The Fisher Effect involves which of the items below? A. Nominal rate and inflation onlyB. Nominal rate, the real rate, and inflationC. Nominal rate and the real rate onlyD. Nominal rate, the bond rate, and inflation

The correct answer is letter "B": Nominal rate, the real rate, and inflation.

Explanation:

Named after American economist Irving Fisher (1867-1947), the Fisher Effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. Real interest rate, thus, falls as inflation rises unless nominal rates rise at the same rate as inflation. It is important to be optimistic about the real interest rate so that borrowers or investors recognize they are beating inflation.

B. Nominal rate, the real rate and inflation.

Explanation:

The correct answer is B. Nominal rate, the real rate, and inflation. Fishers effect is an economic theory in which a relationship between inflation, nominal interest rate and real interest rate is identified. It defines that real interest rate is equal to inflation minus nominal interest rate.