If expected inflation is 20% and the real required return is 10%,then the Fisher effect says that the nominal interest rate should be exactly
A)30%
B)32%
C)22%
D)12%

Question

Quizplus · Accepted Answer

The Fisher effect formula is (1 + nominal rate) = (1 + real rate) * (1 + inflation rate). Plugging in the given values: (1 + nominal rate) = (1 + 0.10) * (1 + 0.20) = 1.10 * 1.20 = 1.32. Therefore, the nominal rate = 32%.

If Expected Inflation Is 20% and the Real Required Return