The long-run Fisher effect links rises in inflation with rises in nominal interest rates by the same proportion, resulting in the demand for money. Group of answer choices an increase in an increase in the supply of money offsetting the increase in no effect on a decrease in

an increase

Explanation:

As according International Fisher effect theory, we have:

Real interest rate = Nominal Interest rate - Inflation rate

As nominal interest rates and inflation rate increase by the same proportion t (t>0) (Nominal Interest rate - Inflation rate) x t = Real interest rate x t

=> Real interest rate would rise

When the domestic real interest rate increases:

+) The demand of domestic market for foreign assets decreases

=> The supply for domestic currency decreases (1)

+) The demand of foreign market for domestic assets increases

=> The demand for domestic currency increases (2)

Opposite result for foreign currency.

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