The Fisher effect:a. says the government can generate revenue by printing money. b. explains how prices adjust to obtain equilibrium in the money market. c. says there is a one for one adjustment of the nominal interest rate to the inflation rate. d. explains how higher money supply growth leads to higher inflation.

Question

Krystal Mullins

Business

9 September, 14:15

The Fisher effect:a. says the government can generate revenue by printing money. b. explains how prices adjust to obtain equilibrium in the money market. c. says there is a one for one adjustment of the nominal interest rate to the inflation rate. d. explains how higher money supply growth leads to higher inflation.

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Karsyn Waters · Answer 1

C) says there is a one for one adjustment of the nominal interest rate to the inflation rate.

Explanation:

The Fisher Effect is an economic theory that explains the relationship between interest rates and inflation rates. It states that real interest rate equals nominal interest rate minus inflation rate.

If inflation increases, then the real interest rate will decrease unless the nominal interest rate increases proportionally to the inflation rate.