Economics 100B Lecture 2 - ECONOMICS 100B Steven Wood...

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ECONOMICS 100B Steven Wood 1/24/08 Lecture 2 Sharing or distribution of lecture notes, or sharing of your subscription, is be prosecuted. Our non-profit, student-run program depends on your individual subscription for its continued existence. ILLEGAL and will 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 ANNOUNCEMENTS We have two copies of the textbook on reserve at Moffitt. I will try and get more there in the next week. Today we will focus on some things from Econ 1. LECTURE The Fed cut rates so the stock market went up, but fears over a recession will pull the economy down. We will have to see how all this works out over the course of the semester. Now we are looking at a longer term chart showing what the Federal Funds Rate, the rate the Fed controls, has done historically. Many economists are unsure whether the softness of the economy is related to the high interest rate and thus aren’t sure if a cut will help out. Looking at another graph, as we mentioned on Tuesday, the U.S. imports much more than we export. Our imports are clearly the rest of the world’s exports to us. So if we are slowing down we will import less and they will export less, which slows the economy. National Income Accounting The National Income Accounts are an accounting framework used to measure current economic activity. We use three main approaches. They should give us the exact same answer, but in practice this isn’t exactly true. The three approaches are: 1) Product approach 2) Expenditure approach 3) Income approach Whatever we are producing, we are selling and this becomes income for workers. The value of whatever gets produced also has to represent the value of the income from that production. Also, everything that is produced has to be owned by someone. So we find that all spending in the year will be equal to the production in that year. So: Total Product = Total Income = Total Expenditure . Gross Domestic Product This is the market value of final goods and services that are newly produced within a nation during a fixed period of time. We actually record this on a quarterly basis and project what our yearly GDP will be. Notice that this is within the country that is why we call it gross domestic product. Market value allows adding together unlike items by valuing them as their market prices. How do we add up shoes, movies, and all the other goods and services that are produced? We just multiply the product times the price and that tells us the total revenue of what is being sold. If a good or service is not exchanged in a market, it will not be counted in GDP. An example of this would be volunteering at a hospital. There is value in your time but it doesn’t get counted in GDP because there is no price associated with it.
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ASUC Lecture Notes Online Economics 100B 1/24/08 Sharing or copying these notes is illegal and could end note taking for this course
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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 University of California, Berkeley.

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Economics 100B Lecture 2 - ECONOMICS 100B Steven Wood...

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