According to the Fisher equation, if a bank extends a loan for 3 percent and the inflation rate ends up being 2 percent, the real interest rate is 1%
- The Fisher equation describes the link between nominal interest rates and real interest rates under inflation in financial mathematics and economics.
- Its formula is real interest rate + nominal interest rate + inflation rate, named after American economist Irving Fisher.
- The Fisher Effect is significant since it aids in calculating the investor's real rate of return. The Fisher equation can be used to calculate the necessary nominal rate of return for the investor to meet their objectives.
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