lecture 10

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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 10: The Asset Market, Money, and Prices Note : The graphs referred to in these notes can be found at http://emlab.berkeley.edu/users/webfac/wood/e100b _sp08/e100b.shtml . These are the lecture slides that Professor Wood uses in class. Use the slides corresponding to the appropriate lecture in order to understand better the graphical aspect of this class. The slides follow the order of both these notes and of the lecture. You should fill these graphs out, drawing in relevant lines. Not all exams have been handed back. You will receive those in section. 1. In this new section, we will be developing new models from those we have already established. Those will build off of our original models (i.e. Labor, production, Solow, etc.) a. Our focus will shift to a shorter, or more intermediate term model b. Until this point, we haven’t talked about money i. Modern economy runs on money ii. We will discuss the function of money today. iii. Also, next time we will see how money, prices, and inflation are related. 2. In the news a. Fears of stagflation i. Prices appear to be increasing amidst the currently developing recession ii. “stagflation” 1. Stagnation +inflation (not good) 2. Measured by the sum of the unemployment rate and the inflation rate. a. Also known as the misery index. iii. Under normal conditions, inflation should rise when unemployment falls below its natural rate needed to maintain equilibrium output. 1. Measures of inflation are the CPI and producer price index iv. Federal reserve has lowered its forecast of economic growth. v. Fed may continue to cut interest rates 1. The fed is much more concerned about a damaging recession versus rising inflation. 2. Once we develop a greater model of this whole process ASUC Lecture Notes Online Economics 100B 2/10/08 of inflation vs. recession, we may discuss why this might be. Fed latitude to cut rates may change people’s expectation of inflation. These worries can be self-fulfilling 4. Higher expected inflation results in higher real inflation. b. Home sales are down by massive numbers i. Fed is looking for the housing market to bottom out. Once that happens, the economy may bounce back ii. Reserve has cut rates sharply, and congress has issued a stimulus package c. Oil is at $100 i. When oil prices rise, we often see higher inflation, because oil and oil products are used in many products and services 1. Transportation, fertilizer, plastics, many others....
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lecture 10 - ASUC Lecture Notes Online is the only...

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