Money illusion is the
A)Use of nominal dollars rather than real dollars to gauge income or wealth.
B)Movement of taxpayers into higher tax brackets as nominal income increases.
C)Focus on real dollars rather than nominal dollars to determine purchasing power.
D)Uncertainty that occurs because of inflation.

Question

Quizplus · Accepted Answer

Money illusion refers to the tendency of people to focus on nominal dollars rather than real dollars when gauging income or wealth. This means that people are often misled by inflation and fail to recognize the impact of changes in purchasing power over time. For example, someone who only looks at nominal wages may believe they are doing well financially even though their real purchasing power has decreased.

B, C, and D are not correct because they do not accurately describe money illusion.

Money Illusion Is the