An individual who suffers from money illusion will
A) feel that the same percentage increase in prices and income improves his economic position.
B) concentrate on relative prices.
C) never be fooled by the impact of price changes on the purchasing power of income.
D) only be concerned about the prices of a few goods.

Question

Quizplus · Accepted Answer

Money illusion refers to the tendency of individuals to overlook the effects of inflation and to think of nominal changes rather than real changes. Therefore, an individual who suffers from money illusion may feel that the same percentage increase in prices and income improves his economic position, as he is not considering the impact of inflation on his purchasing power.

An Individual Who Suffers from Money Illusion Will