Economics 100B Lecture 4 - ASUC Lecture Notes Online is the...

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Unformatted text preview: 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: Productivity, Output and Employment Part 2 This afternoon we carry on with our discussion of production and labor factor markets. Output increases with inputs of capital and labor. Both inputs have a decreasing marginal increase to productivity (diminishing return to input). Anything that causes a shift in the production function causes a shift in the demand for labor curve. Other factors may cause a shift in the productivity curve, but we will address those later. Key Topic: How does the demand and supply of labor, equilibrium wages, affect the productivity in the market? Relevant News: Fear of a recession in the US. Corporate America is braced for a recession. As such, many corporations are cutting workers. Fewer workers means less economic output in the future. Predicted drop in aggregate demand Drop in employment Drop in economic output. Many advertisers think that the recession has already arrived in the economy, as demands for advertizing in the market have diminished. Professor Wood used Super Bowl ads as an example. The housing market continues to fair poorly. After a period of large growth from 2003 to mid 2007, the housing market has plummeted. Housing prices have declined 7.7% nationally (very dramatic). This effect has been more devastating at a local level, with specific areas having more rapid price drops (e.g. Stockton, CA, or MI) with some areas experiencing drops of ~30%. CEO of JC Penney foresees a shrinking economy. As such he has elected to cut jobs within his corporation. Fed: Yesterday cut rates by another 50 basis points to 3% in a hope of stimulating the economy. The fed has elected to cut the federal target funds rate (short term interest rates) by 1.25% this month. This is the largest cut in such a short period that we have ever seen. This aggressive action has been unprecedented, and remains somewhat controversial. Time will illustrate its effects. Fourth Quarter GDP: 4Q GDP grew .6%, which is a huge drop from last quarter. Inventory investment was negative in the last quarter (1.2%). Inventory serves as a direct measure of aggregate demand in the economy. Businesses cut expenditures, thus output is slowing to accommodate that. Many economists are predicting a recession to begin in the 2 nd and 3 rd quarters of 2008....
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Economics 100B Lecture 4 - ASUC Lecture Notes Online is the...

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