Economics 100B Lecture 5

Economics 100B Lecture 5 - Economics 100b Professor Wood...

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Professor Wood 2/5/08 Lecture 5 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Please do not share, copy or illegally distribute these notes. Our non-profit, student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. Sharing or copying these notes is illegal and could end note taking for this course Lecture 5: Consumption, Saving and Investment Part 1 Interesting developments 1. Last Friday the government released employment numbers. This month’s observed payroll employment drop is first in over four years. Number of employees being paid this month dropped by 17,000 from the previous. In a normal month, in the US, there should be a gain of 150- 200,000 jobs created in a given month. This seems to add credence to the fear of an oncoming recession. Falling economic output should coincide with falling employment, as the production function would indicate. 2. Higher jobless claims, spending slowdown renews worries. Calculated by individuals filing for unemployment insurance. This serves as another indicator for weakening labor markets. Alan Greenspan once said: He would use two indicators of economic health were he trapped on an island: “jobless claims and a universe count.” A universe count constitutes measureable consumption. If employment is falling, and incomes are falling, spending will fall. Part of this is driven by a fall in consumer spending. Car sales fell by 4.3% in January. The likelihood of being unemployed varies by demographic factors, especially education. With less educated individuals suffering from higher levels of unemployment. College graduates are feeling less of the decline in the labor market. 3. Surging Chinese inflation exacting a toll across the US. The rise of Chinese prices will then cause US imports from China to be more expensive. Higher prices in China Æ US imports many goods from china Æ Higher prices in US. 4. Japanese wages fall as cost of raw materials hits companies. A supply shock has caused higher raw material prices will shift the production function down, lower demand for labor Æ lower employment, lower real wages. Review 1. Production Function vs. Labor Supply and Demand Function a. Natural rate of Unemployment i. Sum of frictional and cyclical unemployment b. What if labor market is not in equilibrium the short run? i. Eg. Higher short term wages Æ Higher supply of labor than demand for workers. ii. This means that all the workers who are willing to work (on Supply curve) who are not employed, will be considered cyclically unemployed. iii.
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This note was uploaded on 02/15/2008 for the course ECON 100B taught by Professor Wood during the Spring '08 term at Berkeley.

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Economics 100B Lecture 5 - Economics 100b Professor Wood...

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