Joe's increase in wages has been identical to the increase in the price level. Joe thinks that he is better off and has increased his expenditures. Joe's behavior is consistent with
A) Say's law.
B) the classical model.
C) a vertical aggregate supply curve.
D) money illusion.

Question

Quizplus · Accepted Answer

Joe's behavior is consistent with the concept of money illusion, which means people are fooled by nominal changes in wages and prices without considering the real changes. Even though Joe's wages and expenditures increased at the same rate, the real value of his wages may not have changed due to inflation. Therefore, Joe's behavior is not consistent with Say's law, the classical model, or a vertical aggregate supply curve.

Joe's Increase in Wages Has Been Identical to the Increase