Economics 100B - 14 (3-1-07)

Economics 100B - 14 (3-1-07) - Economics 100B Professor...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 100B Professor Steven Wood 3/01/07 Lecture 14 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 ANNOUCEMENTS Before we get started I would like to start with the news about Tuesday. Some of the stock markets around the world had a little difficulty. There were some considerable market downturns: the Chinese market was down nearly 9%, Europe 2.5%, Dow Jones, 3.3% and Hong Kong about 2%. Drops like this generally add considerable worry to the hopes of the economy; people now fear a recession. The mortgage market has taken a bit of a hit lately too with a drop in sub-prime loans to low-credit borrowers. Alan Greenspan suggested we might be heading for a recession scaring some people as well. Within our IS curve model we can think about what is happening to equilibrium income. When the stock market falls, there is an immediate decline in people’s wealth. With this drop we also tend to have a short-run drop in consumer confidence and business confidence. Both of these are part of autonomous consumption, Co (Business confidence is part of Io). People might change their spending today expecting their future wealth to decline even though income and interest rates have not changed. This would imply a shift to the left of the IS curve. If this lasted long enough, this would be considered a recession. LECTURE Today we will discuss the other half of our IS-LM model, the LM curve. The LM curve will give us our equilibrium in the money market. The Money Market Money is any asset that serves as the medium of exchange. Checks, debit cards, and such. Money is just one form of financial asset; there is a continuum of financial assets. Most of these assets can be categorized by their liquidity, their ease of being transformed into money. Money is just one kind of a financial asset. It is the most liquid asset. Price Level Assumption We assume the price level, P, is fixed. Price levels are exogenous and taken as
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 5

Economics 100B - 14 (3-1-07) - Economics 100B Professor...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online