Economics: Inflation and GNP Concepts

Measuring Inflation

• Inflation Rate can be calculated by subtracting the CPI in a previous year (Y) from the CPI of the current year (X), then dividing this difference by the CPI of the previous year (Y) and multiplying by 100%.
• CPI stands for Consumer Price Index.

Losers and Gainers in Inflation

• Losers:
  • Fixed income earners (salaried individuals, renters)
  • Pensioners
  • Creditors
• Gainers:
  • Businessmen who can produce goods at pre-inflation prices and sell them at inflation prices.

Approaches to GNP Computations

• Gross Domestic Product (GDP): Measures the total production within a specific country (Philippines) by both its nationals (Filipinos) and foreign residents.
• Gross National Product (GNP): Measures the total production of a country's citizens (Filipinos) regardless of their geographical location.

Key Concepts

• National Income: The total monetary value of goods and services produced in a country within a given time period.
• Non Productive Transactions:
  • Purely Financial Transactions: Do not contribute to current production.
    • Examples: Public transfer payments like pensions, welfare, and widows' pensions.
  • Secondhand Sales: Do not involve production.
• Product Approach (Expenditure Approach) Formula: GNP (Gross National Product) = C (Consumption) + I (Investment) + G (Government expenditure) + (X (Exports) - M (Imports))

Factors Affecting Investment

• Interest Rates: High interest rates make borrowing expensive, potentially discouraging investments.
• Innovations: Investment is fueled by the potential for profitable new products or production processes.
• Profits: Business firms invest with the expectation of making profits, but high costs/low revenues will lead to less profit and potentially less investment.
• Expectations: Future income and sales expectations drive investment decisions, not just current income levels.

Real and Nominal Interest Rates

• Nominal Interest Rate: The actual rate paid and received in the market.
• Real Interest Rate: Calculated by subtracting the expected inflation rate from the nominal interest rate.

Labor

• Characteristics:
  • Perishable: Wasted labor is lost forever.
  • Inseparable: Individuals cannot separate themselves from their labor to enjoy greater comforts.
  • Supply does not change quickly: Labor supply increases steadily with population growth.
• Types:
  • Manual Labor: Involves physical exertion, such as construction or farm work.
  • Clerical Labor: Requires a lower level of physical exertion than manual labor.
  • Professional Labor: Demands higher intelligence than clerical labor.
  • Labor of Management: Supervisors, middle managers, and top managers.
  • Labor of Entrepreneurs: Organizers who aim to create and stabilize a business.
  • Labor of Inventors: Create new products for economic development.

Unemployment

• People of working age who are willing and able to work but cannot find employment.
• Undesirable Social Consequences:
  • Lost output and income.
  • Depreciation of human capital.
  • Increased crime rates.
• Causes:
  • Rapid population growth.
  • Slow economic growth.
  • Technological advancements.
  • Lack of skills.
• Types:
  • Seasonal Unemployment: Jobs tied to specific seasons (e.g., farm workers).
  • Frictional Unemployment: Individuals searching for a new job after resigning or being dissatisfied with their current position (e.g., fresh graduates).
  • Underemployment: People working part or full-time, but receiving low pay.

This quiz covers key concepts in economics related to inflation measurement and the differences between Gross Domestic Product (GDP) and Gross National Product (GNP). Understand the impact of inflation on different income groups and the significance of the Consumer Price Index (CPI) in evaluating economic health. Enhance your knowledge about national income and its components.