9-10-09 - ECONOMICS 100B Professor Martha Olney Lecture 5...

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ECONOMICS 100B Professor Martha Olney 9/10/09 Lecture 5 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 Please do not come to class if you have the flu. Please bring a calculator to class on Tuesday. LECTURE Outline Accounting Identities Economic Models Critical Thinking Accounting Identities You must know and understand the following six identities. 1. Output is equal to income, which is also equal to the sum of consumption, actual investment, government spending, and gross exports less imports. Remember that actual investment includes both planned and unplanned changes in inventory. Note that means equivalent or identical. 2. Net exports is gross exports less imports. Foreign saving is imports less gross exports. Now consider the United States and the rest of the world. Exports are goods and services produced in the U.S. and sold abroad, which causes an inflow of money. Imports are goods and services produced abroad and sold in the U.S., which causes an outflow of money. If imports equal exports exactly, then the flow of dollars would be exactly equal. If the flow of imports is greater than the flow of exports, then more dollars are flowing out than coming in, and money accumulates in the rest of the world. If the flow of exports is greater than the flow of imports, then more dollars are coming in than flowing out. Foreign savings is the difference between these inflows and outflows of money. In other words, if: If foreign saving is positive, then we have a trade deficit . If foreign saving is negative, then we have a trade surplus. Student : So foreign saving is not saving by foreigners. Correct. It is just a way to express the trade deficit or surplus. 3. , so that by definition:
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Economics 100B ASUC Lecture Notes Online: Approved by the UC Board of Regents 9/10/09 D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. 2 Disposable income is income less taxes. Taxes are defined as taxes less transfer payments. Note that taxes are any payments to a government agency. Transfer payments are government payments to individuals for which there are no exchanges of goods and services. Student: Is there any difference between taxes to state and the federal government? No. For simplifying purposes, we aggregate local, state, and federal taxes. Taxes include all possible types of taxes, including indirect taxes. 4.
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9-10-09 - ECONOMICS 100B Professor Martha Olney Lecture 5...

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