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ARPON, Alvin Jr. B.

BBF4-9D

ASSIGNMENTS: 1. What is macroeconomics? Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies. 2. Why is the study of macroeconomics important in investment?
To understand the working of economy: Macroeconomics gives birds eye view of the economic world. It helps in understanding how the macroeconomic variables behave in the aggregate. Study of the national income, aggregate output, gross saving and output, national expenditure is very essential to understand the working of the economy. Helpful in formulation of economic policies:-Macroeconomic analysis provides a sound basis for the formulation of governments economic policy. The economic policies for the removal of poverty, employment and price stabilization must be based upon reliable statistics of the aggregate variables. Helpful in controlling economic fluctuations:-Economic fluctuations like trade cycle, inflation, deflation etc. need to be handled appropriately in appropriate period to correct them. This will give a finite direction to the economy. For this the knowledge of macroeconomics is essential. Helpful in international comparisons:-Only macroeconomic variables like national income, total output, aggregate demand, and consumption behaviour and investment patterns of different countries can be easily compared. Macroeconomics provides the necessary information for this. National Income:-National income is the barometer that scales the growth of a country. It analyses the overall performances of the economy within a given period of time and allow us to compare that performance with the post. National income, basically, is an aggregate concept.

3. What is an interest rate? An interest rate is the rate at which interest is paid by borrowers for the use of money that they borrow from a lender. 4. What is a monetary policy? Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability 5. How is monetary policy made?

The Central Bank attempts to achieve economic stability by varying the quantity of money in circulation, the cost and availability of credit, and the composition of a country's national debt. The Central Bank has three instruments available to it in order to implement monetary policy: Open market operations The buying or selling of Government bonds by the Central Bank in the open market. If the Central Bank were to buy bonds, the effect would be to expand the money supply and hence lower interest rates, the opposite is true if bonds are sold. This is the most widely used instrument in the day to day control of the money supply due to its ease of use, and the relatively smooth interaction it has with the economy as a whole. Reserve requirements Are a percentage of commercial banks', and other depository institutions', demand deposit liabilities (i.e. chequing accounts) that must be kept on deposit at the Central Bank as a requirement of Banking Regulations. Though seldom used, this percentage may be changed by the Central Bank at any time, thereby affecting the money supply and credit conditions. If the reserve requirement percentage is increased, this would reduce the money supply by requiring a larger percentage of the banks, and depository institutions, demand deposits to be held by the Central Bank, thus taking them out of supply. As a result, an increase in reserve requirements would increase interest rates, as less currency is available to borrowers. This type of action is only performed occasionally as it affects money supply in a major way. Altering reserve requirements is not merely a short-term corrective measure, but a long-term shift in the money supply. The 'Discount Window' Is where the commercial banks, and other depository institutions, are able to borrow reserves from the Central Bank at a discount rate. This rate is usually set below short term market rates (T-bills). This enables the institutions to vary credit conditions (i.e., the amount of money they have to loan out), there by affecting the money supply. It is of note that the Discount Window is the only instrument which the Central Banks do not have total control over.

6. What are the different types of monetary policies? Expansionary Monetary Policy Expansionary policy increases a nation's money supply. Lowering reserve requirements expands the money supply as well, by allowing banks to engage in more lending. Contractionary Monetary Policy

Contractionary monetary policy tries to reduce the money supply and slow the rapid pace of economic activity by taking money out of circulation and making credit more difficult to obtain. 7. How do monetary policies affect interest rate in the market? In Expansionary Monetary Policy, a central bank enacts expansionary measures by lowering the discount rate or buying government bonds, which injects more money into the economy. In Contractionary Monetary Policy, central banks reduce the money supply by raising the discount rate, increasing the amount of money banks must hold in reserve and selling government bonds, which takes money out of circulation. 8. Get information on the policy rate from 2008 to present. 2008 18 December The Monetary Board decided to reduce the BSPs key policy interest rates to 5.5 percent for the overnight borrowing or reverse repurchase (RRP) facility and 7.5 percent for the overnight lending or repurchase (RP) facility, effective immediately. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also adjusted accordingly. 20 November The Monetary Board decided to keep the BSPs key policy interest rates steady at 6 percent for the overnight borrowing or reverse repurchase (RRP) facility and 8 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also left unchanged. 06 November The Monetary Board decided to reduce the regular reserve requirement on bank deposits and deposit substitutes by two percentage points effective 14 November. At the same time, the Board also increased the BSP budget for the peso rediscounting facility from P20 billion to P40 billion effective immediately. 06 October The Monetary Board decided to maintain the BSPs key policy interest rates at 6 percent for the overnight borrowing or reverse repurchase (RRP) facility and 8 percent for the overnight lending or repurchase (RP) facility. The interest rates

