Question

Evaluate the implications of behavioral economics for macro policymaking.

Short answer

Poiscy acts have long-term consequences, such as aggregate demand. Rational inattention, or the infrequent update of economic knowledge, leads to sticky product prices and slow adjustment of inflation expectations.

Step-by-step solution

Step :1 Introduction 

Policymakers and academics alike are interested in behavioural economics research. It clarifies what policymakers should be concerned about and improves the quality of our economic models. The work presented at this conference highlights some of the achievements, but it also shows that the marginal product of additional behavioural economics research will remain high.

Step :2 Explanation 

The justification for activist policymaking is strengthened by bounded rationality.

Habit formation in househoids can allow future desired real consumption spending to be influenced by previous consumption. Poiscy acts, as a result, have longer-term effects on aggregate demand.

Rational inattention, or the infrequent update of economic knowledge, causes sticky product prices and slow adjustment of inflation expectations.