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 [blank].

Question

Quizplus · Accepted Answer

According to the domestic Fisher effect, the nominal interest rate equals the sum of the real interest rate and the expected inflation rate. Therefore, the nominal rate of interest would be:
Nominal rate = Real rate + Expected inflation rate
Nominal rate = 2% + 3% = 5%
Thus, the correct answer is A) 5.06%.

According to the Domestic Fisher Effect, If the Inflation Rate