You get a pay raise and feel richer even though your raise did not keep up with inflation; this is best described as
A) menu costs.
B) price confusion.
C) future price uncertainty.
D) money illusion.
E) nominal income uncertainty.

Question

Quizplus · Accepted Answer

This phenomenon is called money illusion, which occurs when people tend to focus on nominal (actual) income rather than real (inflation-adjusted) income. Therefore, even if the increase in nominal income does not keep up with inflation, individuals still feel richer because they ignore the effects of inflation on purchasing power.

You Get a Pay Raise and Feel Richer Even Though