The concept of money illusion refers to:
A) people who do not understand the purchasing power of money and therefore spend it faster than they can earn it.
B) consumers with inflation-indexed wages seeing a rise in prices and believing that their purchasing power has been compromised.
C) consumers paying prices that are higher than normal and not feeling bad about it because it's happening to everyone just the same.
D) an unobserved change in relative prices.

Question

Quizplus · Accepted Answer

Money illusion is the tendency of people to consider nominal changes in income or prices without adjusting for inflation. This means that people with inflation-indexed wages might see an increase in prices and assume that their purchasing power has decreased, even if their real income hasn't changed.

The Concept of Money Illusion Refers To