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 a fallacy as modern fiat currencies have no inherent value and their real value is derived from their ability to be exchanged for goods and used for payment of taxes.

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  • 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 a fallacy as modern fiat currencies have no inherent value and their real value is derived from their ability to be exchanged for goods and used for payment of taxes. The term was coined by John Maynard Keynes in the early twentieth century, and Irving Fisher wrote an important book on the subject, The Money Illusion, in 1928. The existence of money illusion is disputed by monetary economists who contend that people act rationally (i.e. think in real prices) with regard to their wealth. Shafir, Diamond and Tversky (1997) have provided compelling empirical evidence for the existence of the effect and it has been shown to affect behaviour in a variety of experimental and real world situations. It has been contended that money illusion influences economic behaviour in three main ways: Price stickiness. Money illusion has been proposed as one reason why nominal prices are slow to change even where inflation has caused real prices or costs to rise. Contracts and laws are not indexed to inflation as frequently as one would rationally expect. Social discourse, in formal media and more generally, reflects some confusion about real and nominal value. Money illusion can also influence people's perceptions of outcomes. Experiments have shown that people generally perceive a 2% cut in nominal income as unfair, but see a 2% rise in nominal income where there is 4% inflation as fair, despite them being almost rational equivalents. Further, money illusion means nominal changes in price can influence demand even if real prices have remained constant. Some have suggested that money illusion implies that the negative relationship between inflation and unemployment described by the Phillips curve might hold, contrary to recent macroeconomic theories. If workers use their nominal wage as a reference point when evaluating wage offers, firms can keep real wages relatively lower in a period of high inflation as workers accept the seemingly high nominal wage increase. These lower real wages would allow firms to hire more workers in periods of high inflation. Explanations of money illusion generally describe the phenomenon in terms of heuristics. Nominal prices provide a convenient rule of thumb for determining value and real prices are only calculated if they seem highly salient (e.g. in periods of hyperinflation or in long term contracts).
  • Der Begriff Geldwertillusion beschreibt die Nichtwahrnehmung von Inflation durch die Wirtschaftssubjekte, welche also der Illusion unterliegen, das Geld habe nach wie vor den gleichen Wert. Da die Wirtschaftssubjekte durch Statistiken sowie eigene Erfahrungen aber Informationen über Preissteigerungen aufnehmen, handelt es sich bei der Geldwertillusion um ein temporäres Phänomen (Freiheit von Geldillusion).
  • 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 a augmenté (variation d'un prix relatif) en cas de hausse générale des prix, c'est-à-dire d'inflation. L'illusion monétaire consiste donc à raisonner à partir des valeurs nominales de l'économie et non des valeurs réelles, c'est-à-dire des valeurs nominales corrigés des effets de l'inflation. L'existence de l'illusion monétaire se manifeste notamment par la rigidité des salaires et des prix en cas d'inflation, ou par la lenteur de leur indexation.
  • Penningillusion är oförmågan att skilja mellan en nominell förändring av ett belopp från förändringen i köpkraft. Ifall lönerna och priserna stiger med samma procenttal innebär det att reallönen är oförändrad eftersom man kan köpa samma mängd varor som tidigare. De högre priserna kan dock ge en irrationell uppfattning om att det har blivit dyrare att leva, även om man i själva verket kan leva precis som förut. Se även inflation.
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  • Diamond
  • Shafir
  • Tversky
  • 1997 (xsd:integer)
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  • Numismatics
  • United States penny, obverse, 2002.png
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  • 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 a fallacy as modern fiat currencies have no inherent value and their real value is derived from their ability to be exchanged for goods and used for payment of taxes.
  • Der Begriff Geldwertillusion beschreibt die Nichtwahrnehmung von Inflation durch die Wirtschaftssubjekte, welche also der Illusion unterliegen, das Geld habe nach wie vor den gleichen Wert. Da die Wirtschaftssubjekte durch Statistiken sowie eigene Erfahrungen aber Informationen über Preissteigerungen aufnehmen, handelt es sich bei der Geldwertillusion um ein temporäres Phänomen (Freiheit von Geldillusion).
  • 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 a augmenté (variation d'un prix relatif) en cas de hausse générale des prix, c'est-à-dire d'inflation.
  • Penningillusion är oförmågan att skilja mellan en nominell förändring av ett belopp från förändringen i köpkraft. Ifall lönerna och priserna stiger med samma procenttal innebär det att reallönen är oförändrad eftersom man kan köpa samma mängd varor som tidigare. De högre priserna kan dock ge en irrationell uppfattning om att det har blivit dyrare att leva, även om man i själva verket kan leva precis som förut. Se även inflation.
rdfs:label
  • Money illusion
  • Geldwertillusion
  • Illusion monétaire
  • Penningillusion
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