According to the domestic Fisher effect, if the inflation rate is 3% and the real rate of interest is 2%, the nominal rate of interest will be

Question

Quizplus · Accepted Answer

The domestic Fisher effect formula is (1 + nominal rate) = (1 + real rate) * (1 + inflation rate). Plugging in the given values, (1 + nominal rate) = (1 + 0.02) * (1 + 0.03) = 1.0206, which means the nominal rate is approximately 5.06%.

According to the Domestic Fisher Effect, If the Inflation Rate