Economics 100B Lecture 3

Economics 100B Lecture 3 - Economics 100B Professor Steven...

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Economics 100B Professor Steven Wood 1/29/08 Lecture 3 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 ANNOUNCEMENT Lost watch, come see me after class if it is yours LECTURE We looked at GDP last time for the rate of change of growth in the economy. There are a variety of ways to calculate this. The first is the product approach. The next is the expenditure approach. The final way is the income approach. We happen to have a large and complex economy and so although these should all equal each other they don’t but are very close. What we will be talking about is how the level of economic growth is determined in the long run. What does the long term trend in economic output look like and what are the main factors that determine that trend to do what it does. What we saw last Tuesday is that it may be caused by an increase in population and the other was labor productivity. That gives you a hint that we may be coming back to these issues. What we will look at today is a production function for the entire economy. The next thing we will look at is what determines how much labor businesses want to hire. For now we are going to say, how much labor firms will want in a long-run equilibrium situation. News “Recession Watch”—Greenspan sees no clear proof of recession among US data. This is true. If we look at current data, as of today, none of the indicators tell us we are in a recession. So one thing we should see is that output should be falling, meaning GDP should be falling. Almost no one expects it will be a negative number and thus it doesn’t seem like output is contracting. One of the other things that happens when output contracts is that unemployment will increase. So far, employment has been weak, but not enough to indicate a recession yet. We should see income falling as well if we are in a recession. And we haven’t seen that yet either. So whether we look at production, spending or income, we should be able to tell if we are in a recession. And so far, we have not seen this yet. We will also talk about later in the semester some
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Economics 100B Lecture 3 - Economics 100B Professor Steven...

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