Macroeconomics and GDP Concepts

Defining Macroeconomics

• Macroeconomics is a branch of economics
• It examines the economy as a whole
• It focuses on broad issues
• Examples include production growth, unemployment levels, inflation, government deficits, and trade (exports/imports)

Macroeconomic Questions

• What factors influence a nation's standard of living?
• What causes inflation?
• What drives economic growth?
• How do economic policies impact the national economy?

Macroeconomic Objectives

• Good Economic Growth: A consistent increase in the production of goods and services, leading to higher living standards without environmental harm or instability.
• Price Stability: Maintaining consistent prices over time to avoid inflation or deflation, ensuring predictability and protecting purchasing power.

Macroeconomic Objectives (cont.)

• Full Employment: All willing and able individuals find jobs, minimizing unemployment without inflation.
• Just Distribution of Income: Equitable income distribution for social cohesion and fairness.
• Balanced Budget: Government expenditures equal revenues, preventing excessive debt and ensuring investment in public services and goods.

Macroeconomic Variables

• Gross Domestic Product (GDP) Growth: Percentage increase in the value of all goods and services produced in a specific time period.
• Money Supply: The total amount of monetary assets available in the economy at a specific time, encompassing cash and deposits.
• Government Debt: Total amount owed by the government to creditors, accumulated from budget deficits.
• Unemployment Rate: Percentage of the labor force actively seeking employment but unable to find it.
• Inflation Rate: Percentage change in the average price level of goods and services over time.

Macroeconomics Sectors

• Consumers Sector: Private individuals who consume market products in households.
• Business Sector: Profit-seeking organizations (entrepreneurs and capitalists) that risk capital to create investment opportunities.
• Public Sector: National government, the largest economic entity.
• Foreign Sector: The rest of the world, including goods/services and investments exchanged between countries.

Limitations of Macroeconomics

• Macroeconomic theories often don't fully account for human behavior, regulation, and taxation.
• The real world presents social preferences and conscience that are not easily analyzed mathematically.

The Role of the Government

• Plays a key role in the economy through various functions (e.g., managing the economy, creating employment, promoting economic security).
• Sets long-term economic goals (e.g., promoting sustainable economic growth and innovation).
• Manages natural resources efficiently to protect the environment.

Macroeconomic Policies in the Philippines

• Macroeconomic policies in the Philippines (examples):
  • Build, Build, Build Program
  • TRAIN Law
  • Pantawid Pamilyang Pilipino Program (4Ps)

The Build, Build, Build Program

• A P8-trillion infrastructure program in the Philippines.
• Aims to usher in a Golden age of infrastructure.
• Examples include MRT-3 rehabilitation, new Clark City developments, expansions to the Clark International Airport, and various highway projects.

TRAIN Law

• Tax reform program aimed at simplifying the tax system, improving fairness, and making revenue generation easier for essential government programs.
• Includes lower income taxes for lower earnings, increased taxes on certain goods like fuel, sugary drinks, and car models (excluding basic models for Filipinos).

Pantawid Pamilyang Pilipino Program (4Ps)

• A national poverty reduction program (established in 2008, formalized in 2019.)
• Provides conditional cash transfers based on criteria, health, nutrition, and education. (PSA-determined poverty threshold and criteria).

Economic Performance of a Nation

• Measured by a nation's productive capacity or its output of goods and services over a specific time frame.
• Economists use national income and product accounting for measurements.

National Product

• National product is the overall money valuation of all goods and services within an economy within a certain time period.

Gross Domestic Product (GDP)

• GDP is the total market value of all final goods and services produced in an economy over a single year.
• Measured in market values.
• Only counts new domestic production.
• Only includes final goods and services (intermediate goods are excluded).

Approaches to Measuring GDP

• Expenditure Approach: Measures GDP as the sum of all spending in the economy.
• GDP (Expenditure Approach): GDP = C + I + G + (X − M). C=Personal Consumption, I=Investment, G=Government Spending, X=Exports, M=Imports
• Income Approach: Measures GDP by summing up all income earned in the economy.
• GDP (Income Approach): GDP = W + R + P + i + IBT + D. W=Compensation of Employees, R=Rental Income, P=Profits, i=Net Interest, IBT =Indirect Business Taxes, D= Depreciation

Components of GDP (Expenditure Approach)

• Personal Consumption Expenditures (C): Spending by households.
• Gross Private Domestic Investment (I): Domestic spending by businesses.
• Government Consumption Expenditures and Gross Investment (G): Spending by the government.
• Net Exports (X − M): Difference between exports and imports.

Components of GDP (Income Approach)

• Compensation of Employees (W): Wages, salaries, and benefits.
• Rental Income of Persons (R): Income from property rentals.
• Profits(P): Earnings of businesses.
• Net Interest (i): Interest income.
• Indirect Business Taxes (IBT): Taxes on goods/services.
• Depreciation (D): Capital used up during production.

Limitations of GDP

• Nonmarket Transactions: Unpaid activities (e.g., housework, childcare).
• Distribution, Kind, and Quality of Products: Doesn't reflect the fairness or variety of goods and services.
• Neglect of Leisure Time: Doesn't account for the time people don't spend working.
• Underground Economy: Illegal activities (e.g., drug trade).
• Economic Bads: Negative externalities (e.g., pollution) not included.

Nominal vs. Real GDP

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