The Fisher hypothesis
a. What is the Fisher hypothesis?
b. Does the experience of Latin American countries in the 1990s support or refute the Fisher hypothesis? Explain.
c. Look at the figure in the Focus box on Latin America. Note that the line drawn through the scatter of points does not go through the origin. Does the Fisher effect suggest that it should go through the origin? Explain.
d. Consider this statement: "If the Fisher hypothesis is true, then changes in the growth rate of the money stock translate one-for-one into changes in i, and the real interest rate is left unchanged. Thus, there is no room for monetary policy to affect real economic activity." Discuss.