The Fisher effect suggests that, in the long run, a higher expected inflation rate tends to produce
Correct answer: B. A higher nominal interest rate
- A. A lower nominal interest rate
- B. A higher nominal interest rate
- C. A lower real output growth rate only
- D. A fall in the money demand for transactions
Explanation
The Fisher relationship states that the nominal interest rate is approximately the real interest rate plus expected inflation. Therefore, if the real rate is unchanged, higher expected inflation raises the nominal rate.
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About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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