Finals Macroeconomics PDF

MACROECONOMICS C = a + b(Yd) - study of how we can best increase our 1. a = level of consumption at 0 country ' s wealth given the available income resources and how these resources ar...

MACROECONOMICS C = a + b(Yd) - study of how we can best increase our 1. a = level of consumption at 0 country ' s wealth given the available income resources and how these resources are 2. b = MPC transformed by entrepreneurs into final 3. Yd = Disposable Income goods and services which we ultimately THE MULTIPLIER CONCEPT consume to satisfy our needs and wants - MULTIPLIER (K) – process of - The study of the aggregate economic generating income through the behavior (government, business, circular flow of exchange between households and international trade) the household and the firm $ $ - The study of the economic behavior of 𝐾= or 𝐾 = $%&'( &') the state - Relationship of MPC to K = direct MBA GOALS OF MACROECONOMICS - Relationship of MPS to K = indirect 1. Sustained economic growth - expansion NATIONAL INCOME ACCOUNTING - of production, increase national income, Measuring the performance of the increase employment, decrease poverty economy is one of the main concerns of 2. Price stability - absence of rapid macroeconomics inflation and the absence of wide price GROSS NATIONAL PRODUCT (GNP) - Is the fluctuation market value or money value of all final 3. Full employment - all resources are fully goods and services produced by all utilized, no workers should be nationals in the economy during a given involuntarily out of work period of time 4. Trade balance – imports = exports GROSS DOMESTIC PRODUCT (GDP) - 5. Redistribution of income - equal Measures the market value of all final goods distribution of wealth and income and services produced within the 6. Efficiency - producing output at a boundaries of the Philippines, whether by minimum opportunity costs of the Filipinos or foreign-supplied resources. inputs used in production Characteristics of GNP/GDP: 7. Economic development - improvement 1) It is a flow concept, measured as the in the quality of life of the people quantity of final goods and services 8. Economic security - fulfillment of the produced by the economy per period of economic needs of every member of the time. society including the handicapped 2) It is measured in monetary terms CONSUMPTION FUNCTION 3) It includes goods and services bought - PERSONAL INCOME for final use, not unfinished goods in - DISPOSABLE INCOME (Yd): Available their intermediate stages of production income for consumption excluding taxes that are purchased for further Yd = Personal Income – Personal Tax processing & resale. CONSUMPTION EXPENDITURE 4) It includes only final goods and services Yd – Savings Licensure Exam for produced during the accounting year. MARGINAL PROPENSITY TO CONSUME 5) It is a measure of productive activities (MPC) - For every unit of income, how much only do you spend for consumption GROSS NATIONAL PRODUCT MARGINAL PROPENSITY TO SAVE (MPS) - NOMINAL GNP/GDP - measures the value For every unit of income, how much do you of output in a given period in the prices of save that period, or, as it is sometimes put, in MPC + MPS = 1 current pesos  REAL GNP/GDP OR GNP/GDP AT GDP SHORTCOMINGS CONSTANT PRICES - measures changes in 1. Non-market Transactions – homemade physical output in the economy between production, childcare, homemade different time periods by valuing all goods services like repairs and maintenance produced in the two periods at the same 2. Distribution, Kind, and Quality of prices, or in constant pesos. Products 𝑮𝑫𝑷 3. Underground Economy PER CAPITA INCOME: 𝑷𝑶𝑷𝑼𝑳𝑨𝑻𝑰𝑶𝑵 4. Economic Bads NET NATIONAL PRODUCT (NNP) GNP – DEPRECIATION MONETARY POLICIES – regulate money through the credit and banking system in NATIONAL INCOME (NI) order to attain monetary stability NNP – INDIRECT TAXES conductive to economic development APPROACHES TO GDP MEASUREMENT 1. RESERVE REQUIREMENT – amount of A. EXPENDITURE APPROACH - In this money reserve by the bank for liquidity approach, the GNP/GDP is computed by Ex. RR= 0.20 maximum lending is 80 getting the sum of the final expenditures of 2. REDISCOUNTING RATES – the CB can the four major sectors of the economy. infuse money by buying loan papers These major sectors include