Advanced Macro & Growth · advanced
What moves on the Fisher Equation diagram
A lower equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change. realrealAdjusted for inflation, measured in actual purchasing power. rate shifts the Fisher line down: lower nominalnominalMeasured in current dollars, unadjusted for inflation. rates at any expected inflationinflationA sustained rise in the overall price level, eroding money's purchasing power..
The line's intercept is the realrealAdjusted for inflation, measured in actual purchasing power. return savers demand.
Aging populations and a savings glut push the realrealAdjusted for inflation, measured in actual purchasing power. rate down, the whole line sinks.
NominalnominalMeasured in current dollars, unadjusted for inflation. rates fall at EVERY inflationinflationA sustained rise in the overall price level, eroding money's purchasing power. level. The 2010s' low-rate world wasn't only policy, the anchor itself moved.
Examiners ask this as: real rate secular decline, r star falls.
Other scenarios on Fisher Equation