The money illusion:
A) is the misperception that prices have changed; it occurs when the Federal Reserve reduces the money supply.
B) occurs when output rises.
C) is the distinguishing factor between the short run and the long run.
D) is the misperception that one is wealthier; it occurs when the money supply grows.

Question

Quizplus · Accepted Answer

Money illusion occurs when people mistake nominal changes (like an increase in money supply) for real changes, leading them to feel wealthier without an actual increase in real purchasing power.

The Money Illusion