Money illusion is
A) a basic condition that all classical economists assume people have.
B) when people think they are better off when their income increases even though prices have increased by the same amount.
C) when people are motivated by self-interest.
D) could not exist if the economy did not have competitive markets.

Question

Quizplus · Accepted Answer

Money illusion refers to the tendency of people to think they are better off when their income increases even though prices have increased by the same amount. This is a common phenomenon, and it can lead people to make decisions that are not in their best interest. For example, if someone receives a 2% raise but inflation is also at 2%, they may think they are better off financially, but in reality, their purchasing power has not changed.

Money Illusion Is