PUBADECS MODULE 5 PDF

EULOGIO “AMANG” RODRIGUEZ INSTITUTE OF SCIENCE AND TECHNOLOGY COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION PUBLIC ADMINISTRATION UNIT...

EULOGIO “AMANG” RODRIGUEZ INSTITUTE OF SCIENCE AND TECHNOLOGY COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION PUBLIC ADMINISTRATION UNIT PUBLIC ADMINISTRATION & THE ECONOMIC SYSTEM PUBADECS By: Mr. Erick P. Mante Module 5 Macroeconomic Performance PUBADECS – Public Administration & the Economic System | Module 5 | Mr. ERICK P. MANTE 1  TARGET LEARNING OUTCOMES This module provides emphasis how we measure the output and income of a nation. It also highlights circular flow of economic activity. Students are expected to be able to: 1. Discuss how Gross Domestic Product (GDP) and Gross National Product (GNP) is measured; 2. Describe the limitations of GDP and GNP; 3. Understand the importance of GDP and GNP in economic growth of the country; and 4. Explain the production of output generates income which flows though different sectors of the economy. INTRODUCTION he Philippine economy suffered its deepest contraction on record in the second T quarter and revised down its forecast for the year amid one of Asia’s strictest lockdowns against the coronavirus. Gross domestic product shrank 16.5% from a year ago, according to the national statistics agency, the worst reading in a data series going back to 1981. The median forecast in a Bloomberg survey of 21 economists was for a 9.4% contraction. GDP declined for a second consecutive quarter on a quarter-on-quarter basis, down 15.2%, implying the economy is in recession this year 2020. The country’s economic managers said they now expect the economy to shrink 5.5% this year -- down from earlier estimates for a 2% to 3.4% decline -- before rebounding strongly next year. The report in the news story above may be of little interest to many people, but it was worrisome for economists. When the nation’s economic growth rate drops to a meager 1.1 percent, the news is not PUBADECS – Public Administration & the Economic System | Module 5 | Mr. ERICK P. MANTE 2 good. Welcome to macroeconomics, the branch of economics that deals with the economy as a whole, using aggregate measures of output, income, prices, and employment. Gross Domestic Product is one of our most important macro measures and the most important statistic in the Philippine System of National Accounts (PSNA). The PSNA keeps track of the nation’s production, consumption, saving, and investment. Other key measures exist, and collectively they tell us a great deal about the economic health and performance of our country. LESSON 1: GDP—The Measure of National Output Gross domestic product (GDP) is our most comprehensive measure of national output. GDP measures of national income and output for a given country's economy. The GDP is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time. The economy of the Philippines is the world's 36th largest economy by nominal GDP according to the 2019 estimate of the International Monetary Fund's statistics, it is the 13th largest economy in Asia, and the 3rd largest economy in the ASEAN after Indonesia and Thailand. The Philippines is one of the emerging markets and is the sixth richest in Southeast Asia by GDP per capita values, after the regional countries of Singapore, Brunei, Malaysia, Thailand and Indonesia. Philippines is primarily considered a newly industrialized country, which has an economy in transition from one based on agriculture to one based more on services and manufacturing. As of 2017, GDP by purchasing power parity was estimated to be at $1.980 trillion. Measuring Current GDP The measurement of GDP is fairly easy to understand. Conceptually, all we have to do is to multiply all of the final goods and services produced in a 12-month period by their PUBADECS – Public Administration & the Economic System | Module 5 | Mr. ERICK P. MANTE 3 prices, and then add them up to get the total peso’s value of production. To get GDP, we simply multiply the quantity of each good by its price and then add the results. Of course, it is not possible to record every single good and service produced during the year, so government statisticians instead use scientific sampling techniques to estimate the quantities and prices of the individual products. To keep the report as current as possible, they estimate GDP quarterly, or every three months, and then revise the numbers for months after that. As a result, it takes several months to discover how the economy actually performed. Some Things Are Excluded GDP is a measure of final output. This means that intermediate products—goods used to make other products already counted in GDP—are excluded. If you buy new replacement tires for your automobile, for example, the tires are counted in GDP because they were intended for final use by the customer and not combined with other parts to make a new product. However, tires on a new car are not counted separately because their value is already built into the price of the vehicle. Other goods such as flour and PUBADECS – Public Administration & the Economic System | Module 5 | Mr. ERICK P. MANTE 4 sugar are part of GDP if they are