Macroeconomics PDF

DEFINING MACROECONOMICS Macroeconomics is a branch of Economics that looks at the economy as a whole. It focuses on broad issues such as growth of production, the number of unemployed people, the inflationary increase in prices, government deficits, and levels of exports and imports.  Macr...

DEFINING MACROECONOMICS Macroeconomics is a branch of Economics that looks at the economy as a whole. It focuses on broad issues such as growth of production, the number of unemployed people, the inflationary increase in prices, government deficits, and levels of exports and imports.  Macroeconomic Questions What determines a What creates or nation’s standard of stimulates economic living? growth? How do economic What causes policies affect inflation? national economy? Macroeconomic Objectives Good Economic Growth A sustainable increase in the production of goods and services in an economy, leading to higher living standards without causing environmental harm or economic instability. Price Stability Maintaining a consistent level of prices over time, avoiding significant inflation (rising prices) or deflation (falling prices), to ensure economic predictability and protect purchasing power. Full Employment Achieving a situation where all individuals willing and able to work can find employment at prevailing wage rates, minimizing unemployment without triggering inflation. Just Distribution of Income Ensuring an equitable allocation of income among members of society, reducing excessive inequality to promote social cohesion and economic fairness. Balanced Budget A fiscal policy goal where government expenditures are equal to its revenues, avoiding excessive debt while ensuring sufficient investment in public goods and services.  Macroeconomic Variables These are used to measure the economy’s current state and forecast where it’s going, identifying potential risks along the way. Gross Domestic Product (GDP) Growth The percentage increase in the value of all goods and services produced in an economy over a specific time period. Money Supply The total amount of monetary assets available in an economy at a specific time, including cash and deposits. Government Debt The total amount of money the government owes to creditors, accumulated over time from budget deficits. Unemployment Rate The percentage of the labor force that is actively seeking work but unable to find employment. Inflation Rate The percentage change in the average price level of goods and services over time. Macroeconomics Sectors Consumers Sector comprise of private individuals who commonly belong in a household and consume different products from the market Business Sector profit-seeking organizations who risk capital to create investment opportunities; entrepreneurs and capitalists belong to this sector Macroeconomics Sectors Public Sector consists of the national government and the biggest single economic entity in the country Foreign Sector includes the rest of the world as goods and services are exchanged between countries via trads and investments Limitations of Macroeconomics Macroeconomic theories don’t always factor in the realities of human behavior, nor do they include the smaller details like regulation and taxation. The real world is also decidedly complicated and includes matters of social preference and conscience that do not lend themselves to mathematical analysis. The Role of the Government The government plays a vital role in the economy through various functions designed to achieve stability, growth, and equity. Managing the Economy - regulates the market, stabilizes the economy, creating employment, facilitating international trade Providing Economic Security - passes economic policies that stimulate economic growth and provide security for individuals, businesses, national income Setting Sustainable Economic Plans - set long-term goals to promote sustainable economic growth and innovation Protecting the Environment - manage natural resources efficiently  Macroeconomic Policies in the Philippines Macroeconomic policies are instruments that help policymakers regulate an economy. Build, Build, Build TRAIN Law Pantawid Program Pamilyang Pilipino Program (4Ps) The Build, Build, Build Program An P8-trillion infrastructure program introduced by the Duterte administration which aims to be the centerpiece program that will usher the “Golden age of infrastructure” in the Philippines. MRT-3 Rehabilitation Project The New Clark City Phase 1 The Clark International Airport Expansion MRT 7 Metro Manila Skyway Stage (Buendia to Balintawak) Southeast Metro Manila Expressway (Taguig to Quezon City) C5 Southlink Expressway (Manila to Cavite) TRAIN Law A comprehensive tax reform program with the primary goal to simplify the tax system, make it fairer, and improve revenue generation for essential government projects and services. Lower Income Taxes - workers earning PHP 250,000 or less per year are now exempt from paying income tax Increase taxes on some goods: