Inflation 'felt' to be not so bad as a wage cut

Many people view a rise in their income as a good thing, even when the increase is completely negated again by inflation. Researchers at Bonn University and the California Institute of Technology have discovered the cerebro-physiological cause underlying this so-called "money illusion." This effect is of great practical relevance in that it explains, for instance, why financial policy and inflation can have a beneficial effect on employment and economic growth.

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