money. The PPP theory (answer A) and the international Fisher effect (answer E) are also related to exchange rates and inflation, but they are not specifically about interest rates. The lead strategy (answer B) and bandwagon effect (answer D) are unrelated concepts.

In Countries Where Inflation Is Expected to Be High,interest Rates