Money Illusion is a concept that refers to the tendency of people to think of money in nominal terms rather than in terms of its real purchasing power. This phenomenon can lead to people making decisions based on changes in the nominal value of money, rather than changes in its real value. Money Illusion can
In economics, money illusion, or price illusion, is a cognitive bias where money is thought of in nominal, rather than real terms. In other words, the face value of money is mistaken for its purchasing power at a previous point in time. Viewing purchasing power as measured by the nominal value is false, as modern fiat currencies have no intrinsic value and their real value depends purely on the price level. The term was coined by Irving Fisher in Stabilizing the Dollar. It was popularized by John Maynard Keynes in the early twentieth century, and Irving Fisher wrote an important book on the subject, The Money Illusion, in 1928.