Question

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

Select one:

True

False

Answer #1

Fisher equation is given by :

Nominal interest rate(i) = real interest rate(r) + inflation rate(e)

According to Fisher(or classical dichotomy) nominal variables(like inflation rate) effect nominal variables(like nominal interest rate) only. More precisely. according to Fisher there is one to one relation between nominal interest rate and inflation rate i.e. when inflation rate increases by 1% then nominal interest rate also increases by 1% and vice versa. thus as inflation rate rises, Nominal interest rate also rises.

Hence, this statement is **True.**

Use the Fisher Effect to find the answer the following
questions.
a. Nominal interest rate = 9%, real interest rate = 5%, what is
inflation?
b. Nominal interest rate = 8%, inflation = 3%, what is the real
interest rate?
c. Real interest rate = 6%, inflation = 2%, what is the nominal
interest rate?

Suppose that the nominal rate of interest is 5% and the current
expected rate of inflation is 2%. If the expected rate of inflation
were to increase by 5% (to a new level of 7%) the nominal rate
would rise to _____ according to the fisher effect and ______
according to the Darby/Feldstein effect. (for the Darby)/Feldstein
effect assume a marginal tax rate of 40%)
a) 6%; 8%
b) 10%;10%
c) 10%;13.33%
d)12%;15.33%

Suppose that the nominal rate of interest is 5% and the expected
rate of inflation is 2%. Whats is the expected real rate of
interest according to Fisher? Calculate the after-tax expected real
rate of assuming a 30% marginal tax rate. If inflation expectations
increase by 2%, what will be the new nominal rate according to
fisher? According to darby/feldstein? What should happen to bond
prices and stock prices if the expected rate of inflation
increase

The Fisher Effect refers to
Select one:
A. the value of bonds rising when interest rates fall.
B. higher expected inflation changes both bond demand and
supply. The shifts in demand and supply reinforce each other to
result in higher nominal interest rates.
C. higher interest rates on longer maturity financial
instruments.
D. higher expected inflation changes both bond demand and
supply, but whether nominal interest rates rise or fall depends on
which curve, demand or supply, shifts more.

According to the international Fisher effect, if the U.S. dollar
interest rate is 2% higher than a comparable Japanese yen interest
rate, then the market expects the _________ to _________.
a.yen; depreciate by about 2%
b.dollar; appreciate by about 2%
c.yen; appreciate by about 2%
d.U.S. dollar; remain unchanged

Using the exact Fisher equation, the nominal rate of interest on
a bond with a real rate of 8.9% p.a. and expected inflation of 2.6%
p.a. is closest to (in percentage to nearest two decimal places; do
not use the percentage sign eg 2.881% is 2.88): Answer:

(Show all correct answers.) According to the long-run
macroeconomic theory of nominal variables discussed in class, the
price level increases if:
a. the quantity of money in the economy increases
b. the growth rate of the quantity of money in the economy
increases
c. there is a cut in taxes
d. there is an increase in government spending
(Show all correct answers.) Which of the following statements
about the Fisher effect are correct?
a. An x percent increase in inflation...

Suppose that the nominal risk-free rate of interest is 2.75%,
and that of Russia is 5%. The inflation rate in Russia is 3.25%,
what is the inflation rate in US? Use the equation for the
International Fisher effect

The spot rate for the CRL is $0.0587/CRL. The U.S. inflation
rate is anticipated to be 2.8%. The Country L inflation rate is
expected to be 5.8%. Both countries are expected to have a real
interest rate of 1.2%. Show calculations.
a.)Based on the Fisher effect, calculate the U.S. nominal
interest rate.
b.) Based on the Fisher effect, calculate the Country L nominal
interest rate.
c.)Using the international Fisher effect, calculate the expected
spot rate in 3 years.

The spot rate for the Omani Rial is $2.6008/Rial. The U.S.
inflation rate is anticipated to be 1.3%. The Oman inflation rate
is expected to be 7.5%. Both countries are expected to have a real
interest rate of 1.5%. Show calculations.
A.) Based on the Fisher effect, calculate the U.S. nominal
interest rate (x.xx%).
B.) Based on the Fisher effect, calculate the Uzbekistan nominal
interest rate (x.xx%).
C.) Using purchasing power parity, calculate the expected spot
rate in 1 year....

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 1 minute ago

asked 1 minute ago

asked 2 minutes ago

asked 4 minutes ago

asked 6 minutes ago

asked 9 minutes ago

asked 10 minutes ago

asked 10 minutes ago

asked 10 minutes ago

asked 12 minutes ago

asked 13 minutes ago