Suppose Paris thinks a 5 percent increase in her hourly wage as an incentive to work more hours while the price level also increases by 5 percent. Paris is said to be suffering from
A)money illusion.
B)rationality.
C)irrationality.
D)the effects of competition.

Question

Quizplus · Accepted Answer

Paris is suffering from money illusion, which means she is only focused on the nominal wage increase of 5 percent and not taking into account the inflationary effects of the 5 percent increase in prices. In reality, her real wage has not increased, and she may be worse off if her purchasing power has decreased due to inflation. This shows a lack of rationality and understanding of the economic situation.

Suppose Paris Thinks a 5 Percent Increase in Her Hourly