on term RRPs, RPs, and special deposit accounts (SDAs) were also left unchanged. 28 August The Monetary Board decided to increase by 25 basis points the BSPs key policy interest rates to 6 percent for the overnight borrowing or reverse repurchase (RRP) facility and 8 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were adjusted accordingly. 17 July The Monetary Board decided to increase by 50 basis points the BSPs key policy interest rates to 5.75 percent for the overnight borrowing or reverse repurchase (RRP) facility and 7.75 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and SDAs were also increased accordingly. 5 June The Monetary Board decided to increase by 25 basis points the BSPs key policy interest rates to 5.25 percent for the overnight borrowing or reverse repurchase (RRP) facility and 7.25 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and SDAs were also increased accordingly. 24 April The Monetary Board decided to keep the BSPs key policy interest rates at 5 percent for the overnight borrowing or reverse repurchase (RRP) facility and 7 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs and RPs were also left unchanged. 13 March The Monetary Board decided to keep policy interest rates at 5 percent for the overnight borrowing or reverse repurchase (RRP) facility and 7 percent for the overnight lending or repurchase (RP) facility. The Monetary Board also decided to implement refinements in the Special Deposit Account (SDA) facility. 31 January The Monetary Board decided to reduce by 25 basis points the BSPs key policy interest rates to 5 percent for the overnight borrowing or reverse repurchase (RRP) facility and 7 percent for the overnight lending or repurchase (RP) facility.

The interest rates on term RRPs, RPs, and special deposit accounts were also reduced accordingly. 2009 01 October, 05 November, 17 December The Monetary Board decided to keep the BSPs key policy interest rates steady at 4 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also left unchanged. 20 August The Monetary Board decided to keep the BSPs key policy interest rates steady at 4 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also left unchanged. The decision to maintain the monetary policy stance comes after a series of policy rate cuts since December 2008 totaling 200 basis points and other liquidity enhancing measures. 09 July The Monetary Board decided to reduce the BSP's key policy interest rates by 25 basis points to 4 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6 percent for the overnight lending or repurchase (RP) facility, effective immediately. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were reduced accordingly. This is the sixth time since December 2008 that the BSP has cut its policy interest rates. 28 May The Monetary Board decided to reduce the BSPs key policy interest rates by another 25 basis points to 4.25 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.25 percent for the overnight lending or repurchase (RP) facility, effective immediately. This is the fifth rate cut since December 2008, and represents a cumulative reduction of 175 basis points in the BSPs key policy rates. This RRP rate is the lowest since 15 May 1992. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also reduced accordingly. 16 April

The Monetary Board decided to reduce the BSPs key policy interest rates by another 25 basis points to 4.5 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.5 percent for the overnight lending or repurchase (RP) facility, effective immediately. This rate cut brings the cumulative reduction in the BSPs key policy rates to 150 basis points since December last year. The current RRP rate is the lowest since 15 May 1992. Meanwhile, the interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also reduced accordingly. 05 March The Monetary Board decided to reduce the BSPs key policy interest rates by 25 basis points to 4.75 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.75 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also reduced accordingly. 12 February The Monetary Board decided to further liberalize the peso rediscounting guidelines and increase the peso rediscounting budget to P60 billion effective 2 March 2009. 29 January The Monetary Board decided to reduce, effective immediately, the BSPs key policy interest rates by 50 basis points to 5 percent for the overnight borrowing or reverse repurchase (RRP) facility and 7 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also adjusted accordingly. 2010 28 January, 11 March, 22 April, 3 June, 15 July, 26 August, 07 October, 18 November, 29 December The Monetary Board decided to keep the BSPs key policy interest rates steady at 4 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also left unchanged. 2011

