The Fisher effect ________.
A) comes from combining the Fisher equation and the classical dichotomy
B) predicts that in the long run nominal rates will rise with increases in expected inflation
C) shows that in high inflation we typically see high nominal rates
D) all of the above
E) none of the above

Question

Quizplus · Accepted Answer

The Fisher effect is a theory that describes the relationship between inflation and both real and nominal interest rates. It combines the Fisher equation, which relates nominal and real interest rates with inflation, and the classical dichotomy, which separates real and nominal variables. It predicts that nominal interest rates will rise with increases in expected inflation, and it is observed that high inflation typically coincides with high nominal rates.

The Fisher Effect ________