Definition of Money illusion:
Belief that money (specifically, a currency) represents a constant value.
Money illusion is sometimes also referred to as price illusion.
Belief that money has a fixed value in terms of its purchasing power, so that, for example, changes in prices represent real gains and losses.
Money illusion is an economic theory stating that people have a tendency to view their wealth and income in nominal dollar terms, rather than in real terms. In other words, it is assumed that people do not take into account the level of inflation in an economy, wrongly believing that a dollar is worth the same as it was the prior year.
How to use Money illusion in a sentence?
- Ignoring the effects of this productivity growth is akin to money illusion in periods of inflation.
- Economists cite factors such as a lack of financial education, and the price stickiness seen in many goods and services as triggers of money illusion.
- Money illusion posits that people have a tendency to view their wealth and income in nominal dollar terms, rather than recognize its real value, adjusted for inflation.
- Employers are sometimes said to take advantage of this, modestly lifting wages in nominal terms without actually paying more in real terms.
Meaning of Money illusion & Money illusion Definition