If the Fisher effect holds, keeping the ____ fixed would force nations to keep inflation stable.
A) world real interest rate
B) nominal interest rate
C) exchange rate
D) real interest rate

Question

Quizplus · Accepted Answer

According to the Fisher effect, the nominal interest rate is equal to the real interest rate plus the expected inflation rate. Therefore, if the real interest rate is fixed, any increase in the expected inflation rate will lead to an increase in the nominal interest rate. This means that if nations want to keep inflation stable, they would need to keep the real interest rate fixed.

If the Fisher Effect Holds, Keeping the ____ Fixed Would