When changes in nominal prices are confused with changes in real prices,people experience:
A) consumer bias.
B) inflationary delusion.
C) cyclical price confusion.
D) money illusion.

Question

Quizplus · Accepted Answer

When changes in nominal prices are confused with changes in real prices, people experience money illusion. Money illusion occurs when people mistake changes in nominal prices for changes in real prices, leading to incorrect assumptions about their purchasing power. For example, if someone's wages increase by 2% but inflation is also 2%, they may think they are better off, but in reality, their purchasing power has not changed. This confusion between nominal and real prices is known as money illusion.

When Changes in Nominal Prices Are Confused with Changes in Real