If we replace the actual rate of inflation with the expected inflation rate in the Fisher equation, we get the:
A) risk premium.
B) rational expectations level of inflation.
C) discount rate.
D) ex ante real interest rate.
E) ex post nominal interest rate.

Question

Quizplus · Accepted Answer

When the expected inflation rate is used in the Fisher equation (i.e., nominal interest rate = real interest rate + expected inflation rate), it calculates the ex ante real interest rate, which is the interest rate adjusted for expected inflation.

If We Replace the Actual Rate of Inflation with the Expected