This topic contains a solution. Click here to go to the answer

Author Question: The Fisher Effect is the relationship between three items: the nominal rate, the real rate, and ... (Read 109 times)

nummyann

  • Hero Member
  • *****
  • Posts: 576
The Fisher Effect is the relationship between three items: the nominal rate, the real rate, and inflation.
 
  Indicate whether the statement is true or false.

Question 2

The Fisher Effect states the relationship between the nominal rate (r), the real rate (r), and inflation (h). Suppose r= 5 and h = 4.
 
  Many would say that the nominal rate is 9. Is this true? Explain in terms of the relationship between the real rate and the inflation rate over time.
  What will be an ideal response?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

blakcmamba

  • Sr. Member
  • ****
  • Posts: 335
Answer to Question 1

Answer: TRUE

Answer to Question 2

Answer: The simplified version of the Fisher Effect states that r = r + h, such that r = 5 + 4 = 9. However, this is not a precise accounting of the nominal rate's value. The correct formula is:
r = r + h + (r  h). This gives r = 5 + 4 + (5  4) = 9.2. The product of the real rate and the inflation rate can be thought of as the additional compensation needed for the fact that the interest being earned during the year is also subject to inflation or a loss of purchasing power at the end of the year.




nummyann

  • Member
  • Posts: 576
Reply 2 on: Jul 10, 2018
Gracias!


kilada

  • Member
  • Posts: 311
Reply 3 on: Yesterday
Excellent

 

Did you know?

Cocaine was isolated in 1860 and first used as a local anesthetic in 1884. Its first clinical use was by Sigmund Freud to wean a patient from morphine addiction. The fictional character Sherlock Holmes was supposed to be addicted to cocaine by injection.

Did you know?

Pregnant women usually experience a heightened sense of smell beginning late in the first trimester. Some experts call this the body's way of protecting a pregnant woman from foods that are unsafe for the fetus.

Did you know?

More than 34,000 trademarked medication names and more than 10,000 generic medication names are in use in the United States.

Did you know?

Cucumber slices relieve headaches by tightening blood vessels, reducing blood flow to the area, and relieving pressure.

Did you know?

Cancer has been around as long as humankind, but only in the second half of the twentieth century did the number of cancer cases explode.

For a complete list of videos, visit our video library