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Unformatted text preview: Economics 100B Professor Steven Wood 2/1/07 Lecture 6 ASUC Lecture Notes Online (formerly Black Lightning) 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 NEWS The Department of Congress released their fourth quarter GDP numbers ( www.congress.gov ). The economy grew at a 3.5% annual rate, fairly fast. This increase was due to personal spending, exports, and government spending. The residential fixed investment, private inventory investment, and imports helped bring GDP down a bit (they are subtracted from GDP). This GDP report goes along the lines of how we talked about GDP last week. Another important event was that the Federal Open Market Committee (FOMC) of the Federal Reserve decided to maintain the Federal Funds rate at 5.25%. The Fed feels that the economy seems likely to expand at a moderate pace over the coming quarters. They feel inflation pressures will moderate over time as well but that high resource utilization (low unemployment, high capacity utilization rate) has the potential to sustain inflation pressures. The final statement of the Fed, called the Balance of Risks or Bias Statement, tells us that some inflation risks remain and that they might need to raise interest rates. These meetings are usually when the FOMC dictate new policy. Tomorrow morning, the Department of Labor will release employment statistics from January including unemployment and employment numbers. Knowing how much job creation takes place is an important indicator of the health of the economy. We will examine this Tuesday. LECTURE Working with the Solow Growth Model Today, we will discuss what happens if n-dot changes, delta changes, c changes, or A changes. Graph of The Solow Growth Model A Y/N=A*f(K/N) Ib/N=(n-dot+d)*(K/N) S/N=v*(Y/N)=(Ia/N) Y/N, S/N, Ia/N K/N (K/N)a Notice how the investment line and the savings line intersect. This is a very important point. Assume we are at this point, called the steady-state point (Point A on the graph). (Little as next to values indicate they are steady-state values). What Happens if n-dot changes? The difference between a change in N and a change in n-dot: ASUC Lecture Notes Online Economics 100B 2/1/07 Sharing or copying these notes is illegal and could end note taking for this course 2 1) A change in the number of workers ( N) is a sudden large one-time change in the number of workers that we have. (Think disease, famine, and immigration)....
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