| Sumario: | The article presents the author's views on the foundations of money illusion in a neoclassical micro-monetary model. The analysis of money illusions, as suggested by two economists Robert Clower and John Riley, rests entirely on the claims that the assumption of degree zero homogeneity (in the variables) of the utility function "serves completely to characterize the class of illusion-free demand functions" derivable from ordinal utility theory, and that it is possible to reinstate the usual properties by adopting the "semi separable" utility function. This article will eventually prove all these claims wrong. Under the D-K sufficiency conditions it is possible to have demand behavior which is free of money illusion without imposing the restriction that the utility function be homogeneous of any degree. The resulting demand function are indeed free of money illusion. Thus, the first order conditions are examined for the maximization of the equations created in the article, subject to the budget constraint.
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