In Which of the Following Situations Are People Experiencing Money

question 24

Multiple Choice

In which of the following situations are people experiencing money illusion?

• A) when prices rise 5% while incomes remain unchanged and thus people think their real incomes have not changed.
• B) when prices remain unchanged and incomes remain unchanged and thus people think their real incomes have not changed.
• C) when prices rise 5% and incomes rise 5% and people think that their real incomes have risen 5%.
• D) when prices rise 5% while incomes rise 8% and people think that their real incomes have risen 3%.

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Definitions:

Capital Flow

The movement of money for the purpose of investment, trade, or business production, either within a country or internationally.

Tax Shifting

The transfer of the burden of a tax from the entity legally responsible for paying it to another party, often consumers, through higher prices.

Tax Evasion

The illegal practice of not paying taxes by not reporting income, reporting expenses not legally allowed, or by not paying taxes owed.

Corporate Profits Tax

A tax imposed on the income or profit earned by corporations.