Fuel: Gasoline, diesel, and other oil products now have higher excise taxes. Sugary Drinks: Beverages with sugar, like sodas, have added taxes to discourage consumption. Cars: Higher excise taxes are applied to vehicles, except for basic models used by most Filipinos. Pantawid Pamilyang Pilipino Program The Pantawid Pamilyang Pilipino Program (4Ps), launched in 2008 and institutionalized in 2019 is the national poverty reduction strategy and human capital investment program that provides conditional cash transfer to poor households for a maximum period of seven (7) years, to improve health, nutrition and education. As general criteria, beneficiaries are households that: are classified as poor and near-poor based on the Standardized Targeting System and the poverty threshold issued by the Philippine Statistics Authority (PSA) at the time of selection have members who are aged zero (0) to eighteen (18) years old or have members who are pregnant at the time of registration; and are willing to comply with a set of conditions. Economic Performance of a Nation One of the many ways to measure a nation’s economic performance is through its productive capacity or the amount of goods and services it can produce for a certain period of time. To properly measure this, economists use systems such as national income and product accounting.  National Product All products in the market are valued in terms of price. National product is the money value of goods and services produced by an economy in a period of time.  QUANTITY AND PRODUCT PRICE PER UNIT MARKET VALUE UNIT Dried fish 200 kilos P80.00 P16, 000.00 Cloth 50 meters P40.00 P2,000.00 TOTAL P18,000.00 Gross Domestic Product The Gross Domestic Product (GDP) is the total market or money value of all final goods and services produced in an economy over a period of one year. It is measured in market or money value It only counts new domestic production It only includes final goods and services  Approaches in Measuring the GDP The Expenditure Approach measures the GDP by adding all the spending for final goods during a period of one year The Income Approach measures the GDP by adding all the incomes earned by households in exchange for the factors of production during a period of time The Expenditure Approach GDP = C + I + G + (X-M) C = Personal Consumption Expenditure I = Gross Private Domestic Investment G = Government Consumption Expenditure and Gross Investment X - M = Net Exports Personal Consumption Expenditures (C) comprise total spending made by households for durable goods, nondurable goods, and services. Gross Private Domestic Investment (I) includes all private domestic spending of businesses for investment in assets that are expected to earn profits in the future. Government Consumption Expenditure and Gross Investment (G) includes the value of goods and services the government at all levels purchases, measured by their costs. This excludes transfer payments made by the government to social welfare beneficiaries. Net Export exports - are expenditures by foreigners for Philippine goods produced domestically imports - the dollar amount of Philippines’ purchase of foreign products The Income Approach 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 Compensation of Employees (W) comprises mainly of income earned from wages, salaries, and certain supplements paid by firms and government to laborers Rental Income of Persons (R) rent and royalties received by property owners who permit others to use their assets during a period of time Profit (P) include those earned by self-employed proprietorships and partnerships that fund their businesses and at the same time, pay themselves for their labor services; also include corporate profits Net Interest (i) interest received and paid by households Indirect Business Taxes (IBT) levied as a percentage of the prices of goods and services sold and become part of the revenue received by firms Depreciation (D) an allowance for the portion of capital worn out in producing the GDP  Limitations of GDP The GDP omits certain measures of overall economic well- being. Nonmarket Transactions unpaid activities including homemade production, child care, homemade services like repairs and maintenance Distribution, Kind, and Quality of Products whether a small fraction of the population consumes most of a country’s GDP or if consumption is evenly divided  Neglect of Leisure Time GDP understates well-being because no allowance is made for people working fewer hours than they once did The Underground Economy includes illegal gambling, illegal drugs, prostitution, illegal guns, loan- sharking and lending, and small-time trading of goods and services Economic Bads air, water, and noise pollution are economic bads that impose costs on society and environment, yet these are not reflected in private market prices and in quantities bought and sold  NOMINAL REAL GDP GDP Measures the GDP Measures the GDP using constant prices using current prices or prices from a specific year