Money illusion:
A) is the misperception that prices have changed;it occurs when the Fed reduces the money supply.
B) occurs when output rises.
C) is the distinguishing factor between the short run and the long run.
D) is the misperception that one is wealthier;it occurs when the money supply grows.

Question

Quizplus · Accepted Answer

Money illusion is the misperception that one is wealthier, and it occurs when the money supply grows. It is a situation where people focus on nominal values rather than real values, leading them to overestimate the effect of inflation on their purchasing power.

Money Illusion