Economic Development ⚫ Macroeconomics considers the aggregate
performance of all markets in the market
system and is concerned with the choices made
by the large subsectors of the economy—the
household sector, which includes all consumers;
the business sector, which includes all firms; and
the government sector, which includes all
government agencies
Microeconomics
⚫ The prefix micro means small, indicating that
microeconomics is concerned with the study of
the market system on a small scale.
Economics
⚫ A study of how individuals and society ⚫ Microeconomics looks at the individual
generally make choices that involve the use markets that make up the market system and is
of scarce resources from among the concerned with the choices made by small
alternative wants that need to be satisfied.
⚫ Resources include inputs such as labor,
economic units such as individual consumers,
individual firms, or individual government
capital, land and entrepreneur. agencies.
Economics is concerned with:
⚫ The behavior of individuals or group of
Relationships between facts, theories and
policies in economics
individuals
⚫ The use of resources either for consumption
or for production
⚫ The values or the prices of resources
⚫ The improvement of the standard of living
over time
⚫ The distribution of income or of output, in the
present and over time
⚫
Market system
One means by which society allocate scarce
⚫ Theoretical economics (economic theory)
involves economic theories by gathering,
resources and goods
⚫ The study of the market system, which is the
systematically arranging and generalizing facts.
⚫ Good economic theories are tested for
subject of economics, is divided into two main validity against facts. Economists use these
braches; macroeconomics and microeconomics theories—the most reliable of which are called
laws or principles— to explain and analyze the
Macroeconomics
⚫ The prefix macro means large, indicating that
economy.
⚫ Policy economics entails using economic laws
macroeconomics is concerned with the study of and principles to formulate economic policies
the market system on a large scale.
Economic Policy
⚫ An economic policy is a course of action that
Economic Growth vs. Economic
Development
is intended to influence or control the behavior
of the economy.
⚫
Economic a sustained increase in the
Economic policies are typically implemented development economic standard of living
and administered by the government.
⚫
of a country’s population,
Examples of economic policies include normally accomplished by
decisions made about government spending increasing its stock of
and taxation, about the redistribution of income physical and human capital
from rich to poor, and about the supply of and improving its technology.
money.
⚫ The effectiveness of economic policies can Economic
Growth
increase in a country’s ability
to produce goods and
be assessed in one of two ways, known as
positive and normative economics services. Economic growth
merely refers to an increase in
Normative versus Positive Economics the real Gross Domestics
⚫ Normative—incorporates value judgments Product, or GDP per capita
over a period of time
about what the economy should be like or what
particular policy or actions should be
recommended to achieve a desirable goal.
The Core Values of Development (Denis
⚫ Positive—focuses on facts and cause and Goulet)
effect relationships. It tries to establish scientific
statements about economic behavior, and deals
⚫ The Economic development is a
Ability to necessary condition for
with what the economy is actually like. Meet Basic improvement in the quality of
Needs life of people. A basic function
Economic Development vs. Development (Sustenance) of all economic activities
Economics should boil down to the
provision for the means of
Development - a branch of economics that overcoming the misery of
economics focuses or examines masses of people arising from
economic development. lack of food, shelter, health,
and protection.
Economic the overall health, well-being,
Development and academic level of the
general population improve.
⚫ To Be a Self-esteem means a sense of
Person worth and selfrespect. A
All about improving living (Self-Esteem) person has high self respect if
standards. ‘Improved living that person is not being used
standards’ refers to higher or considered as a slave of
levels of education and others for their own ends.
literacy, workers’ income, Respect is sometimes
health, and lifespans. attached to wealth and the
underdevelopment of a
country can be a burden to
people’s self esteem.
Development must be
attained to promote
self-worth
⚫ To Be Freedom is to be understood
Able to in the sense of liberation from
Choose alienating material conditions
(Freedom of life and from social
from servitude. Freedom involves
Servitude) an expanded range of choices
for societies and their
members together with the
elimination of external
constraints in the pursuit of
some social goal we call
developmen
Introduction to Fiscal
Policy
Expansionary fiscal policy
- government tries to increase spending
- imagine an economy during a recession,
government spending on a new road probably
would increase GDP.
