ABSTRACT
The notion that economic agents suffer from "money illusion" has been around at least since 1928. As inflation became a major macroeconomic problem in the 1970s, economists increasingly came to pay much attention to distinctions between real and nominal magnitudes, they were assumed to distinguish nominal from real and thus to be free of "money illusion". The result of the changes is that workers in general, and unionized workers in particular, are no longer necessarily seen as victims of money illusion and are more likely charged with contributing to inflationary pressures by attempting to maintain or even raise their real wage rates. The ability of the entrepreneurs to differentiate real from nominal changes does not, however, mean that the surveys help one to forecast real gross national product (GNP). The consistency with which entrepreneurial confidence was more highly correlated with movements in the growth rates in real rather than nominal GNP in all five countries is impressive.
