The Money Illusion

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Money illusion highlights the common misconception where individuals perceive currency based solely on its nominal value, neglecting its real purchasing power. This misunderstanding is particularly relevant in the context of modern fiat currencies, which lack intrinsic value. Instead, their worth is determined by their exchangeability for goods and their role in tax payments. The concept, introduced by John Maynard Keynes in the early 20th century, reveals critical insights into economic behavior and decision-making.