10-27-09 - ECONOMICS 100B Professor Martha Olney 10/27/09...

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Unformatted text preview: ECONOMICS 100B Professor Martha Olney 10/27/09 Lecture 18 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 4 has been distributed. It is also available on the course website. LECTURE Outline Multiplier Exercise Investment Yield Curve Exports IS Curve Hello, welcome back. I’ve put the outline as well as the equations for the components of aggregate demand on the board. ܥ ൌ ܥ ଴ ൅ ܥ ௒ ൈ ܻ ஽ ܻ ஽ ൌ ܻ െ ܶ ܶ ൌ ܶ ଴ ൅ ݐܻ ܫ ൌ ܫ ଴ െ ܫ ௥ ݎ ܩ ൌ ܩ ଴ ܩܺ ൌ ܺ ଴ ൅ ܺ ௙ ܻ ௙ ൅ ܺ ఌ ߝ ݓ݄݁ݎ݁ ߝ ൌ ߝ ଴ െ ߝ ௥ ሺݎ െ ݎ ௙ ሻ ܩܺ ൌ ܺ ଴ ൅ ܺ ௙ ܻ ௙ ൅ ܺ ఌ ߝ ଴ െ ܺ ఌ ߝ ௥ ݎ ൅ ܺ ఌ ߝ ௥ ݎ ௙ ܫܯ ൌ ܫܯ ௒ ܻ Multiplier So on Thursday, we began looking at the economy in the short-run with sticky prices. Output is not necessarily equal to full employment output. In equilibrium, output equals total aggregate demand, C+I+G+NX. This means that outputs are not necessarily determined by inputs in the short-run. When we look at the Y=AD equation, we are solving for output, whereas before we knew output was based on inputs. This is the derivation from the previous class for equilibrium output in the short-run. First, we line up our components of aggregate demand. ܻ ൌ ܥ ଴ ൅ ܥ ௒ ሾെܶ ଴ ሺ1 െ ݐሻܻሿ ൅ ܫ ଴ െ ܫ ௥ ݎ ൅ ܩ ଴ ൅ ܺ ଴ ൅ ܺ ௙ ܻ ௙ ൅ ܺ ఌ ߝ ଴ െ ܺ ఌ ߝ ௥ ݎ ൅ ܺ ఌ ߝ ௥ ݎ ௙ െ ܫܯ ௒ ܻ Then we move all the terms with Y to the left-hand side. ܻ െ ܥ ௒ ሺ1 െ ݐሻܻ ൅ ܫܯ ௒ ܻ ൌ ܥ ଴ െ ܥ ௒ ܶ ଴ ൅ ܫ ଴ ൅ ܩ ଴ ൅ܺ ଴ ൅ ܺ ௙ ܻ ௙ ൅ ܺ ఌ ߝ ଴ ൅ ܺ ఌ ߝ ௥ ݎ ௙ െ ܫ ௥ ݎ െ ܺ ఌ ߝ ௥ ݎ We then group our terms together. ܻሺ1 െ ܥ ௒ ሺ1 െ ݐሻ ൅ ܫܯ ௒ ሻ ൌ ܥ ଴ െ ܥ ௒ ܶ ଴ ൅ ܫ ଴ ൅ ܩ ଴ ൅ܺ ଴ ൅ ܺ ௙ ܻ ௙ ൅ ܺ ఌ ߝ ଴ ൅ ܺ ఌ ߝ ௥ ݎ ௙ െ ܫ ௥ ݎ െ ܺ ఌ ߝ ௥ ݎ Then we solve for Y. ܻ ൌ ஼ బ ି஼ ೊ ் బ ାூ బ ାீ బ ା௑ బ ା௑ ೑ ௒ ೑ ା௑ ഄ ఌ బ ା௑ ഄ ఌ ೝ ௥ ೑ ିூ ೝ ௥ି௑ ഄ ఌ ೝ ଵି஼ ೊ ሺଵି௧ሻାூெ ೊ This equation tells me that in equilibrium, the amount of output depends on all these variables and parameters. All of these factors work together to determine output produced in an economy in equilibrium in the short-run. This equation also allows us to think about how equilibrium output changes when something else changes. changes when something else changes....
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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 Berkeley.

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10-27-09 - ECONOMICS 100B Professor Martha Olney 10/27/09...

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