-This causes restaurant owners to hire more
workers and these newly employed waiters and
waitresses. They then spend their money
throughout the economy.
fiscal multiplier.
increases in spending caused by the initial
increase in government spending
contractionary fiscal policy
- saving during an economic boom by either
increasing taxes or by decreasing spending.
Exchange rate of the
peso Supply of Foreign exchange
-receipts of dollar that the country earns or
Foreign Exchange receives-inflow
-term used to denote value of foreign money in –e.g export earnings, foreign tourism
terms of local currency
Demand for foreign exchange
-exchange rate for the us dollar is the peso cost -payments for the volume of import country
of buying a us dollar buys
-SHigher peso price of dollar, smaller volume
-price of buying us dollar is quoted in peso payments
Appreciation–revaluation
-peso appreciates in value when amount of peso
to acquire us dollar becomes smaller
-peso is more valuable when it appreciates
Fixed- govt
Floating, flexible ER- market, demand supply
Depreciation-devaluation
-peso depreciates when the price of the us
dollar increases in terms of peso
-purchasing power of the peso in terms of
foreign money falls
Devaluation
-a currency that is devalued ia a currency that
depreciates in value
-indicates an official action of the govt to
reduce value of currency
Foreign exchange market
-interaction of countries to buy or sell foreign
currencies
-countries need to transact business involving
other currencies
GIR: foreign reserves
Bop
Current-export, import, remittance
Capital & financial acc-foreign direct investment
National Income Accounting the market value of all final goods and services
produced domestically in a single year and is
the single most important measure of
macroeconomic performance.
-only goods and services produced by a nation's
own citizens and firms.
-goods and services produced within a nation's
boundaries by foreign citizens and firms
-kita ng dayuhan sa ph
Gross national product (GNP/ GNI)
-market value of all final goods and services
produced by a nation in a single year.
-Goods and services produced outside a
nation's boundaries by the nation's own citizens
and firms are included in GNP
-kita ng ofws
Expenditure approach
-to add up the market value of all domestic
expenditures made on final goods and services
in a single year
-Final goods and services are goods
-services that have been purchased for final use
or goods and services that will not be resold or
used in production within the year.
Intermediate goods and services
-which are used in the production of final goods
and services, are not included in the
expenditure approach to GDP because
expenditures on intermediate goods and
services are included in the market value of
expenditures made on final goods and services.
-Including expenditures on both intermediate
and final goods and services would lead to
double counting and an exaggeration of the
true market value of GDP.
Gross Domestic Product
Government treated as a separate
Four Categories of Expenditure Approach expenditures category in the expenditure
approach to GDP
Consumption -comprise the largest share -Examples of government
expenditures: of total expenditure. expenditures: the hiring of
-include purchases of civil servants and military
nondurable goods, such as personnel and the
food and clothing construction of roads and
- personal services, including public buildings.
those provided by barbers,
doctors, lawyers, and -Social security, welfare, and
mechanics other transfer payments are
not included in government
Investment Fixed investment goods
expenditures. Recipients of
expenditures - useful over a long period of
transfer payments do not
time.
provide any current goods or
- purchases of new
services in exchanges for
equipment, factories, and
these payments.
other nonresidential housing,
new residential housing
-Hence, government
- cost of replacing existing
expenditures on transfer
investment goods that have
payments do not involve the
become worn out or obsolete.
purchase of any new goods
The market value of all
or services and are therefore
investment goods that must
excluded from the calculation
be replaced in a single year is
of government expenditures.
referred to as the
depreciation for that year. Net exports Exports
- goods and services
Inventory /investment produced domestically but
goods sold to foreigners
-final goods waiting to be Imports
sold that firms have on hand - goods and services
at the end of the year. produced by foreigners but
-The year-to-year change in sold domestically.
the market value of firms'
inventory goods is considered In the expenditure approach
an investment expenditure to GDP, expenditures on
because these inventory exports are added to total
goods will eventually yield a expenditures, while
flow of consumption or expenditures on imports are
production services. subtracted from total
expenditures.
net exports: business taxes from these
expenditures on exports expenditures, one arrives at
-expenditures on imports national income, which is the
add the value of net exports sum of all wage, profit, rent,
to the nation's total and interest incomes earned
expenditures. in the same year.
depreciation expenditures and indirect business
Nominal GDP, Real GDP, and Price Level
taxes.
