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$5.$ The Fisher effect

The Fisher effect explains the relationship between interest rates and expected inflation.

Which of the following equations best exemplifies the Fisher effect?

$i=E(NF)x{}_k$

$i_4=iE($INP$)$

$i_R=i-E(LNF)$

$i=E(N{P}_{\text{I}})-i_R$

Suppose in a hypothetical economy, the nominal interest rate is $10\%$ and the expected inflation rate is $4\%.$

Jccess Tips

The real interest rate is:

$-6\%$

GN OUT

$-24$

$6\%$

$144$