Which of the Following Is an Example of Money Illusion

question 98

Multiple Choice

Which of the following is an example of money illusion assuming that inflation is 5%?

• A) You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend.
• B) You receive a 5% raise at your part-time job but do not increase or decrease your spending.
• C) You do not receive a raise at your part-time job but cut out some expenses as you notice some prices rising.
• D) You receive a 10% raise at your part-time job and start spending extra money on entertainment every weekend.

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Definitions:

Squares Total

The sum of squared differences between each observation and the overall mean of the data set. It is a measure of total variation within a data set.

Sum

The total obtained by adding together a set of numbers or quantities.

ANOVA

Refers to Analysis of Variance, a statistical technique used to compare the means of three or more samples to find if at least one of them differs significantly.

T Test

A statistical test used to compare the means of two groups to determine if there is a significant difference between them.