9-17-09 - ECONOMICS 100B Professor Martha Olney 9/17/09...

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ECONOMICS 100B Professor Martha Olney 9/17/09 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. LECTURE Outline Production Function Continued Questions We’ll Ask Definition of Equilibrium Balanced Growth Equilibrium The Current State of the Economy As we are studying microeconomics, it is important to understand what is going on with the real world economy. Graph: Total Household Net Worth as a % of GDP (From http://www.calculatedriskblog.com ) This chart shows total household net worth as a percentage of GDP. Net worth is influenced by a variety of factors, including the equity value of housing and financial assets. Beginning in 1952, net worth is around 300-350% of GDP. You can see the first big increase in the percentage in the mid to late 1990s. This represents the tech boom and the creation of the dot-com bubble. The sharp decline in the 2000s represents the burst of the dot-com bubble. However, this decline was not widely felt by the entire population. That is because this recession was largely caused by the decline in value of stocks. The share of the population that owned stocks back then was relatively small, well less than 50%. And so this recession only affected those individuals in the upper-half of the socioeconomic ladder. The second big increase in net worth was around 2003 which was caused by the stock market rebound and the creation of the housing bubble. At this time, many more individuals were participating in the stock market. One of the primary reasons was the movement away from company-offered pensions to plans in which workers were expected to save up for their own retirement by investing in different financial instruments. Simultaneously, there was a dramatic growth in homeownership from 2003-2007. As a result, the pronounced decrease in net worth of the last two years was much more widely felt than the recession of 2000, affecting about 70% of the population. Student: Why was there a movement away from companies offering pensions? The first reason is that businesses are trying to cut costs in order to be domestically and internationally competitive. Second, there is no longer the expectation that workers will stay in one job for thirty years as they had in the past.
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Economics 100B ASUC Lecture Notes Online: Approved by the UC Board of Regents 9/17/09 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
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This note was uploaded on 02/04/2011 for the course ECON 100B taught by Professor Wood during the Fall '08 term at University of California, Berkeley.

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9-17-09 - ECONOMICS 100B Professor Martha Olney 9/17/09...

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