10-15-09 - ECONOMICS 100B Professor Martha Olney Lecture 14...

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ECONOMICS 100B Professor Martha Olney 10/15/09 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. LECTURE Flow of expenditures and flow of funds o Recap o Example o Graphs and Changes in r* o Algebra & Calculus Recap Let’s start off by recapping what we did in the last class. We were talking about how in the long-run, the level of outputs is determined by capital, labor, and efficiency. Also in the long-run, output equals aggregate demand in equilibrium. The question is how output equals aggregate demand when output is primarily determined by inputs. Remember the following relationships from the previous class. I will underline what you should know and everything else you should learn how to derive. In the long-run, ܻൌܨሺܭ ൈܧሻ In equilibrium, ܻൌܣܦ You should know the underlined equations for the components of aggregate demand. ܻൌܣܦൌܥ൅ܫ൅ܩ൅ሺܩܺെܫܯሻ ܥൌܥ ൅ܥ ሺܻ െ ܶሻ ܫൌܫ െܫ ݎ ܩൌܩ ܩܺ ൌ ܺ ൅ܺ ܻ ൅ܺ ߝ ݓ݄݁ݎ݁ ߝ ൌ ߝ െߝ ሺݎ െ ݎ ܩܺ ൌ ܺ ൅ܺ ܻ ൅ܺ ߝ െܺ ߝ ݎ൅ܺ ߝ ݎ ܫܯ ൌ ܫܯ ܻ You should also know the savings relationships that we derived in the last class in order to use the flow of funds relationship. You should know how to derive the I=S relationship. ܻൌܣܦ՜ܵൌܫ ܵ ൌܻ െܥ ܵ ൌܻ െܥൌ ሺ1െܥ ሻሺെܶ ൅ሾ1െݐሿܻሻെܥ ܵ ൌܶെܩ ܵ ൌ ሾܶ ൅ݐܻሿെܩ ܵ ி ൌെܰܺൌܫܯെܩܺ ܵ ி ൌܫܯ ܻെܺ െܺ ܻ െܺ ߝ ൅ܺ ߝ ݎ െܺ ߝ ݎ On Tuesday, we looked at how we can express savings relationships graphically in order to understand how savings equals investment in the
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Economics 100B ASUC Lecture Notes Online: Approved by the UC Board of Regents 10/15/09 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 ∆ܵ ܪ ∆ݎ ߲ܵ ܪ ߲ݎ ൌ0 Household savings is completely independent of the real interest rate. You can express this by saying that the partial derivative of household savings with regards to r is zero. ∆ܵ
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10-15-09 - ECONOMICS 100B Professor Martha Olney Lecture 14...

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