Which of the following is an example of someone who is experiencing money illusion?
A)The CPI in an economy has decreased by 5%, but Vivian will not accept lower nominal wages because she believes this is unfair.
B)The CPI in an economy has increased by 2.3%, and Paul's nominal wage is increased by 2.3%.
C)Darren sees that prices in the economy have risen by 2% and that the nominal interest rate on his savings account rose 0.5%. So Darren knows he is experiencing a 1.5% decrease in his real interest earnings.
D)Prices have not changed in the economy, so your boss does not give you a raise.

Question

Quizplus · Accepted Answer

Vivian is experiencing money illusion because she is refusing to accept a decrease in her nominal wages even though the real value of her wages has not changed due to the decrease in the CPI. She is only focused on nominal value rather than real value. The other choices do not involve money illusion as they are either adjusting for changes in the CPI or not receiving a raise due to a lack of changes in prices.

Which of the Following Is an Example of Someone Who