Money illusion is a psychological matter that is debated among economists. Some feel that people automatically think of their money in real terms, based on the prices of things they see around them. However, there are several reasons why the money illusion likely exists for many people, including a general lack of financial education, and the price stickiness seen in many goods and services.
This term is attributed to noted economist John Maynard Keynes. Money illusion is often cited as a reason why small levels of inflation (1-2% per year) are actually desirable for an economy. Having small levels of inflation allows employers, for example, to modestly raise wages in nominal terms without actually paying more in real terms. As a result, many people who get pay raises believe that their wealth is increasing, regardless of the actual rate of inflation.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
Money illusion — In economics, money illusion refers to the tendency of people to think of currency in nominal, rather than real, terms. In other words, the numerical/face value (nominal value) of money is mistaken for its purchasing power (real value). This is… … Wikipedia
money illusion — The false perception of increased income when inflation is greater than the increase in income. ► “Smokers experience money illusion in that they respond more to nominal price changes than to real changes.” (Journal of Business Research, Sept.… … American business jargon
money illusion — noun : the illusion that the face value of money is representative of its purchasing power : preoccupation (as of a wage earner) with wages rather than with real income or prices … Useful english dictionary
money illusion — Econ the tendency of consumers to react to prices in monetary terms rather than taking account of factors such as inflation … The ultimate business dictionary
Illusion monétaire — L illusion monétaire est le comportement par lequel un agent économique confond une variation du niveau général des prix avec une variation des prix relatifs. Un agent est, par exemple, victime d illusion monétaire s il pense que seul son salaire … Wikipédia en Français
illusion — 01. The idea that if you work hard enough, you re sure to succeed is an [illusion]. Lots of people work hard all their lives without really getting ahead. 02. Mirrors on the walls give the room the [illusion] of being much bigger than it really… … Grammatical examples in English
illusion */*/ — UK [ɪˈluːʒ(ə)n] / US [ɪˈluʒ(ə)n] noun [countable] Word forms illusion : singular illusion plural illusions 1) a false or wrong belief or idea illusion that: Many people still have the illusion that full employment is possible.… … English dictionary
illusion — il|lu|sion [ ı luʒn ] noun count ** 1. ) a false or wrong belief or idea: illusion that: Many people still have the illusion that full employment is possible. create/give/maintain the illusion: This description creates the illusion that we can… … Usage of the words and phrases in modern English
money goggles — noun the illusion that a man appears more attractive to women when he is wealthy regardless of his appearance or personality … Wiktionary
Quantity theory of money — In economics, the quantity theory of money is a theory emphasizing the positive relationship of overall prices or the nominal value of expenditures to the quantity of money. Origins and development of the quantity theory The quantity theory… … Wikipedia