20 October, 1 December The Monetary Board decided to maintain the overnight policy rates. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also maintained accordingly. The reserve requirement ratios were also kept steady. 08 September The Monetary Board decided to keep the overnight policy rates steady. At the same time, the reserve requirement ratios were kept unchanged. 28 July The Monetary Board decided to maintain the BSP's key policy interest rates. At the same time, the Board increased anew the reserve requirement on deposits and deposit substitutes of all banks and non-banks with quasi-banking functions by one percentage point effective on 5 August 2011. 16 June The Monetary Board decided to keep policy rates steady. At the same time, the Board decided to raise the reserve requirement on deposits and deposit substitutes of all banks and non-banks with quasi-banking functions by one percentage point effective on Friday, 24 June 2011. 05 May The Monetary Board decided to increase by another 25 basis points the BSPs key policy interest rates to 4.5 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.5 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also raised accordingly. 24 March The Monetary Board decided to increase by 25 basis points the BSPs key policy interest rates to 4.25 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.25 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also raised accordingly. 10 February

The Monetary Board decided to keep the BSPs key policy interest rates steady at 4 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also left unchanged. 2012 25 October The Monetary Board decided to reduce the BSP's key policy interest rates by 25 basis points to 3.50 percent for the overnight borrowing or reverse repurchase (RRP) facility and 5.50 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also reduced accordingly. This is the fourth time this year that the BSP has cut its policy rates and brings the cumulative reduction in BSP policy rates in 2012 to 100 basis points. 13 September The Monetary Board decided to maintain the BSP's key policy interest rates at 3.75 percent for the overnight borrowing or reverse repurchase (RRP) facility and 5.75 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also maintained accordingly. The reserve requirement ratios were kept steady as well. 26 July The Monetary Board decided to reduce the BSP's key policy interest rates by 25 basis points to 3.75 percent for the overnight borrowing or reverse repurchase (RRP) facility and 5.75 percent for the overnight lending or repurchase (RP) facility, effective immediately. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also reduced accordingly. This is the third time this year that the BSP has cut its policy rates. 19 April, 14 June The Monetary Board decided to keep the BSP's key policy rates at 4 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also maintained accordingly. The reserve requirement ratios were kept steady as well.

01 March The Monetary Board decided to reduce the BSP's key policy interest rates by 25 basis points to 4.0 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.0 percent for the overnight lending or repurchase (RP) facility, effective immediately. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also reduced accordingly. This rate cut follows the 25-basis-points reduction in policy rates that was implemented in January of this year. 19 January The Monetary Board decided to reduce key policy interest rates by 25 basis points to 4.25 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.25 percent for the overnight lending or repurchase (RP) facility.

9. What is the current monetary policy stance of the monetary board? The BSP is using the inflation targeting, a central banking policy that revolves around meeting preset, publicly displayed targets for the annual rate of inflation. The benchmark used for inflation targeting is typically a price index of a basket of consumer goods, such as the Consumer Price Index The governments inflation target is defined in terms of the average year-on-year change in the consumer price index (CPI) over the calendar year. The inflation targets have been set at 4.5 percent with a tolerance interval of + 1.0 percentage point for 2010 and 4.0 percent with a tolerance interval of + 1.0 percentage point for 2011. 10. What do you think will happen to the interest rate in the future because of these stances? Because interest rates and the inflation rate tend to be inversely related, the likely moves of the central bank to raise or lower interest rates become more transparent under the policy of inflation targeting. (target rate < inflation rate, raise interest rates; target rate > inflation rate, lower interest rates) 11. What is a fiscal policy? The term fiscal policy refers to the expenditure a government undertakes to provide goods and services and to the way in which the government finances these expenditures. 12. How is fiscal policy made?

