Introduction to Macroeconomics

Defining Macroeconomics

• Macroeconomics is a branch of economics.
• It examines the entire economy, not individual parts.
• It focuses on broad issues, such as production growth, unemployment rates, inflation, government deficits, and trade (exports and imports).

Macroeconomic Questions

• What factors determine a nation's standard of living?
• What are the causes of inflation?
• What stimulates economic expansion?
• How do economic policies impact a nation's economy?

Macroeconomic Objectives

• Good Economic Growth: A sustained rise in the production of goods and services, boosting living standards without environmental damage or instability.
• Price Stability: Maintaining consistent prices over time, preventing significant inflation or deflation, to ensure economic predictability and safeguard purchasing power.

Macroeconomic Objectives (Continued)

• Full Employment: Providing jobs for all those willing and able to work at current wage levels, while minimizing unemployment and avoiding inflation.
• Just Distribution of Income: Ensuring a fair distribution of income across society, reducing income inequality to strengthen social connections and economic equity.
• Balanced Budget: Maintaining government spending at a level equivalent to government revenue, preventing excessive debt, and ensuring investment in public goods and services.

Macroeconomic Variables

• Gross Domestic Product (GDP) Growth: The percentage change in the total value of all domestically produced goods and services over a specified time frame.
• Money Supply: The total amount of monetary assets available in an economy at a certain time, encompassing cash and deposits.
• Government Debt: The total amount owed by the government to creditors, accumulated from budget deficits.
• Unemployment Rate: The percentage of the labor force actively searching for work but unable to secure employment.
• Inflation Rate: The percentage change in the average price level of goods and services over a period.

Macroeconomics Sectors

• Consumers Sector: Private individuals who engage in consumption within a household.
• Business Sector: Profit-seeking organizations that invest capital to create profit-generating opportunities, including entrepreneurs and capitalists.
• Public Sector: The national government, the most significant economic entity within a country.
• Foreign Sector: The rest of the world, encompassing trade (goods and services) and investments between countries.

Limitations of Macroeconomics

• Macroeconomic theories may not entirely encompass the complexities of human behavior or account for details like regulation and taxation.
• The real world can be intricate, encompassing social preferences and ethical factors that defy mathematical analysis.

Government Role in the Economy

• Managing the economy: includes regulating the market, sustaining economic steadiness, and creating job opportunities. Facilitates international commerce.
• Economic security: Establishing policies stimulating economic expansion and offering security to individuals and businesses.
• Setting sustainable economic plans: outlining long-term goals to encourage sustained economic growth and innovation.
• Protecting the environment: managing natural resources effectively.

Macroeconomic Policies of the Philippines

• Build, Build, Build Program: A P8 trillion infrastructure plan initiated by the Duterte administration, intended to modernize the Philippines' infrastructure.
• TRAIN Law: Aims for a simpler, fairer tax system with higher revenue generation, including lower taxes for low-income earners and increased taxes for certain products, such as sugary drinks and fuel.
• Pantawid Pamilyang Pilipino Program (4Ps): Provides conditional cash transfers to low-income households to strengthen factors like health, nutrition, and education, lasting 7 years.

The Build, Build, Build Program Details

• MRT-3 Rehabilitation Project
• The New Clark City Phase 1
• The Clark International Airport Expansion
• MRT 7
• Metro Manila Skyway
• Southeast Metro Manila Expressway
• C5 Southlink Expressway

Economic Performance of a Nation

• Measuring a nation's economic performance can be achieved through its productive capacity, or the amount of goods and services it produces within a defined timeframe.
• Economists use systems like national income and product accounting for precise measurements.

National Product Definition

• National product represents the monetary value of a country's goods and services produced within a specific period.
• All products are evaluated in market terms.

Gross Domestic Product (GDP)

• GDP represents the aggregate money value of all final goods and services produced within a specific economy in a single year.
• It is primarily measured in monetary terms relating to the marketplace.
• This computation considers only new domestic productions.
• Only final goods and services are included in the calculation.

Approaches to Measuring GDP

• Expenditure Approach: Calculates GDP by summing all spending on final goods and services during a year.
• Income Approach: GDP is the sum of all incomes earned during a year by those producing goods and services.

Expenditure Approach Formula

• GDP = C + I + G + (X-M)
• C = Personal Consumption Expenditure
• I = Gross Private Domestic Investment
• G = Government Expenditure and Gross Investment
• X – M = Net Exports

Components of the Expenditure Approach

• Personal Consumption Expenditure (C): Total spending by households on durable goods, nondurable goods, and services.
• Gross Private Domestic Investment (I): Total spending by businesses on assets expected to yield future profits.
• Government Expenditure and Gross Investment (G): Government spending on goods and services.
• Net Exports (X – M): Exports minus imports.

Income Approach Formula

• GDP = W + R + P + i + IBT + D
• W = Compensation of Employees
• R = Rental Income of Persons
• P = Profits
• i = Net Interest
• IBT = Indirect Business Taxes
• D = Depreciation

Components of the Income Approach

• Compensation of Employees: Wages, salaries, and supplemental earnings.
• Rental Income of Persons: Rent and royalties received by property owners.
• Profits: Earnings of self-employed individuals, partnerships, and corporations.
• Net Interest: Interest income minus interest expense.
• Indirect Business Taxes: Taxes levied on goods and services.
• Depreciation: Account for worn-out capital during production.

Limitations of GDP

• Nonmarket Transactions: Unpaid activities like household production, child care, or repairs are excluded.
• Distribution, Kind, and Quality of Products: Doesn't consider whether a small portion of the population consumes most of the GDP.
• Neglect of Leisure Time: Doesn't account for the value of leisure time in calculating well-being.
• Underground Economy: Illegal activities, like gambling or drug trafficking, are omitted.
• Economic Bads: Economic downsides, including environmental pollution, are not directly factored in.

Nominal vs. Real GDP

• Nominal GDP: Measures GDP using current market prices.
• Real GDP: Measures GDP using constant prices or prices from a specific base year (adjusting for inflation).