1. What is the Fisher Equation?

The Fisher equation describes the relationship between nominal interest rates, real interest rates, and inflation. It states that the nominal interest rate is approximately equal to the sum of the real interest rate and the inflation rate.

2. How Does the Calculator Work?

The calculator uses the Fisher equation:

Where:

• \( \text{Nominal} \) — Nominal interest rate (%)
• \( \text{Real} \) — Real interest rate (%)
• \( \text{Inflation} \) — Inflation rate (%)

Explanation: The equation shows how inflation affects the relationship between real and nominal interest rates.

3. Importance of Fisher Equation

Details: The Fisher equation is fundamental in economics and finance for understanding the true cost of borrowing and the real return on investments.

4. Using the Calculator

Tips: Enter real interest rate and inflation rate as percentages. Both values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between nominal and real rates?
A: Nominal rates don't account for inflation, while real rates show the actual purchasing power of money.

Q2: Is the Fisher equation exact?
A: The simple version is an approximation. The exact form is: (1 + nominal) = (1 + real) × (1 + inflation).

Q3: When is this equation most useful?
A: For comparing investment returns across different inflation environments and for long-term financial planning.

Q4: How does this affect borrowers and lenders?
A: Lenders want higher nominal rates when inflation is high to maintain real returns, while borrowers face higher costs.

Q5: What are typical real interest rates?
A: Historically, real rates average about 1-3% in stable economies, but can vary significantly.