2009-14 - ECONOMICS 100B Professor Martha Olney 11/10/09...

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ECONOMICS 100B Professor Martha Olney 11/10/09 Lecture 22 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 Phillips Curve Review Monetary Policy Reaction Function (MPRF) o Taylor Rule o IS Curve o Okun’s Law MPRF: Graph, Equation, Algebra Shifts and Slope of the MPRF Hello, welcome back. On Friday, the unemployment report was released. The unemployment rate in October was 10.2%. If we include discouraged workers and part-time workers who want to work full-time, the unemployment rate would be 17.5%. When I look at Table B-1, which shows us patterns of job creation and job loss, a couple things jumped out at me. There were a total of 190,000 jobs lost, a disproportionate amount of which was in the goods producing sector. The goods producing sector makes up only 14% of the economy, but 68% of the jobs lost was from this sector. This includes construction and manufacturing, particularly of durable goods. We still had an increase in healthcare jobs on all previous reports since Fall 2007. While we had a loss of service industry jobs, there was one hopeful sign. We saw an increase in employment in the temporary help services industry. This industry involves agencies who hire workers as temporary assistants and employees to work for other companies. One example is Kelly Girls. Before the recession began in December 2007, jobs were first lost in the temporary service help industry. In a downturn, businesses first get rid of contract employees to whom they have no permanent commitment. When upturn starts, the first people to be hired are temp workers because businesses want to be sure a recovery has taken hold. When there are signs of recovery, businesses will bring in temporary workers and if the recovery is truly taking hold, they move to hiring permanent workers. Temporary help services is a leading indicator of economic recovery and this industry showed an increase in employment of 34,000. This increase is the largest increase in the employment data. On the other hand, consumers are still pulling black and there are still declines in employment in the arts, recreation, entertainment, and retail industries. So we have signs of recovery as well as indications that consumers are still less willing to spend. This is the highest unemployment rate since April of 1983. In 1983, unemployment was this high because the Fed had increased interest rates to around 17% and investment spending had basically collapsed. Now we’re in a position where nominal interest rates are zero. The path out of the 1983 recession was lower interest rates, but the path out
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2009-14 - ECONOMICS 100B Professor Martha Olney 11/10/09...

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