The Fisher effect.............?

Question

The Fisher effect is based upon the neutrality of money, and it states that, in the long run, as the growth of the money supply increases:

A. Nominal interest rates increase

B. Real interest rates increase

C. Real GDP decreases

D. Nominal GDP increases

Answer 1

A

Answer 2

Fisher effect is a hypothesis in international finance that says that the difference in the nominal interest rates between two countries determines the movement of the nominal exchange rate between their currencies, with the value of the currency of the country with the lower nominal interest rate increasing. This is also known as the assumption of Uncovered Interest Parity.

C. Real GDP decreases

Answer 3

A. Nominal interest rates increase

Answer 4

A

Actually, it states that the interest rate is determined by adding the inflation rate to the nominal interest rate to determine the real interest.