The government aims to find a balance between lowering unemployment and reducing the inflation rate. The main tools of Fiscal Policy are changes in the composition of: Government Purchases and Expenditures 1. Government purchases and expenditure, when done in an extremely controlled and systematic manner can help in the expansion of the government sector and steady economy growth achievement. These purchases are nothing but money spent by the government on final goods and services. When it comes to expenditure, every government has planned budgets and procedures as of where investments would be made. Generally, all sectors of the economy are included in the government spending. Taxation 2. The government spends a lot of money on public welfare and economic development. So, there must be a continuous source of income for the government treasury too. Taxes levied on people and corporations are the best source of income for the government. 13. What are the different types of fiscal policies? Neutral fiscal policy is usually undertaken when an economy is in equilibrium. Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity. Expansionary fiscal policy involves government spending exceeding tax revenue, and is usually undertaken during recessions. Contractionary fiscal policy occurs when government spending is lower than tax revenue, and is usually undertaken to pay down government debt. 14. How do fiscal policies affect interest rates in the market? In Expansionary Fiscal Policy, the government sells debt in a higher interest rate to attract buyers from individuals and to the private sectors in order to finance the deficit. In Contractionary Fiscal Policy, the government pays its debt to the public. In doing this, the supply of money in the circulation would increase and this would result to higher interest rates in the market. In Neutral Fiscal Policy, the interest rate is not affected. 15. Get information on the fiscal position of the Philippines from 2008-2011, and latest data for 2012.

2008 25 February 2009, Manila, Philippines: The fiscal deficit of the National Government for 2008 stood at P68.1 billion, registering an over performance of P6.9 billion compared with the program of P75 billion. It is equivalent to 0.9 percent of GDP. The National Government incurred a deficit in December amounting to P1.4 billion, lower than the deficit of 25.0 billion incurred during the same period last year. Revenue Performance For the full year of 2008, revenue collections reached to P1,202.9 billion or P22.3 billion lower than program. It grew by 6% compared to the same period last year of P1,136.6 billion. The Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) for the year registered a growth of 9% and 24%, respectively compared to the same period last year. Expenditures National Government expenditures reached P1,271.0 billion for the year or 29.1 billion below than program and grew by 11% over the same period last year. Primary Balance Netting out the interest payments in the expenditures, the National Government recorded a primary surplus for the year amounting to P204.1 billion, lower than the amount recorded last year. 2009 19 February 2010, Manila, Philippines: The fiscal deficit of the National Government for 2009 stood at P298.5 billion, higher by P48.5 billion than the programmed ceiling of P250 billion. It is equivalent to 3.9 percent of GDP. The National Government incurred a deficit in December amounting to P26.0 billion. Revenue Performance For the full year of 2009, revenue collections reached to P1,123.2 billion or P115.9 billion lower than program. The shortfall in revenue collections is due to the underperformance by the Bureau of Internal Revenue by P48.2 billion, Bureau of Customs by P53.0 billion, and Other Offices by P24.6 billion. The Bureau of the Treasury, on the other hand, exceeded its collection target by P9.8 billion and registered a growth of 9.8% compared to the same period last year. Expenditures National Government expenditures reached P1,421.7 billion for the year or 67.4 billion below than program and grew by 12% over the same period last year. Primary Balance Netting out the interest payments in the expenditures, the National Government recorded a primary deficit for the year amounting to P19.7

billion. 2011 5 March 2012, Manila, Philippines: : The fiscal deficit of the National Government for 2011 stood at P197.8 billion, registering an overperformance of P102.2 billion compared with the program of P300 billion. It is equivalent to 2.0 percent of GDP and better than the 3.5 percent in 2010. The National Government incurred a deficit in December amounting to P101.5 billion. Revenue Performance For the full year of 2011, revenue collections reached P1,359.9 billion or a 12.6% growth compared to last years P1,207.9 billion. Collections of the Bureau of Internal Revenue (BIR) were recorded at P924.1 billion and the Bureau of Customs (BOC) at P265.1 billion, or a growth of 12% and 2%, respectively, for the year 2011 compared to 2010. For the whole year 2011, cash collections of BIR amounted to P900.0 billion or 11.5% higher than previous year, while cash collections of BOC reached P255.7 billion or 12.4% higher than 2010. The Bureau of the Treasury registered an income of P75.2 billion while other offices posted an income of P95.4 billion. Total revenue collections for 2011 which reached P1,359.9 billion was P51.4 billion lower than program. The lower-than-programmed revenue collections was due to shortfall in collections of the BIR by P15.8 billion and BOC by P54.9 billion. This was partially offset by higher-thanprogram collections of Bureau of the Treasury by P5.2 billion and other offices by P14.1 billion. Expenditures National Government expenditures reached P1,557.7 billion for the year or 153.6 billion below program. This level however reflects a growth of 2% over actual expenditures in 2010. Actual disbursements in December amounted to P211.7 billion. Primary Balance Netting out the interest payments in the expenditures, the National Government recorded a primary surplus for the year amounting to P81.2 billion. 2012 26 September 2012, Manila, Philippines: The January to August fiscal deficit of the National Government reached 71.208 billion. The National Government recorded a surplus in August amounting to P2.523 billion. Revenue Performance Revenue collections reached P1,013.638 billion for January to August. Actual collections were recorded at P701.432 billion for BIR and

