The Fisher effect states that:

A Real rates never change

B Nominal interest rates reflect real interest rates plus expected inflation

C Inflation is always zero

D Real rates equal nominal rates

✓ Correct Answer: Option B

Fisher equation: Nominal rate ≈ Real rate + Expected inflation. Markets price inflation expectations into nominal rates.

💡 Why is B) the correct answer?

The correct answer to the question "The Fisher effect states that:" is Option B: Nominal interest rates reflect real interest rates plus expected inflation.

The other options — A) Real rates never change, C) Inflation is always zero, D) Real rates equal nominal rates — are incorrect for this CFA Exam Prep question. As explained above: Fisher equation: Nominal rate ≈ Real rate + Expected inflation. Markets price inflation expectations into nominal rates.

📚 About This CFA Exam Prep Practice Question

This 2-level CFA Exam Prep question from the Economics topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free CFA Exam Prep practice test or use flashcards for spaced repetition review.

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The Fisher effect states that:

✓ Correct Answer: Option B

📚 About This CFA Exam Prep Practice Question

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