Fisher Equation

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Formula: r = i - π

The Fisher Equation, formulated by economist Irving Fisher, expresses the relationship between nominal interest rates, real interest rates, and inflation. In this equation, r represents the real interest rate, i is the nominal interest rate, and π (pi) is the inflation rate. The real interest rate is the nominal interest rate adjusted for inflation. This reveals the actual purchasing power of the money after lending, borrowing, or investing. The Fisher Equation is important for understanding the impact of inflation on investments and in financial planning, where distinguishing between nominal and real values is crucial. It is also used by economists to predict real interest rates when planning monetary policies.

Tags: Economics, Interest Rates, Inflation, Finance