A friend tells you that his income has risen every year by 5 percent.At the same time,prices,on average,have risen by 5 percent.Your friend claims he is better off.Your friend

Question

Quizplus · Accepted Answer

Your friend is experiencing money illusion because while his nominal income has increased by 5 percent, the real income has not changed due to the 5 percent increase in prices, meaning his purchasing power remains the same.

A Friend Tells You That His Income Has Risen Every