Reacting to nominal changes caused by changes in prices when real variables, such as interest rates, have not changed is called

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Money illusion refers to the tendency for people to react to nominal changes in prices, wages, or interest rates without taking into account changes in purchasing power caused by inflation or deflation. It is a cognitive bias that can lead to incorrect economic decisions. Compounding and discounting refer to calculations of present or future values of money taking into account interest rates. Principal refers to the original amount invested or borrowed.

Reacting to Nominal Changes Caused by Changes in Prices When