P190.448 billion for BOC. The Bureau of the Treasury income was recorded at P60.874 billion while collections from other offices was recorded at P60.884 billion. Revenue collections reached P129.408 billion for the month of August. Actual collections for the month were recorded at P96.756 billion for BIR, P22.632 billion for BOC. Bureau of the Treasury income and collections from other offices for the month were recorded at P2.970 billion and P7.050 billion, respectively. Expenditures For January to August 2012, total disbursements amounted to P1,084.846 billion, 14.5% higher than the comparable disbursements in 2011 Excluding interest payments, total disbursements increased by 15.1%. Actual disbursements in August amounted to P126.885 billion. Primary Surplus/ (Deficit) Netting out the interest payments in the expenditures, the National Government recorded a primary surplus for January to August amounting to P149.907 billion. 16. What is the current fiscal condition of the Philippines? At no time in the Philippines recent history has its fiscal position been the subject of so much intense debate and concern as it is today. Indeed, the countrys fiscal position has been chiefly progressing and recovering, something that has accumulated through a certain period of time and something that many fiscal economists have been forewarning for years now. The debt-to-gross domestic product ratio of the government these days, an indicator of a countrys creditworthiness, is expected to drop further this year and hit the international benchmark for investment grade of just 40 percent. The governments debt-toGDP ratio hit 50 percent in 2011. The ratio has been declining steadily from 84 percent in 2004, when the country was said to be on the brink of a fiscal crisis. Mendiola said administrative reforms that enhanced collection of taxes and other revenues, and the prudent management of liabilities had helped trim the debt-to-GDP ratio. Reaching a 40-percent debt-to-GDP ratio is one of the objectives of the governments fiscal managers. It is in line with the countrys goal of getting an investment grade credit rating. Analysts said most countries that enjoy investment grade had debt-to-GDP ratios of 40 percent or lower. Mendiola said the Philippines method of computing its debtswhich included the bond sinking fund (BSF)was actually conservative. Bond Sinking Fund is a pool of savings by the government that is reserved for the servicing of long-term debts in case the government suffers liquidity problems by the time the debts fall due. He said that if the BSF was excluded from the computation, the debt-to-GDP ratio would already be 40 percent by now. Therefore, by the time we (Philippines) declare that our debt-to-GDP ratio is already 40 percent, the figure will actually be lower, the treasury official said.