bought for final use by the consumer. However, if a baker buys them to make bread for sale, only the value of the bread is counted. Secondhand sales—the sales of used goods—are also excluded from GDP because no new production is created when products already in existence are transferred from one owner to another. Although the sale of a used car, house, or compact disc player may give others cash that they can use on new purchases, only the original sale is included in GDP. Nonmarket transactions—economic activities that do not generate expenditures in the market—also are excluded. For example, GDP does not take into account the value of your services when you mow your own lawn or do your own home repairs. Instead, these activities are counted only when they are done for pay outside the home. For this reason, services that homemakers provide are excluded from GDP even though they would amount to billions of pesos annually if actually purchased in the market. Finally, transactions that occur in the underground economy—economic activities that are not reported for legal or tax collection purposes—are not counted in GDP. Some of these activities are illegal, such as those found in gambling, smuggling, prostitution, and the drug trade. Other activities are legal, such as those in flea markets, farmers’ markets, garage sales, or bake sales, but they involve cash payments, which are difficult to trace. A Measure of Economic Performance and Well-Being Even with these minor limitations, GDP is still our best measure of overall economic performance and well-being, because it is a measure of the voluntary transactions that take place in the market. Voluntary transactions occur only when both parties in a transaction think they are better off after they have made it than before. This is one reason why GDP is considered an indicator of our overall economic health. PUBADECS – Public Administration & the Economic System | Module 5 | Mr. ERICK P. MANTE 5 Changes in GDP even influence national elections. Whenever the economy is growing slowly or contracting, the political party in power usually does not fare as well as it would have during a time of economic growth. Economic growth, as measured by increases in real GDP, means that jobs are plentiful and that incomes are rising. Such economic trends often influence the decisions of voters. As a result, GDP is the single most important economic statistic compiled today. LESSON 2: GNP—The Measure of National Income National income can be measured in a number of different ways. Whenever business activity creates output, it generates jobs and income for someone. GDP, then, is like a two-sided coin, where one side represents output and the other side an equal amount of income. If we want to see how much output is produced, we look at one side of the coin. If we want to see how much income is generated, we look at the other side of the coin. Economists recognize one major category and several subcategories of national income. Gross National Product When economists focus on total income rather than output, they measure it with gross national product (GNP)—the peso value of all final goods, services, and structures produced in one year with labor and property owned by a country’s residents. While GDP measures the value of all the final goods and services produced within Philippine borders, GNP measures the income of all Filipinos, whether the goods and services are produced in the Philippines or in other countries. To go from GDP to GNP, we add all payments that Filipinos receive from outside the Philippines (Overseas Filipino Workers), then subtract the payments made to all foreign-owned businesses located in the Philippines. The result, GNP, is the most comprehensive measure of our nation’s income. PUBADECS – Public Administration & the Economic System | Module 5 | Mr. ERICK P. MANTE 6 The Gross National Product (GNP) or Gross National Income (as per IMF/WB) is the sum of all the final market values of goods and services in a given economy during a given period. This is the quantitative summary of all transactions of final goods and services transacted in an economy in a year. It being a total market value makes it a monetary measure. The GNP is measured by using three approaches: 1) Expenditure Approach 2) Income Approach 3) Industrial Origin Approach Expenditure Approach This approach takes into consideration or sums up the expenditure of the four sectors in the economy, thus: 1) Personal consumption expenditures or household spending or household purchases which includes all household final purchases of:  durable consumer goods  non-durable consumer goods  services 2) Gross private domestic investments or capital formation or business spending which includes the following:  inventories  all final purchases of machinery, tools and equipment  all construction including residential construction PUBADECS – Public Administration & the Economic System | Module 5 | Mr. ERICK P. MANTE 7  3) Government spending or government purchases which includes the following:  national government spending  local spending  government payroll  payments of debts 4) Net exports which can be either favorable (X>M) or unfavorable (M