Macroeconomic Performance Module 5

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Questions and Answers

Which of the following is NOT included in personal consumption expenditures?

Durable consumer goods

Gross private domestic investments (correct)

Non-durable consumer goods

Household purchases of services

What does the expenditure approach primarily consider in calculating GNP?

Only government expenditures

The production value from various industries

The total income generated by residents

The sum of expenditures by different economic sectors (correct)

Which of the following is a component of gross private domestic investments?

National government payroll

Payments of debts

Final purchases of machinery (correct)

Household spending on services

In the context of the GNP, what does net exports represent?

The balance between exports and imports Signup and view all the answers

Which of the following is an example of government spending included in the GNP calculation?

Payments for national defense Signup and view all the answers

What does Gross Domestic Product (GDP) primarily measure?

Total expenditures for all final goods and services produced within a country Signup and view all the answers

Which organization provides estimates on the nominal GDP of countries including the Philippines?

International Monetary Fund Signup and view all the answers

As of 2017, what was the estimated GDP of the Philippines by purchasing power parity?

$1.980 trillion Signup and view all the answers

Which country is the largest economy in ASEAN after Indonesia and Thailand?

Philippines Signup and view all the answers

How frequently is GDP estimated to keep the report current?

Quarterly Signup and view all the answers

What is one major transition occurring in the economy of the Philippines?

From agriculture to services and manufacturing Signup and view all the answers

What is one of the primary roles of the Philippine System of National Accounts (PSNA)?

Tracking production, consumption, saving, and investment Signup and view all the answers

What estimation technique do government statisticians use to calculate GDP?

Scientific sampling techniques Signup and view all the answers

What is excluded from GDP calculations?

Intermediate products used in manufacturing final goods Signup and view all the answers

Why are secondhand sales excluded from GDP?

They do not result in new production Signup and view all the answers

Which of the following is counted in GDP?

Bread sold by a baker Signup and view all the answers

Which of the following economic activities is NOT factored into GDP?

Home repairs done by the owner Signup and view all the answers

What does GDP indicate about economic performance?

The value of voluntary transactions in the market Signup and view all the answers

Which type of transactions are excluded from GDP due to their unreported nature?

Underground economy activities Signup and view all the answers

What happens to economic activities that do not generate expenditures in the market with respect to GDP?

They are excluded Signup and view all the answers

Which of the following statements about GDP is true?

It remains the best indicator of overall economic well-being despite some exclusions Signup and view all the answers

What is the primary focus of the module on macroeconomic performance?

Measuring output and income of a nation Signup and view all the answers

Which of the following correctly describes Gross Domestic Product (GDP)?

The monetary value of all finished goods and services produced within a country's borders in a specific time frame Signup and view all the answers

Which of these statements reflects a limitation of GDP?

GDP does not consider income distribution within a country Signup and view all the answers

How did the Philippine economy perform in the second quarter of 2020 according to the national statistics agency?

It shrank by 16.5% from a year ago Signup and view all the answers

What does a contraction of GDP for two consecutive quarters indicate?

The country is in a recession Signup and view all the answers

What was the revised forecast for the Philippine economy’s decline in 2020?

A decline of 5.5% Signup and view all the answers

Why was the economic growth rate dropping to 1.1 percent considered worrisome?

It demonstrates insufficient economic recovery Signup and view all the answers

What does the circular flow of economic activity primarily involve?

The interaction between households and businesses producing and consuming Signup and view all the answers

What determines whether a transaction is considered voluntary?

Both parties believe they are better off after the transaction. Signup and view all the answers

What is a significant effect of changes in GDP on politics?

It influences the approval ratings of the political party in power. Signup and view all the answers

How does economic growth relate to job creation?

Economic growth means that jobs are plentiful. Signup and view all the answers

What is the relationship between GDP and GNP?

To go from GDP to GNP, foreign payments are added and local payments are subtracted. Signup and view all the answers

Which aspect does GDP primarily measure?

The output of goods produced and services rendered. Signup and view all the answers

What does Gross National Product (GNP) measure?

The income of all residents of a country, regardless of where it is generated. Signup and view all the answers

What is included in a GNP calculation compared to GDP?

Income from investments by residents abroad. Signup and view all the answers

What characterizes a recession in relation to GDP?

