Is there anything you observe in Figure 1.9 that would make you think that increases (decreases) in

Question:

Is there anything you observe in Figure 1.9 that would make you think that increases (decreases) in inflation cause increases (decreases) in the nominal interest rate, as opposed to increases (decreases) in the nominal interest rate causing increases (decreases) in the inflation rate. Explain.

Figure 1.9:

25 20 Interest Rate 15 10 5 Inflation Rate -5 1960 1990 2010 1970 1980 2000 2020 Year Percent