Fisher Equation
The Fisher equation is an economic concept that describes the relationship between the real interest rate, nominal interest rate, and expected inflation. It is named after the economist Irving Fisher, who first proposed it in 1930. The equation states that the real interest rate is equal to the nominal interest rate minus the expected inflation rate. This equation is used to determine the real rate of return on an investment, taking into account the effects of inflation.
History of the Fisher Equation
The Fisher equation was first proposed by Irving Fisher in 1930 in his book The Theory of Interest. Fisher argued that the real rate of return on an investment should be equal to the nominal rate of return minus the expected rate of inflation. This equation has since become a cornerstone of modern economic theory and is used to calculate the real rate of return on investments.
The Fisher equation has been used by economists to analyze the effects of inflation on the economy. It has also been used to analyze the effects of monetary policy on the economy. For example, the equation can be used to determine the effects of changes in the money supply on the real rate of return on investments.
Table of Comparisons
| Real Interest Rate | Nominal Interest Rate | Expected Inflation Rate |
|---|---|---|
| 3% | 5% | 2% |
| 4% | 6% | 2% |
| 5% | 7% | 2% |
Summary
The Fisher equation is an economic concept that describes the relationship between the real interest rate, nominal interest rate, and expected inflation. It is used to calculate the real rate of return on investments, taking into account the effects of inflation. For more information on the Fisher equation, you can visit websites such as Investopedia and The Balance.
See Also
- Real Interest Rate
- Nominal Interest Rate
- Expected Inflation Rate
- Monetary Policy
- Money Supply
- Inflation
- Investment
- Time Value of Money
- Interest Rate Parity
- Present Value
