The long-run Fisher effect links rises in inflation with rises in nominal intere
ID: 1124956 • Letter: T
Question
The long-run Fisher effect links rises in inflation with rises in nominal interest rates by the same proportion, resulting in the demand for real money balances. A) no effect on B) an increase in C) a decrease in D) an increase in the supply of money offsetting the increase in between the simple monetary model and the general monetary model of exchange rate determination in the long run is that: A) B) C) the simple model refers to only one nation, while the general model includes all nations. the simple model has only one equation, while the general model includes a number of simultaneous equations. the simple model assumes a constant demand function for real balances, while the general model assumes that the demand for real balances is a decreasing function of the nominal interest rate the general model applies to increases and decreases in the relevant variables; the simple model does not allow relevant variables to decrease. D)Explanation / Answer
The fisher effect is the relationship between inflation and both real and nominal interest rates. The Fisher effect states that the real interest rate equals to the nominal interest rate minus the expected inflation rate
2. The correct option is c
The simple model assumes a constant demand function for real balances, while the general model assumes that the demand for real balances is a decreasing function of the nominal interest rate
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