Question

In countries where inflation is expected to be high, interest rates also will be high, because investors want compensation for the decline in the value of their money. This relationship is referred to as the _________.

Answer 1

Answer:

The answer is Fisher effect

Explanation:

The Fisher Effect is an economic theory depicts the relationship between inflation and interest rates. Real interest rates decreases as inflation increases

The Fisher Effect's formula is:

Real interest rate = the nominal interest rate - the expected inflation rate.

Therefore, Fisher effect occurs in countries here inflation is expected to be high, interest rates also will be high, because investors want compensation for the decline in the value of their money