Fisher Equation

The Fisher Equation explains the relationship between interest rates, inflation, and real growth. It states that the nominal interest rate (the rate you see offered by banks) roughly equals the real interest rate (the true earning after inflation) plus the expected inflation rate. In simple terms, if inflation is expected to be 3%, and the real rate is 2%, then the nominal interest rate will be about 5%. This helps investors and lenders understand how inflation affects the return on investments and the cost of borrowing over time.