The Fisher equation relates real interest rates (adjusted for inflation) to nominal interest rates and inflation. It is expressed as: i = r + π, where i is the nominal interest rate, r is the real interest rate, and π is the inflation rate. The Fisher equation is important for understanding the relationship between inflation and interest rates, and how they affect borrowing and investment decisions.

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The Fisher Equation

Question 60

Multiple Choice

The Fisher equation:

A) relates time preferences to the level of borrowing.
B) relates nominal interest rates to the level of borrowing.
C) relates real interest rates to the level of borrowing.
D) relates real interest rates, nominal interest rates, and inflation.
E) relates real interest rates, nominal interest rates, and the level of saving.

Correct Answer: