Homework Answers
According to fisher's effect,
Nominal interest rate is the sum of real interest rate and expected inflation rate.
Nominal interest rate= Real Interest Rate+ Expected Inflation Rate
If Expected Inflation Rate is Positive, then Nominal Interest Rate is Greater than Real Interest Rate.
The real interest rate is not greater than the nominal interest rate if expected inflation rate is positive.
the nominal interest rate is not equal to the real interest rate if expected inflation rate is positive as can be seen from the above given equation.
If the expected inflation rate is positive, there is no guarantee that the real interest rate is positive.
Hence, whenever the expected inflation rate is positive the nominal interest rate is greater than the real interest rate.
Therefore none of the the given options are correct.
HENCE, Fifth option is correct i.e, None of the above.
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