lecture6 - ECONOMICS 100B Professor Steven Wood 2/4/10...

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ECONOMICS 100B Professor Steven Wood 2/4/10 Lecture 6 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy or illegally distribute (electronically or otherwise) these notes. Our 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. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ANNOUNCEMENTS Cisco reported earnings yesterday, showing an increase in tech spending. Tech spending is part of business fixed investment. Cisco’s case shows a new phase of economic recovery where business spending is starting to kick in. A sector of economy that is not doing very well is the housing market. One of the things that we see in terms of the housing market is that home ownership rates have peaked two years ago and has continued to slide. This shouldn’t be terribly surprising. During the housing boom, it was easy to get a mortgage. With the current unemployment and bad credit situation, people are losing their houses to foreclosures. Many homeowners who can afford to make mortgage payments are faced with a dilemma because their mortgages are above the value of their homes. When you owe a lot more than what the underlying asset is worth, you wonder if you should continue making those types of payments. Government policy officials are worried that many people will walk away from their mortgages. The sluggish economy is still not creating enough jobs. The key question here is whether the economy created or lost jobs in January. Since December 2007, only one month has shown a job increase of 4000 jobs. This is in contrast to a monthly job loss as large as 4 million. Europe is also undergoing a recession. They have been much more aggressive in terms of trying to save jobs. For example, the German government acted very directly to stabilize the labor market and to create new jobs. Relative to the size of economic downturn in Europe, not as many jobs have been loss in Europe as were lost in the US. China is going toe to toe with European Union due to EU imposition of tariff on Chinese shoes. EU is trying to prevent Chinese shoes from flooding the market. China maintains an artificially low exchange rate, which makes Chinese goods relatively cheaper. One of the big issues between EU, China and US is that China by artificially deflating its currency, the Chinese government is able to increase exports. LECTURE Tuesday we talked about savings side of the equation. Today we will talk about investment side and the goods market equilibrium. This will generate an equilibrium situation for the market. When in equilibrium, the economy produces
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lecture6 - ECONOMICS 100B Professor Steven Wood 2/4/10...

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