Nominal GDP GDP evaluated at current -ncluded in the expenditure approach to GDP
market prices. Therefore, measurement but do not provide households or
nominal GDP will include all of firms with any form of income
the changes in market prices
that have occurred during the Depreciation expenditures
current year due to inflation -made to replace existing but deteriorated
or deflation. investment goods, do increase the incomes of
those providing the replacement goods, but
Real GDP Inflation is defined as a rise they also decrease the profit incomes of those
in the overall price level, and purchasing the replacement goods. The result is
deflation is defined as a fall in that aggregate income remains unchanged.
the overall price level. In Indirect business taxes consist of sales taxes
order to abstract from and other excise taxes that firms collect but that
changes in the overall price are not regarded as a part of firms' incomes.
level, another measure of Consequently, indirect business taxes are not
GDP called real GDP is often included in the income approach to GDP
used. measurement but are included in the
expenditure approach.
GDP evaluated at the market
prices of some base year. For \\\\\\
example, if 1990 were chosen
as the base year, then real
GDP for 1995 is calculated by
taking the quantities of all
goods and services
purchased in 1995 and
multiplying them by their 1990
prices.
- total market value of all
expenditures made on
consumption, investment, Growth rate of GDP
government, and net exports
in one year. If one subtracts
depreciation and indirect
A positive growth rate of GDP Finals
- expanding-boom
negative growth rate of GDP Theories of growth
-contracting.-recession Monetary policies
Inflation and prices
MPC, MPS, Multiplier BSP
Devt issues
Aggregate demand
-Given no government and no international
trade, aggregate demand has two components:
Investment
-firms’ desired or planned additions to physical
capital & inventories for now, assume this is
autonomous
Consumption
-households’ demand for goods and services
Consumption demand
-Households allocate their income between
CONSUMPTION and SAVING
Personal Disposable Income
-income that households have for spending or
saving income from their supply of factor
services (plus transfers less taxes)
The multiplier
-The multiplier is the ratio of the change in
equilibrium output to the change in autonomous
spending that causes the change in output.
-The larger the marginal propensity to consume,
the larger is the multiplier.
-The higher is the marginal propensity to save,
the more of each extra unit of income ‘leaks’ out
of the circular flow.
THEORIES OF GROWTH savings rate, increasing domestic
savings.
-Savings provide the necessary funds to
finance investment. It is this investment
which creates further growth.
However, it depends on how efficient the
investment is. If savings is too high it
leads to lower growth because people
cannot afford to consume.
● STRUCTURAL CHANGE MODEL
-focuses on changing the overall
economic structure of a nation, which
aims to shift society from being a
primarily agrarian one to a primarily
industrial one.
For example, Russia before the
communist revolution was an agrarian
society. When the communists overthrew
the royal family and took power, they
rapidly industrialized the nation, allowing
it to eventually become a superpower.
Neo colonial dependence model
-less developed country are exploited by
capitalist developed countries
-more loans of china to se asian country
-capitalist system
-Developing countries caught in a dependence
and dominance relationship with rich countries
because of institutional, political and economic
rigidities = difficulty for poor nations to be
self-reliant and independen
False paradigm model
-advice from intl experts from developed
countries
-complex but misleading model of dev that lead
to incorrect policies
● HARROD DOMAR GROWTH MODEL
-To grow, economies must save and
invest
-growth rate depends on a function of the
Inflation rate
- annual rate of change or the year of DEMAND PULL INFLATION
change in CPI. it shows how fast or slow
the cpi increases or decreases
Consumer price index
- measures the market basket of goods
and services consumed by a typical
household
- Due to excess demand relative to supply
2 types of inflation
of goods and services (eg increase in
money supply)
Headline inflation
- Why does demand increase?= increase of
- measures changes in the cost of living
money supply, people have many moeny
based on movements in the prices of a
- BSP exerts influence over money supply
specified basket of major commodities.
to control inflation
- annual rate of change or the year on year
BSP can control inflation if its the
change on CPI
demand side
- what were always referring to
- HOW?