the following: from the bank at a rediscounted rate 1. Household – personal consumption LOWER REDISCOUNT RATE – MS? expenditure (C) (Wider RD windows) 2. Businesses – private domestic HIGH REDISCOUNT RATE – MS? (Narrow investment (I) RD windows) 3. Government – government 3. OPEN MARKET OPERATION – buying consumption expenditures (G) and selling government securities in the 4. Foreign Sector – net exports (X – M) open market GDP = C + I + G + (X - M) - SELLS SECURITIES – CB borrow B. INCOME APPROACH money for the economy MS? GDP = W + R + i + P + IBT + D - BUYS SECURITIES – CB pumps 1. W = Wages, Salaries, and Supplements money to the economy MS? / Compensation of Employees EQUILIBRIUM IN THE MONEY MARKET 2. R = Rental Income of Persons MS=MD 3. i = Net interest FISCAL POLICIES – utilizes government 4. P = Corporate profits before taxes + Income of unincorporated enterprises spending and taxation to control the 5. IBT = Indirect Business Taxes, economy adjustments, stat discrepancy - real disturbance 6. D = Depreciation (Overall) Measurement - taxation C. INDUSTRIAL ORIGIN APPROACH - government spending GDP = AS + IS + SS 1. PERSONAL SERVICES – like salaries and 1. AS = Agrifishery wages, social security contributions, 2. IS = Industry Sector overtime pay, etc. 3. SS = Services Sector 2. MAINTENANCE AND OTHER OPERATING EXPENDITURE (MOOE) – traveling expenses, supplies and materials, water, illumination and power services, rent, etc. 3. CAPITAL OUTLAY – acquisition of vehicles, aircraft, water transport vehicles, equipment, furniture, fixtures 4. INFRASTRUCTURE EXPENDITURES  LABOR MARKET – 18 – 65 years old CAUSES OF STAGFLATION TYPES OF EMPLOYMENT a. WHITE COLLAR JOBS 1. INFLATION – depreciation of b. BLUE COLLAR JOBS money/real value of money decreases c. PINK COLLAR JOBS 2. SUPPLY RESTRICTION – PROBLEMS IN THE LABOR MARKET a. LABOR UNEMPLOYMENT – individuals who are b. INCREASE COSTS OF MATERIAL qualified to work can’t find a job INPUTS 1. FRICTIONAL UNEMPLOYMENT – c. HIGH SALES AND EXCISE TAXES people are willing to work but no FREEBIES available job 1. MINIMUM WAGE RATE TAX INCENTIVES– 2. VOLUNTARY UNEMPLOYMENT – the company who will follow this will be people doesn’t want to work given tax incentives while the company who 3. STRUCTURAL UNEMPLOYMENT – won’t follow will receive tax penalty. dictate by a structure of a firm 2. TAX CREDIT – labor cost of employer UNDER EMPLOYMENT – qualification is decrease without a decrease in the take better than the job home pay of employees - People who work less than 40hrs/wk 3. GRANTS IN AID–are funds for livelihood and - VISIBLE UNDEREMPLOYMENT: entrepreneurship, it is received by the low people work less than 40hrs/wk and income individual. wants more hours to work 4. DECREASE IN PAYROLL TAX–the employee - INVISIBLE UNDEREMPLOYMENT - should not pay all the deductions instead it people work more than 40hrs/wk will be paid by the employer. but still seek additional job OVER EMPLOYMENT – qualification is THE INTERNATIONAL SECTOR lower than the job EXPORTS (X) – goods or merchandise that - Work more than the required hour we sell to other countries. even though they don’t want IMPORTS (Z) – goods or merchandise that PHILLIPS CURVE – shows the we buy from other countries. relationship between inflation and Net Export (Surplus) = X > Z unemployment Net Imports (Deficit) = X< Z if you want to decrease unemployment, Balance of Trade (BOT) – net balance inflation rate must be increased between export and imports. Shows that there is a trade-off between BALANCE OF PAYMENTS (BOP) unemployment and inflation rate (Dollar inflows - Dollar outflows) 1. Current Account - BOT 2. transfer payments 3. capital movement STAGFLATION – prolonged high prices/inflation rate & high unemployment rate  DOLLAR INFLOWS 1. Export 2. Sales of good 3. Invincibles dollars spent by tourists in the Philippines dollars remitted by OFWs taxes paid by foreign shipping lines & airlines dividends remitted by Filipino firms abroad investments of foreigners in the Philippines DOLLAR OUTFLOWS 1. Import 2. Invincibles dollars spent by Filipino tourists abroad dollars remitted by foreign workers in the Philippines taxes paid by Philippine shipping lines & airlines dollars invested by Filipino abroad dollars remitted by foreign firms abroad