Question

Assume the real rate was 9.5% and the inflation rate was 4%. Using the Fisher Effect, what was the nominal rate?

Answer 1

13.88%

Step-by-step explanation:

According to the fisher effect

(1 + nominal rate) = (1 + real rate) x (1+ inflation rate)

= (1.095) x (1.04) = 1.1388

(1 + nominal rate) = 1.1388

Nominal rate = 1.1388 - 1 = 0.1388 = 13.88%