10-29-09 - ECONOMICS 100B Professor Martha Olney 10/29/09...

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ECONOMICS 100B Professor Martha Olney 10/29/09 Lecture 19 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 IS Curve o Slope o Algebra o Shifts Exercise Hello, welcome back. Today, the report on real GDP growth in the third quarter was released and there was a 3.5% increase in RGDP. When you look closely at the report posted on BEA.gov, you can see that about one-third to one-half of that growth was from car sales. We will not know for a few more months whether car sales were artificially high due to the Cash for Clunkers program or where they would have been without the program. This is a flash estimate and is based on partial data. We can expect another estimate around Thanksgiving to give us a better idea of what happened to the economy in the second quarter. I’ve sent you a link via email to Christina Romer’s testimony before the Joint Economic Committee. She states that the stimulus bill’s largest effect was in the third quarter and future effects will be small. It remains to be seen whether the improvement in the third quarter was a temporary reprieve or the beginning of sustained economic recovery. I have something to say about the housing industry before we get started on the material. Recently, a lot of pundits have been getting excited about increased housing sales. However, this increase is misleading. In the past, when we were looking at increases in housing sales, what we were looking at were shifts in demand for housing. From our demand curve, we know that if prices are going up, the quantity of housing demanded will fall. Historically, the price of housing is either steady or increasing. If we see an increase in prices and a simultaneous increase in quantity of houses sold, then we know that the demand for housing has shifted. Right now, when we see an increase in the number of houses sold, we are seeing the effect of a downward sloping demand curve. Since the price of housing has declined, there are a greater number of houses sold. Unlike the past, the increase in quantity is not the result of a shift of housing demand but a decline in prices. We must distinguish between moving along a downward sloping demand curve and a shift in the demand curve. Only when we see increases in housing sold accompanied with steady prices is there the possibility that the housing market has recovered.
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Economics 100B ASUC Lecture Notes Online: Approved by the UC Board of Regents 10/29/09 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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10-29-09 - ECONOMICS 100B Professor Martha Olney 10/29/09...

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