a. Describe how the financial accelerator works when there is an increase in home prices? Draw a diagram showing the feedback mechanism.
b. Describe how the financial accelerator works when there is a decrease in home prices
c. How do financial constraints affect the financial accelerator? HINT: Relate financial constraints to the marginal propensity to consume
d. What is the role that higher LTV ratios played in the build up to the recent Global Financial Crisis?