Applied Economics Overview

Applied Economics

• Applied economics is the application of economic theory to predict outcomes from various courses of action in the real world.
• It helps individuals, businesses, and policymakers make better choices by understanding the likely consequences of their decisions.

John Neville Keynes

• John Neville Keynes is credited with coining the term "applied economics."
• He used the term to describe the application of economic theory to interpret and explain various economic phenomena.

Gross Domestic Product (GDP)

• GDP is the monetary value of all finished goods and services produced within a country during a specific period.

Gross National Product (GNP)

• GNP is the total value of goods and services produced by a country's citizens in a year, regardless of location.

GNP vs. GDP

• GNP considers the production of a country's citizens anywhere in the world, while GDP considers production within the country's borders.
• GNP is a better indicator of the financial well-being of a country's citizens, especially those in multinational corporations.
• GDP is a better indicator of the overall U.S. economy.

Approaches to Calculating GNP & GDP

• Expenditure approach: GDP is calculated by summing four types of spending: consumption, investment, government purchases, and net exports (exports – imports).
• Income approach: Economic expenditures equal the total income generated through the production of all economic goods and services.
• Value-added approach: calculating an industry's output, reducing intermediate consumption, to determine its value added.

Formulas

• Expenditure Approach: GDP = Consumption + Investment + (Government Spending) + (Exports – Imports) or GDP = C + I + G + (X – M)
• Value Added Approach: VA = PO (Price of Output) – CI (Cost of Input)

Example Calculation (Expenditure Approach)

• Data from a table shows individual expenditure components such as transfer payments, interest income, depreciation, wages, gross private investments and government spending for GDP calculation.

Example Calculation (Income Approach)

• Another table provides data on GDP components including transfer payments, interest income, depreciation, wages, gross private investment, and government spending.
• The formula used in this approach for calculating GDP is NI = W + R + i + PR

GNP Formula

• GNP = GDP + Net Income Inflow from Overseas - Net Income Outflow to Foreign Countries or GNP = GDP + (NI – NO)
• Optionally: GNP = GDP + Z

Example Calculation (Philippines GNP fiscal year 2023)

• Data provided for the Philippines includes: GDP (PHP 18 trillion), Remittances (PHP 1.2 trillion), and Depreciation (PHP 2 trillion).
• The example calculation is used to determine the Philippines GNP using the formula.

Economic Problems in the Philippines

• Poverty and income inequality
• Unemployment and underemployment
• Infrastructure deficit

Poverty and Income Inequality

• A significant portion of the Philippine population remains in poverty.
• A large gap exists between the rich and poor.
• Economic growth has not always resulted in equitable distribution of benefits.

Unemployment and Underemployment

• High levels of unemployment and underemployment persist in the Philippines.
• Many individuals lack jobs or are engaged in jobs not utilizing their full skills and education, leading to livelihood challenges.

Infrastructure Deficit

• The Philippines faces challenges with infrastructure development in areas including transportation, energy, and communication systems, hindering economic development.

Lee Kuan Yew (Singapore)

• Background: Singaporean politician and lawyer, Prime Minister from 1959 to 1990.
• Achievements: Singapore achieved significant economic prosperity under his leadership.

Strategies for Singapore's Economic Success

• Economic pragmatism: Adopting a market-oriented approach and attracting foreign investment.
• Strong rule of law: Establishing a robust legal framework for economic stability and attracting investment.
• Prioritized education: Developing a skilled workforce through education and addressing labor demands in their economy.
• Infrastructure development: Implementing comprehensive infrastructure projects to enhance connectivity and facilitate economic activities.
• Anti-corruption measures: Fostering transparency and maintaining a clean business environment.
• Social discipline and work ethic: Promoting social discipline and a strong work ethic to foster a productive and efficient society.
• Diversification of the economy: Expanding their economic activity into High-Tech industries and services by reducing reliance on traditional sectors.
• Strategic geopolitical positioning: Singapore strategically positioned as a global hub for trade and commerce.

This quiz covers the fundamentals of applied economics, including key concepts such as Gross Domestic Product (GDP) and Gross National Product (GNP). You'll learn about the contributions of John Neville Keynes and how these economic measures impact decision-making. Test your understanding of these important economic terms and their applications.