An 8% nominal interest rate breaks down into a real interest rate of 6% plus an inflation rate of 2%. Fowever, because the inflation rate suddenly rises from 2% to 3%, the nominat rate rises from 8% to 9%. This is an example of theFisher Effect:
An 8% nominal interest rate breaks down into a real interest rate of 6% plus an inflation rate of 2%. Fowever, because the inflation rate suddenly rises from 2% to 3%, the nominat rate rises from 8% to 9%. This is an example of theFisher Effect:
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