PK_ECONDEV_Chapter+3_CED0011_AEPARIENTE_090922.pdf

Economic Development Dr. Emerson G. Cabudol Copyright 2022 COPYRIGHT This is an exclusive and copyrighted property of REX Book Store, Inc. All rights reserved. No part of this material shall be reproduced, distributed, or transmitted in any form or by any means, including photocopy...

Economic Development Dr. Emerson G. Cabudol Copyright 2022 COPYRIGHT This is an exclusive and copyrighted property of REX Book Store, Inc. All rights reserved. No part of this material shall be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written consent of REX Book Store, Inc. A NATION’S WEALTH Chapter 3 Image from: Pixabay, public domain. Lesson Objectives Expound on GDP as a metric for economic growth and development. Contrast the two approaches of computing the GDP. Evaluate the uses of GDP and its implications on economic growth and development. Differentiate and evaluate real and nominal GDP, define GDP deflator, and GDP per capita. Lesson Objectives Discover data on GDP and apply it to your understanding economic growth and development. Discuss other measurements of a nation’s income or wealth. Analyze the case of Vietnam as an economic miracle. Recommend possible measurements of performance from the case for economic development. Lesson Key Concepts and Examples GDP as a Metric to Economic Growth and Development GDP is the peso value of all final goods and services produced in one country in a year. It is considered by economists as a major measurement of a nation’s income, of course, at a given time and at a given place or region. It is important to note that the income should always be the same as the expense, although the case is not true all the time. Goods and EXPENDITURE Goods and Services APPROACH Services Demanded Supplied PRODUCT MARKET Revenue Consumer Payments Spending Payments HOUSEHOLD GOVERNMENT FIRMS Wage/Cost Income Payments Payments FACTOR MARKET Inputs INCOME Inputs Supplied APPROACH Demanded Approaches in Computing GDP Expenditure Approach GDP = C + I + G + (X – M) Where: GDP = Gross Domestic Product C = Total spending on Consumption goods and services I = Total investment or purchase of plants, equipment, buildings, etc. G = Government spending on goods and services (X – M) = Net exports or exports less the imports Income Approach GDP = Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income Where: Total National Income is the sum of all wages, rent, interest, and profits Sales Taxes is the tax imposed on consumers for the sale of goods and services Depreciation is the cost allocated to capital assets over an estimate useful life Net Foreign Factor Income is the income that citizens make while abroad less the income generated by foreigners in the country Use of Gross Domestic Product (GDP) 1. Compare the economic performance on an annual basis by determining the growth rate to help us understand where the economy stands. 2. Assess the efficiency and effectiveness of government policies, GDP is an indication of a positive or negative effect of the policy as an indicator of its success or failure and the extent of how the economy is helped or hurt by this policy. 3. Compare the country’s GDP with that of other countries. Real Vs Nominal GDP In computing for the nominal GDP, the current prices are used to multiply to the volume of production given in a given period of time. 2017 2018 2019 2020 2021 Computation (₱15*25) + (₱25*30) + (₱35*35) + (₱40*40) + (₱50*45) + (₱55*5) (₱65*8) (₱65*10) (₱70*12) (₱85*20) Nominal GDP ₱650 ₱1,270 ₱1,875 ₱2,440 ₱3,950 In computing for the real GDP, we use the base price. 2017 2018 2019 2020 2021 Computation (₱15*25) + (₱15*30) + (₱15*35) + (₱15*40) + (₱15*45) + (₱55*5) (₱55*8) (₱55*10) (₱55*12) (₱55*20) Real GDP ₱650 ₱890 ₱1,075 ₱1,260 ₱1,775 GDP Deflator Implicit price deflator or GDP deflator is a metric used by economists to understand the changes in prices of products that is produced in one country. Some economists believe that this measurement is more reliable than the Consumer Price Index (CPI) index that only relies with the basket of goods and services when it comes to the gross effect of inflation.  𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃 GDP Deflator = 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 X 100 2017 2018 2019 2020 2021 Computation ₱650 ₱1,270 ₱1,875 ₱2,440 ₱3,950 X 100 X 100 X 100 X 100 X 100 ₱650 ₱890 ₱1,075 ₱1,260 ₱1,775 GDP Deflator 100 143 174 194 223 Inflation rate in year 2 = GDP Deflator in year 2-GDP Deflator in year 1GDP Deflator in year 1 X 100 2017 2018 2019 2020 2021 143−100 174−143 194−174 223−194 Computation No Data X 100 X 100 X 100 X 100 100 143 174 194 Inflation Rate No Data 43% 22% 11% 15% GDP per Capita GDP of a country divided by its total population GDP per capita is a metric used to measure the overall production of goods and services in a country translated to the value per person. Economists agree that this is a better measure than the total GDP, whether real or nominal as it can be comparable to other countries and realistically understand the standard of living of their respective citizens. Other Measurements of A Nation’s Wealth Gross Net National National Personal National Product Revenue Revenue Product Disposable Gross Genuine Personal National Progress Revenue Happiness Indicator Case: Gross National Happiness Bhutan believes that the GNH is more important tool to use than GDP. They believe that happiness is living in harmony with nature while serving the people including economic inputs There are nine domains and out of these are around two to four indicators for each one, for a total of 33 indicators to measure the GNH They have learned from the mistakes of the western capitalist and pursued development without compromising the values of the country Nine Domains of GNH Psychological Wellbeing Good Governance Health Community Vitality Education Ecological Diversity and Time Use Resilience Cultural Diversity and Living Standards Resilience Activity / Exercise Search and watch the video entitled, “How Vietnam Became An Economic Miracle”. Discussion Question What are the lessons that we can derive from this case video on ‘how Vietnam became an economic miracle’ to emulate and apply to our own country to achieve economic prosperity? Conclusion GDP as a Metric for Economic Growth and Development Two Approaches of Computing GDP Uses of GDP Real and Nominal GDP Other Measurements of a Nation’s Income or Wealth REFERENCE Cabudol, Emerson G. (2022). Economic Development. Quezon City: Rex Book Store, Inc.