Lecture 4 - ECONOMICS 100B Professor Steven Wood 01/27/11...

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ECONOMICS 100B Professor Steven Wood 01/27/11 Lecture 4 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 I posted discussion section problems. Those are not your problems sets. Those are questions that your GSIs will go over in discussion. They will give you an idea of what the problems sets will look like. There was a typo on slide 3-8 in your pdf hand out. It actually should be Y/( K α L (1- α ) ) . I just had the inverse. There were also typos in your textbook page 40, figure 4.6. In panel B, since they started with point 2 as the initial equilibrium, the numbers along the bottom are backwards. 1‟s should be 2‟s and 2‟s should be 1‟s Starting on Tuesday iClicker quizzes will count towards your grade (5%). Up till this point, they were not counted. LECTURE Saving and Investment in Closed and Open Economics Agenda 1. Relationship between Saving and Wealth 2. Saving and Investment in a Closed Economy 3. Saving and Investment in an Open Economy A closed economy is an economy that has no international trade. Question #1 Suppose the government of a small open economy increases its budget deficit by $100 million. This would: A. Increase net exports by exactly $100 million B. Increase net exports by less than $100 million C. Decrease net exports by exactly $100 million D. Decrease net exports by more than $100 million Question #2 If autonomous investment in a large open economy declines, the world interest rate would _____ and that country‟s net exports would _____. A. increase; decrease B. increase; increase C. decrease; increase D. decrease; decrease Saving Saving = current income – current spending . In this case, we call it our national saving. Notice that saving doesn‟t have „s‟ at the end. One way to think about this is saving without „s‟ is a flow variable. If it has „s‟ at the end, it‟s a stop variable. We can talk about the quantity of saving s. National saving consists of: 1. Private saving, S P , and 2. Government saving, S G Private saving, S P , is given by: S P = Y – T – C Where: a. S P = private saving,
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ECONOMICS 100B ASUC Lecture Notes Online: Approved by the UC Board of Regents 1/27/11 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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Lecture 4 - ECONOMICS 100B Professor Steven Wood 01/27/11...

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