10.29.08 - ECONOMICS 1 Professor Kenneth Train 10/27/08...

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ECONOMICS 1 Professor Kenneth Train 10/27/08 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. LECTURE Today we’re going to start the second part of the course: Macroeconomics. This is an exciting time to start looking at this part of the economy. It’s important to understand what’s going on and what we can do to help the situation. MACROECONOMICS There are three major things you want to look at in the Macro-economy: - Aggregate output - Employment - General price level 1. Aggregate Output This is important because it determines the amount of income everyone gets; it determines the amount of output sold and how much everyone can consume. 2. Employment Second one is employment, or the inverse of that, which is the unemployment rate. This is important, not just for the output rate, but also because it tells us how many people have jobs and can support themselves. 3. General Price Level The third thing we’re looking at is the price level. In microeconomics, you look at prices for individual goods or products; what we want to look at now is how prices rise and drop. We want to determine what affects that and what keeps it from becoming too problematic. Remember the photographs of Germany after World War I, where people had to have wheelbarrows full of money to buy bread? That can happen with inflation. GOVERNMENT TOOLS FOR THE ECONOMY 1. Fiscal Policy There are plenty of government tools that can fine- tune the economy. The first of these is fiscal policy . Fiscal policy is the use of taxation and spending to affect the outcomes of the macro-economy. If a government buys goods and services, this stimulates the economy because firms will produce those goods. A reduction in government spending makes the economy shrink. Taxes do the opposite. If you raise taxes without changes in spending, that essentially takes money out of people’s pockets. There is less money in the economy because there’s less demand in the economy. 2. Monetary Policy Another type of policy is monetary policy . This is a matter of affecting the interest rates in the economy. The government lowered the interest rate by half a percent again this morning to spur the economy. Lowering the interest rate makes it cheaper to borrow money, while raising rates makes it harder to invest and buy.
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ECONOMICS 1 ASUC Lecture Notes Online: Approved by the UC Board of Regents 10/29/08 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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10.29.08 - ECONOMICS 1 Professor Kenneth Train 10/27/08...

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