Decrease in the value of final goods and services produced. Signup and view all the answers

Study Notes

Module 5: Macroeconomic Performance

This module emphasizes measuring a nation's output and income, and the circular flow of economic activity.
Students are expected to understand:
- How Gross Domestic Product (GDP) and Gross National Product (GNP) are measured.
- The limitations of GDP and GNP.
- The importance of GDP and GNP in a country's economic growth.
- How output production generates income through different sectors of the economy.

Introduction

The Philippine economy experienced its deepest contraction on record in the second quarter of 2020, revised downwards with a forecast of 16.5% shrinkage compared to the previous year.
This was due to strict lockdowns and the coronavirus pandemic.
The median forecast in a Bloomberg survey of economists predicted a 9.4% contraction.
The country's economic managers now project a 5.5% decline in 2020, down from earlier estimates of 2% to 3.4%.
A rebound is expected in the following year.

Lesson 1: GDP - The Measure of National Output

Gross Domestic Product (GDP) is a comprehensive measure of national output and income.
GDP equals total expenditures for all final goods and services produced within a country during a specific period.
The Philippines is the 36th largest economy globally (nominal GDP, 2019 estimate).
It is the 13th largest in Asia and 3rd largest in ASEAN (after Indonesia and Thailand).
The Philippines was the sixth-richest in Southeast Asia by GDP per capita (2019), ahead of countries like Thailand.
The Philippine economy is primarily a newly industrialized country, transitioning from agriculture to services and manufacturing.
GDP by purchasing power parity (PPP) was estimated at $1.980 trillion in 2017.

Measuring Current GDP

Measuring GDP involves multiplying the quantity of each good by its price and summing the results.
Due to the large amount of goods and services produced, scientific sampling is used to estimate the quantities and prices of individual goods.
GDP figures are usually estimated quarterly, revised subsequently, and thus take several months to be finalised.

Some Things Excluded from GDP

GDP measures final goods and excludes intermediate products, which have already been counted in an earlier stage of production.
Replacement product purchases are included (e.g., tires for a vehicle) but intermediate items (parts to create a new product) are excluded.
Secondly, secondhand sales are excluded, as no new production takes place.
Non-market transactions, such as home repairs or gardening, aren't included unless done for pay in the market.
Transactions in the underground economy are also excluded as they are not reported for tax purposes.

Lesson 2: GNP - The Measure of National Income

Gross National Product (GNP) measures income from all Filipinos, regardless of where the goods or services are produced (domestically or abroad).
GNP subtracts payments to foreign-owned businesses and adds payments made by Filipinos residing outside of the Philippines (like OFWs).
GNP provides a more comprehensive measure of national income.

Income Approach (Lesson 2) and Expenditure Approach

GDP can be measured using three approaches: Expenditure, Income, and Industrial Origin.
The expenditure approach sums expenditures of four key sectors:
- Personal Consumption.
- Gross Private Domestic Investment.
- Government Spending.
- Net Exports (Exports - Imports).
The income approach focuses on total income and includes:
- Rent.
- Interest.
- Wages and Salaries.
- Profits or Proprietors' Income.
- Indirect Business Taxes.
- Capital Consumption Allowance.

Lesson 3: Economic Sectors and Circular Flows

The output of an economy generates income which flows through different sectors.
The three main sectors are the household, business and government sectors.
Income generated by production flows to different sectors and is used to purchase the national output, creating a circular flow.

Lesson 4: The Output-Expenditure Model

GDP is the sum of aggregate demand—demand by consumers, investment, government, and the foreign sector. Mathematically, it can be represented as: GDP = C + I + G + (X – M)
The model is used to understand and analyze overall economic performance.

Lesson 5: Reasons for Income Inequality

Factors contributing to income inequality include:
- Education levels (e.g., a college degree is associated with higher income).
- Wealth distribution (wealthier families often have more opportunities for education and economic mobility). -Tax law changes (reductions in higher tax brackets compared to lower ones, can increase inequality).
- Structural changes (Shift from goods-producing industry to service-producing industries, which tend to offer lower-paying jobs).
- Monopoly power (influence of unions and other organizations in limiting supply).
- Economic discrimination (discrimination based on gender, ethnicity, or other characteristics can lower income opportunities.
- Changing family structures (decreased influence of two-parent families compared to single-parent households leads to lower potential family income).

Task and Activities

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References

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Description

This quiz focuses on measuring a nation's economic output and income through the concepts of Gross Domestic Product (GDP) and Gross National Product (GNP). It discusses their significance, limitations, and the impact of economic sectors on income generation. Students will also explore recent economic downturns and projections in the Philippine economy.