Economics 100B - 12 (2-22-07)

Economics 100B - 12 (2-22-07) - Economics 100B Professor...

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Economics 100B Professor Steven Wood 2/22/07 Lecture 12 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 ANNOUNCEMENTS I still have not received the grades from the GSIs so I cannot give you the summary statistics yet. By Tuesday I should have this information available. LECTURE We are going to continue discussing the Keynesian Cross today. Remember the equilibrium is where our actual spending equals our planned spending. Disequilibria Dynamics Income above Planned Expenditures What happens if actual income is greater than planned income? When we are producing above our planned production point, the gap is called unplanned inventory (Iu). We are producing more than we are selling. When a retailer has too much inventory, he tells his distributor to stop sending him as much. The distributor tells the manufacturer to make less; the manufacturer decides he does not need as many employees anymore. These changes result in lower income, employment, and planned expenditures. Notice that planned expenditures are falling more slowly than actual income however. Changes in income change our amount of consumption but only by the amount of our marginal propensity to consume (mpc, or the slope of the line). We will keep falling until we reach our equilibrium income point again (Y1). How do we notice in a primarily service based economy when actual income is higher than planned expenditure? We notice this when we have more staff than necessary to produce the amount of output needed. A smart manager will then be likely to lay off a few workers and thus the same adjustment procedure takes place.
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ASUC Lecture Notes Online Economics 100B 2/22/07 Sharing or copying these notes is illegal and could end note taking for this course 2 Income below Planned Expenditures In this case, unplanned inventory is falling because there is more planned spending than actual production. More people are hired, income rises, and ultimately we reach equilibrium once again. If Y > Ye, then E > Ep
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This note was uploaded on 09/20/2009 for the course ECON ECON taught by Professor Shomali during the Spring '04 term at Berkeley.

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Economics 100B - 12 (2-22-07) - Economics 100B Professor...

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