Question

Describe the Fisher effect, use a graph to complement your description.

Answer 1

The fisher effect describes the relationship between inflation rate and the nominal rate of interest rate.

generally we can say that the real interest rate is equal to the nominal rate minus the inflation rate , inflation reduces the real return on alone

the fisher effect observes that nominal interest rates will rise with expected inflation rates

from 1960 the inflation has increased to the peak in 1980 and the interest rates both ,the came to reduced in upcoming years both the inflation and inerest rates.

INTEREST RATE INFLATION RATE YEAR SOURCE: US. AUREAU OF LABOR STATISTICS

fisher effect explaines how the inflation rate and inerest rate move in tandum