Money illusion occurs when people:
A) correctly see changes in nominal prices.
B) correctly see changes in real prices.
C) see changes in real prices and mistake them for changes in nominal prices.
D) see changes in nominal prices and mistake them for changes in real prices.

Question

Quizplus · Accepted Answer

Money illusion occurs when people mistake changes in nominal prices for changes in real prices. This means that they are not fully aware of the effects of inflation or deflation on the purchasing power of their money. They may be focused on the numerical value of prices rather than the value of what those prices can buy.

Money Illusion Occurs When People