-Through monetary tools
CORE INFLATION
–open market operation, discount
- year on year rate of change of the
trade
monthly headline cpi after excluding food
- BSP can't control inflation when its supply
and energy items.
side
- bc food and energy gives big effect on
z
increase of price level
PRICE DECREASE=
COST PUSH INFLATION
What causes inflation?
- Supply is greater than demand
- Demand is less than supply
- Changes in price level result from the
interaction of demand and supply
COST PUSH INFLATION
PRICE INCREASE=
DEMAND PULL INFLATION
- Supply is less than demand
- Demand is greater than supply
- Increase in cost of production & other
supply factors ( weather disturbances.
Increase in the world oil prices, PURCHASING POWER OF PESO
depreciation of peso)
- Outside influence of BSP
- Higher interest rate, lower consumption, - Shows how much the peso in the base
low, low investment, low aggregate period is worth in another period.
demand - G9ves an indication of the real value of
peso in a given period relative to the
CALCULATION INFLATION OR DEFLATION peso value in the base period.
- Same as gdp growth rate
New- previous over previous x 100%
- Uses CPI
- GDP deflator
=all items under GDP
- positive%= increased, inflation
- negative%= decreased, deflation
CONSUMER PRICE INDEX
- Current quantity x current price
Base quantity x base price
- Measures only change in the prices of
basket of goods typically consumed by a
typical household
- Calculating price level index value:
Uses base year quantities rather than
current year quantities
- Indicator of change in the average prices
of a fixed basket of goods and services
commonly purchased by households
relative to a base year
- INCREASE IN CPI=INCREASE IN
INFLATION
BSP
EXPANSIONARY (EASY) MONETARY POLICY
- May pera ang tao. Increase AGD
- Increase level of liquidity/ money supply
in the economy
- Could result to higher inflation oath for
the economy
- Interest rate: inverse
- Lower interest rate: depreciating peso
- Eg: lowering policy of interest rate.
Reduction in reserve requirements
- Encourage economic act as more funds
are made available for lending by banks
- In turn, aggregate demand increase
which could fuel inflation pressure in
domestic economy
CONTRACTIONARY TIGHT MONETARY
POLICY
- Anti inflation policy
- Intend to decrease level of level of
liquidity/ money supply in the economy
- Results to lower inflation path
BSP
Ceiling dosri loans
-director, officer. Stockholders related interest
-mminimum na ipapahiram
There is no stable price level and money supply
anymore
Open market op
-buying & selling of gov securities
BSP bought bonds from banks
-increase in money supply
BSP sell bonds to public
-decrease in money supply
Effect: temporary
Effect: permanent
Mataas na rediscount rate
-mababang money supply and vice versa
DEVELOPMENT ISSUES
-Unemployment,
Poverty, Population
=long term problem=structural change
Formula:
-change in business cycle
-very serious problem
-more unemployed than job opening
-people will save than spend=inadequate total
Labor force spening
-employed +unemployed
Labor force participation rate
=LF/working age or 16+65
Employment rate
-in between job= u decide yo ramsfer from one
=employed/ labor force
job to another, the period ur unemployed is
called frictionally unemployed
Unemployment rate
-fresh graduates
=unemployed/ labor force
-short term unemployed
POVERTY & INCOME
INEQUALITY CAPABILITIES APPROACH
POVERTY
SOCIAL EXCLUSION APPROACH
MONETARY APPROACH -Lack of income or job + lack of social network
-low source of income=cant provide needs
-no source of income, no job=no basic and non
basic needs
2 TYPES OF PEOPLE WHO ARE POOR
2 features:
1. Social capital- no connection
2. Discrimination
Subsistence
PARTICIPATORY APPROACH
-income not enough even basic needs
-fam of 5 needs atleast 8,379 to meet basic food
Poverty
-ONLY 3 YEARS CINOCOMPUTE
-per capita= per member cant meet indiv basic food
and non food needs
-12,030
-program of gov: 4PS
POPULATION
INDICATORS OF INCREASING POPULATION
ROBERT MALTHUS’ POPULATION THEORY
-If food increased by 1, population increases by
2
-PROBLEM: SD
THEORIES OF POPULATION GROWTH
HIDDEN MOMENTUM OF POPULATION
GROWTH
- Madaming anak under 15= still
dependent
