When people make decisions on the basis of the face value of currency rather than the real value, their decisions reflect
A. The wealth effect of inflation.
B. The income effect of inflation.
C. Money illusion.
D. The price effect of inflation.
Answer: C
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If a production process creates pollution, a competitive market produces excessive pollution because
A) private marginal cost of pollution exceeds its social marginal cost. B) social marginal cost of pollution exceeds its private marginal cost. C) the marginal benefit of pollution to the firm is zero. D) zero pollution is optimal.
When real rates of interest are negative, borrowers:
A. benefit, because the value of their debt declines. B. suffer, because the value of their debt declines. C. benefit, because the value of their debt increases. D. suffer, because the value of their debt increases.
Inflation is an increase in
A. real gross national product. B. the price of one item. C. the overall price level. D. the average income level.
The internal rate of return of an investment is:
A. zero when the present value of an investment equals its cost. B. the interest rate that equates the present value of an investment with its cost. C. equal to the market rate of interest when an investment is made. D. the same as return on investment.