The Fisher effect is the tendency for _________ interest rates to be _________ when inflation is high.

Question

Quizplus · Accepted Answer

The Fisher effect states that nominal interest rates will adjust one-for-one with changes in inflation rates, meaning that when inflation is high, nominal interest rates will also be high in order to compensate for the decrease in purchasing power of the currency. Therefore, the correct choice is D, which specifies nominal interest rates being high when inflation is high.

The Fisher Effect Is the Tendency for _________ Interest Rates