lecture7 - ECONOMICS 100B Professor Steven Wood 2/9/10...

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ECONOMICS 100B Professor Steven Wood 2/9/10 Lecture 7 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 Today we want to extend our conversation about savings and investment. One of our assumptions last week was that we’re working with a closed economy, so today we will relax that assumption and make it more realistic. Before we do that, let’s talk about economic news. The labor department has concluded, based on payroll employment survey, that 20,000 jobs have been eliminated in January. In the household survey, they found that the unemployment rate declined to 9.7%. Twenty thousand job losses did not come as much of a surprise to anyone, but the decline in unemployment rate is surprising. How much of a budget deficit and total accumulated debt can governments run before it becomes very worrisome? We know that governments can run huge budget deficits in the short-term without long-term problems. But if you run significant budget deficits for a long period of time, then there will be long-term problems. Greece has $300 billion Euros of sovereign debt. Yearly, its budget deficit is well over 15% of the economy. People are concerned as to whether Greece can meet its debt payments. We also talked about some of the shoe issues between the European Union and China. EU decided to put anti-dumping duties on Chinese shoes. China says that it is not playing fair, and it will file a complaint with WTO. There is an escalation of trade tensions between China on one side and the EU and US on the other side. Trade disputes are never a good thing for the international economies or global economies. LECTURE Today we will expand our discussion on desired savings and desired investment for an open economy. We will talk about the balance of payments accounting and will then move on to talk about the goods market equilibrium and how that equilibrium is different between an open and closed economy. Balance of Payments Accounts Here is a table of the balance of payments account. This table is in your textbook, you will not be able to see it on the slides due to the small font. However, I want to point out that we can draw a line that divides this table into two. The top part is the current account . The current account is primarily net exports or the flow of goods. Below this is the capital and financial account . This account shows how we finance the current account.
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This note was uploaded on 02/16/2010 for the course ECON 100B taught by Professor Wood during the Spring '08 term at University of California, Berkeley.

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lecture7 - ECONOMICS 100B Professor Steven Wood 2/9/10...

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