Economics 100B - 19 (3-20-07)

Economics 100B - 19 (3-20-07) - Economics 100B Professor...

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Professor Steven Wood 3/20/07 Lecture 19 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 Please take a handout (“Short-run Fluctuations in an Open Economy”) from up front. You will need to read it to be prepared for the four lectures after spring break. Your midterm is next class. Bring colored pencils. LECTURE Today we will be discussing stabilization policy. There are three broad topics we will be discussing: goals, framework, and challenges. Goals We are trying to dampen the business cycle and keep Y near Y*. We want to reduce the volatility because less uncertainty seems to make things run smoother. We have been fairly successful in this goal. Since about 1985, our volatility has been halved and we have reduced our number of recessions considerably. This experience in the United States has also been replicated in most of the Western world. Why has this happened? 1) Better application of technology. We can rapidly determine changes in inventory and can use new telecommunications to make changes quickly and effectively. 2) Deregulation of the economy. Financial markets, transportation, energy have all been deregulated leading to more efficient outcomes in these industries. 3) Better policy implementation. We know a lot more today than we did 10 years ago about monetary and fiscal policy. 4) Luck. Even countries without all of these implementations still have seen reductions in their volatility. Framework 1) We need to identify our target variables. These are: a. Y in relation to Y* b. U in relation to U* c. Π , inflation. 2) Use our major policy tools. a. Monetary policy b. Fiscal policy 3) Use our minor policy tools. These policies tend to have more of a microeconomic effect and are why we do not discuss them deeply. a. Regulatory policies.
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Economics 100B - 19 (3-20-07) - Economics 100B Professor...

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