The 'Fisher effect' suggests that if expected inflation rises by 1%, nominal interest rates: MCQ with Answer and Explanation

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The 'Fisher effect' suggests that if expected inflation rises by 1%, nominal interest rates:

A. remain unchanged

B. fall by more than 1%

C. fall by 1%

D. rise by about 1%

Answer: Option D

Solution (By JKSSB Mock Tests)

The Fisher effect indicates nominal interest rates rise with expected inflation one-for-one in the long run.

This question belongs to: Economy GK Economy Set 1

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Which of the following is a feature of the 'Climate-Related Financial Risks' discussion in central banking?

A. Central banks have no role in assessing climate risks

B. Only physical risks matter and transition risks are irrelevant

C. Physical and transition risks associated with climate change can affect the stability of the financial system and the transmission of monetary policy

D. Climate change is completely irrelevant for financial stability

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Correct Answer: Option C

Explanation:
Climate-related financial risks comprise physical risks (damage from extreme weather) and transition risks (losses from the adjustment to a low-carbon economy); both can impair financial institutions and the broader financial system.

This question belongs to: Economy GK Economy Set 1