What is the Fisher hypothesis about?
Inflation and interest rates
Trade policies
Government spending
Consumer behavior
Answer
The Fisher hypothesis proposes a positive relationship between inflation and interest rates. It states that nominal interest rates adjust to reflect expected inflation, ensuring that real interest rates (nominal rates minus inflation) remain relatively stable over time. This implies that an increase in expected inflation will lead to a corresponding increase in nominal interest rates, allowing investors to maintain the same level of purchasing power despite rising prices.
Irving Fisher Trivia: 31 Questions to Test Your Memory
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