Behavior that may be optimal for an individual (e.g., saving more during adverse economic conditions) can be detrimental if too many individuals pursue the same behavior, as ultimately one person's consumption is another person's income. Too many consumers attempting to save (or pay down debt) simultaneously is called the paradox of thrift and can cause or deepen a recession. Economist Hyman Minsky also described a "paradox of deleveraging" as financial institutions that have too much leverage (debt relative to equity) cannot all de-leverage simultaneously without significant declines in the value of their assets. COUNT 5
QSN1 What is an example of something that can be detrimental if too many individuals pursue the same behavior? ANS1 saving more during adverse economic conditions QSN2 What is it called when too many consumers attempt to save or pay down debt at the same time? ANS2 paradox of thrift QSN3 What will happen if too many consumers save or pay down debt simultaneously? ANS3 can cause or deepen a recession QSN4 Who is the economist who described a "paradox of deleveraging"? ANS4 Hyman Minsky QSN5 Financial institutions cannot all de-leverage simultaneously without a decline in the value of this? ANS5 their assets