25: Behavioural Macroeconomics

Question 1

links between credit extension, confidence, investment and consumption

Answer 1

home equity (E=A-L) as a form of collateral

mortgage company revalues collateral and finds that A decreased in value

A now < than L so credit lines are frozen
- autonomous consumption decreases

home values A reset tax base lower
- autonomous government expenditure decreases

results in autonomous investment decreasing as well as IS curve shifts to the left

Question 2

recreation of macro

Answer 2

maximising behaviour, rational behaviour, and doing the optimal thing

Question 3

akerlof’s anomalies

Answer 3

involuntary unemployment

monetary policy impacts on output and employment

failure of deflation to accelerate when unemployment is high

prevalence of under saving for retirement

excessive volatility of stock prices relative to fundamentals

stubborn persistence of a self-destructive underclass

Question 4

akerlof’s most enduring macroeconomic problem

Answer 4

disparity in income and social condition between the majority white population and the AA minority