The outstanding debt of the government hit P5.15 trillion as of the end of May, data from the Bureau of the Treasury showed. Currently, despite its sustained economic growth and improving fiscal condition, the Philippines still lags behind its neighbors in terms of FDI inflows. The Philippines is rated one notch below investment grade by Fitch Ratings and Standard & Poors, and two notches below the same by Moodys Investors Service. 17. Compared to the previous years, how does the Philippines fair so far in terms of fiscal management? Based on the most recent testimony on the Philippine Fiscal Management, contrast against the earlier years, the country is doing very well recently. Nonetheless, it is expected that there would be slowdown as far as national economy is concerned. What is encouraging for Philippines economic conditions is that depreciation would be still within expectations of national government. A number of moves have been made by national government in order to improve economic conditions of Philippines. It has increased amount of expenditures to a significant extent and has been outsourcing its business activities. Amount of mining and construction for residential purposes has gone up in Philippines as well. Economists have noted that Central Bank of the Philippines can still deduct its rates of interest for policies by as much as 50 basis points in first quarter of 2012 fiscal. It is expected that this interest rate deduction would be assisting weakened financial sector and overall Philippines economic conditions. Reports on Philippines economic conditions have confirmed that rates of interest would stay flat for first quarter 2012 even if there are deductions on policy rates by Central Bank of the Philippines. Much of this would be owing to irregularities in issuance of major corporate bonds. It is also expected that in first quarter of 2012 fiscal exchange rate between United States dollar and Philippines Peso would continue on its downward slope. In first quarter of 2009 fiscal 1 US dollar would be worth 41.50 Philippines Peso. 18. What is the impact of the current fiscal stance of the Philippine government to the interest rate in the market? It is commonly believed that due to the recent fiscal condition of the Philippines, interest rates be likely to climb up. However, these crowding out effects of deficits have been found to be small or non-existent. One explanation is that financial integration offsets interest rate differentials on globalized bond markets. With this, the current fiscal policy impacts the amount of taxes that future citizens will pay. And If the government runs up long-term budget deficits, then future generations will need to pay higher taxes in order to pay the interest. Similarly, future generations will pay lower taxes if the government creates budget surpluses. Economists have created systems which examine the lifetime taxes and benefits associated with generations or age groups.

The Philippine government that chronically runs deficits will, at some point in time, have to address that imbalance. This fiscal imbalance will need to be addressed with higher tax revenues and/or reduced government spending. An imbalance is also created when the government benefits received by one generation exceed the taxes paid by that generation. For example, initial recipients of Social Security in the United States received far more benefits than they paid in taxes. Such imbalances are referred to as generational imbalances. Future generations will need to pay more taxes, or receive less benefits, in order to address this imbalance. Fiscal policy therefore transfers benefits according to age; it also determines how much each generation will pay the government. 19. What is stock price? The cost of purchasing a security on an exchange. Stock prices can be affected by a number of things including volatility in the market, current economic conditions, and popularity of the company. 20. How does the national output affects stock prices? The stock market affects national economies. If economic perception is negative, investors may cut back on personal spending and buying stocks, which would lead to lower demand on stocks and eventually, in lower stock prices. 21. How does the employment affects stock prices? A high unemployment rate results in a lower sense of financial security for the unemployed for obvious reasons. However, high unemployment rates also raise concerns for the employed because their employment status is also in jeopardy in a climate of downsizing and layoffs. This decline in financial security by both the employed and unemployed due to an increase in the unemployment rate will lead to less investment in the stock market as investors try to find safer means of saving their income. Thus, the unemployment rate serves as one of the key signals to investors on the health of the economy. The predicted sign of the unemployment coefficient is negative. 22. How does the price stability affects stock prices? Price stability exists when average prices are constant over time, or when they are rising at a very low and predictable rate. Price inflation occurs when average prices are rising above this low and predictable rate, and price deflation occurs when average prices are falling. When interest rates are raised, many investors sell or trade their higher risk stocks for government-backed securities such as bonds to take advantage of the higher interest rates they yield and to ensure that their investments are protected. 23. How does the trade policies affects stock prices? Trade policy is a collection of rules and regulations which pertain to trade. Every nation has some form of trade policy in place, with public officials formulating

the policy which they think would be most appropriate for their country. The purpose of trade policy is to help a nation's international trade run more smoothly, by setting clear standards and goals which can be understood by potential trading partners. 24. How does the exchange rate affects stock prices? Foreign currency rates have a direct impact on the price and value of stocks in foreign countries, and changes in exchange rates will increase or decrease the cost of doing business in a country, which will affect the price of stocks of companies doing business abroad. While long-term movements in exchange rates are affected by fundamental market forces of supply and demand and purchase price parity, short-term movements are driven by news, events and futures trading and are difficult to predict. 25. Why is it important for an investor to monitor economic information? Investors need as much information as possible about what's going on in the market. This means tapping into a variety of sources for economic, industry and company-specific information. Therefore, listening to business reports on television, surfing financial websites and reading the latest trade journals and daily newspapers is highly recommended. For example on Interest rates, if the investor will know this, he can predict the future rate cuts and therefore he can increase his investments resulting to a lot of money. We also have consumer sentiment numbers, housing and employment figures give investors the sense of what the broader public is thinking and how they are spending their money.