10-13-09 - ECONOMICS 100B Professor Martha Olney 10/13/09...

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ECONOMICS 100B Professor Martha Olney 10/13/09 Lecture 14 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 Problem Set 3 has been distributed. LECTURE Overview Again S=f(r) Equilibrium r Change of Equilibrium Example with numbers Hello. Welcome back. Before we start, does anyone have questions? Student : Is potential output when we are on the PPF? Yes. Student : Can you talk a little about the professor who won the Nobel Prize? Oliver Williamston was a professor here who had a joint appointment in economics, business, and law departments. He received half of the Nobel Prize along with Elinor Ostrom, the first women to receive the Nobel Prize in economics. He is considered the king of New Institutional Economics (NIE), which looks at how institutions are formed and how they make decisions. Overview (Again) Let us start again with Chapter 7. Both in Chapters 4 and 7, we are talking about the long-run. In Chapter 4, we were determining the forces that affect the path of output growth from generation to generation in an economy. By looking at these forces, we could understand the determinants of K/L and Y/L. ܻൌ݂ሺ ܭ ܮ ,ܧሻ In Chapter 4, we were trying to determine what factors influence K/L and how this related to the growth of efficiency, the growth of the labor force, the savings rate, etc. I can rewrite this function so that: ܻൌ݂ሺܭ,ܮ ൈ ܧሻ This says that the amount of output at full employment, when we are using all resources and available knowledge and are producing on the PPF, is determined by our combination of inputs. So we know what determines output in the long- run. Output depends on our combination of knowledge and resources. We also know that the amount of output being produced will, in equilibrium, equal the demand for output. ܻൌܣܦൌܥ൅ܫ൅ܩ൅ܰܺ One of the questions we have not answered but will answer in Chapter 7 is what causes our demand for goods and services to equal the amount of output produced? The answer, which I will show using a model that we will build today, is that the real interest rate makes output equal to available inputs. The real interest rate adjusts to bring aggregate
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Economics 100B ASUC Lecture Notes Online: Approved by the UC Board of Regents 10/13/09 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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10-13-09 - ECONOMICS 100B Professor Martha Olney 10/13/09...

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