According to the Fisher Effect, Expectations of Higher Inflation Cause

question 51

Multiple Choice

According to the Fisher effect, expectations of higher inflation cause savers to require a ____ on savings. ​

• A)higher nominal interest rate
• B)higher real interest rate
• C)lower nominal interest rate
• D)lower real interest rate

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Definitions:

Nominal Annual Rate

The annual interest rate quoted by financial institutions, not adjusted for inflation or other factors that affect the real rate of return.

Balloon Payment

A large, one-time payment due at the end of a loan term, after a series of lower regular payments.

Equal Monthly Payments

Equal monthly payments refer to the uniform payment amount made in each period, often seen with loans like mortgages, where principal and interest are paid off over time.

Nominal Annual Rate

The interest rate stated on a loan or financial product, not adjusting for inflation or the compounding of interest within that year.