Which of the following is a feature of the 'Fisher Effect'? MCQ with Answer and Explanation

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Which of the following is a feature of the 'Fisher Effect'?

A. The real interest rate equals the nominal rate plus inflation

B. Nominal and real rates are always equal

C. The nominal interest rate equals the real interest rate plus expected inflation

D. Inflation has no effect on nominal rates

Answer: Option C

Solution (By JKSSB Mock Tests)

The Fisher equation states that the nominal interest rate is approximately equal to the real interest rate plus the expected rate of inflation.

This question belongs to: Economy GK Economy Set 1

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Question #1

In the context of banking, the Statutory Liquidity Ratio (SLR) is maintained in the form of:

A. Cash, gold and approved securities

B. Only foreign exchange

C. Only cash

D. Only equity shares

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Correct Answer: Option A

Explanation:
Banks are required to maintain SLR in the form of cash, gold or unencumbered approved securities as a percentage of their Net Demand and Time Liabilities.

This question belongs to: Economy GK Economy Set 1

Question #2

Which of the following is a feature of the Classical theory of interest?

A. Interest is determined by demand and supply of real savings and investment

B. Interest is determined by demand and supply of money

C. Liquidity preference determines interest

D. Interest is a monetary phenomenon only

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Correct Answer: Option A

Explanation:
In classical theory, the rate of interest is a real phenomenon determined by the demand for investment and the supply of savings.

This question belongs to: Economy GK Economy Set 1

Question #3

In the context of financial markets, 'Adverse Selection' before a loan is made refers to:

A. Lenders always having perfect information

B. Borrowers with higher risk being more likely to seek loans

C. Only the problem of monitoring after the loan

D. Borrowers becoming riskier after receiving loans

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Correct Answer: Option B

Explanation:
Adverse selection in credit markets occurs when higher-risk borrowers are more eager to borrow at any given interest rate, so that the pool of applicants becomes riskier as the interest rate rises.

This question belongs to: Economy GK Economy Set 1

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