Your nominal wage increases by 10%,and the overall price level increases by 12%.Which statement is correct?
A) If you feel richer, you are experiencing money illusion.
B) You face a price confusion problem.
C) You face a menu costs problem.
D) You would be certain that your real wage had increased.
E) Bureau of Labor Statistics factors would cause you to experience deflation.

Question

Quizplus · Accepted Answer

When your nominal wage increases by 10% but the overall price level increases by 12%, your real wage actually decreases. If you feel richer despite this, you are experiencing money illusion, which is when people mistake nominal changes for real changes.

Your Nominal Wage Increases by 10%,and the Overall Price Level