ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -While the ex-post real rate is simply the difference between the nominal interest rate and actual inflation, the ex-ante real rate is defined as the difference between the nominal rate and the expected inflation rate.

Detailed explanation-2: -The Fisher Effect is an economic theory created by economist Irving Fisher that describes the relationship between inflation and both real and nominal interest rates. The Fisher Effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.

Detailed explanation-3: -The Fisher effect is a theory first proposed by Irving Fisher. It states that real interest rates are independent of changes in the monetary base. Fisher basically argued that the nominal interest rate is equal to the sum of the real interest rate plus the inflation rate.

Detailed explanation-4: -The precise formula is (1 + nominal interest rate) = (1 + real interest rate) x (1 + inflation rate). Since this formula can be difficult to calculate, a more commonly used formula is i ≈ r + where i is the nominal interest rate, r is the real interest rate and is the inflation rate.