If your nominal wage rises but you think that it automatically means your real wage rose,then you are
A) suffering from money illusion.
B) experiencing the substitution effect.
C) suffering from the heterogeneity illusion effect.
D) experiencing the income effect.
E) suffering from the price confusion problem.

Question

Quizplus · Accepted Answer

Money illusion refers to the tendency of individuals to think in nominal rather than real terms. Therefore, if someone assumes that a rise in nominal wage automatically means a rise in real wage (without accounting for inflation), they are suffering from money illusion.

If Your Nominal Wage Rises but You Think That It