Microeconomics

Individuals(demand)
Seller(supply)
Macroeconomics

Aggregatelevel
Government
o BuyersHouseholdsector
o SellerBusiness
Priceceiling

Highestpossiblepricethatthesellercanchargetheconsumerinthemarket
Causesdeficit/shortage
i.e.NFArice
o Partlysubsidizedbythegovernment
o P32perkg,actualpriceisP55toP60perkg
o Deficit/Shortage
o Qdemand Qsupply
o Toincreasesupply,mustimport
Pricefloor

Lowestpossiblepricethatthesellercanchangetheconsumerinthemarket
Causessurplus
i.e.Minimumwage
o Determinedbytheregion
o 17regions
o MetroMNLisP466perday
GoalofMacroeconomics
PriceStability
SustainableEconomicGrowth
FullEmployment
1.PriceStability
Isinflationgoodfortheeconomy?
Yes,aslongastheratedoesnotreachdoubledigits
Inflationmeansmoneyisincreasing/growingintheeconomy
Tocomputeinflationusebasketofgoods
Headlineinflationtotalinflation
Coreinflationexcludevolatileprices(goodsthatchangepriceseasily,i.e.oil)
Whenheadlineandcoreinflationarethesamevolatileproductsarestable
2.SustainableEconomicGrowth

Steadyincreaseingrowtheveryyear
CanbemeasuredbylookingattheGDPand/orGNIorGNP

GDPandGNIdataareavailableeveryquarter
GDPmeasuresthevalueaddedofallfinalgoodsandservicesproducedinthedomestic
economyinagivenperiodoftime
Finalgoodsreadyforconsumption(i.e.car)
Intermediategoodsrawmaterials,workinprocess(i.e.wheels,tires)
GNIGDP+NetFactorIncomeforAbroad(NFIA)suchasremmitances
GDPgrowth
o 57%developingcountries
o 23%developedcountries
3.FullEmployment
Atleast95%ofthelaborforceisworking(Participationrate)
Canbemeasuredbylookingatunemploymentand/oremploymentrate
Employment/unemploymentdataisavailableeveryquarter
Therecantbe100%because:
Frictionalunemploymentinbetweenjobs,resignedfromwork
Seasonalunemploymentfarmers,factoryworkers
Apersonisconsideredunemployedif
Between1565yearsold
Lookingforworkbutcannotfindanyavailable
Laborforce(1565yearsold)
CausesofunemploymentinthePhilippines
1. Therearenotenoughemploymentopportunitiesthatareavailableintheeconomy.
Averageof2.8millionworkersareunemployedinthelastdecade
2. Presenceofforeignnationalsinthelabormarket.Reducesthechanceforlocalstoget
hired.
3. Nojobopportunitiesintheneighborhood
4. Noformalorloweducationeducationalbackground
Policiestoalleviateunemployment
1. Promotecottage,smallandmediumscaleindustrieslaborintensiveenterprises
2. Governmenttoprovideseedcapital,technicalextensionandmarketingservices
necessaryforthepromotion,expansionandgrowth
3. Focusoninvestmentprogramthatwillshifttosmallandmediumscaleandlessforeign
exchangedependent
4. Provisionofinitialsupporttosmallscaleindustryemploymentprogram
5. Laborintensivemethodsthatwillbeusedintheproductionofprojects
6. Improveresourcesallocationefficiencyandrelianceonforeignborrowing
7. Improvetraining,rationalallocationandefficientutilizationofmanpower
Formsofunderutilization
1. OpenUnemployment
a. Voluntarydoesnotwanttowork

b. Involuntarywantstoworkbuthasnojob
2. UnderEmployment
a. Peopleworkinglessthan8hours
3. VisiblyActivebutUnderUtilized
a. Disguisedunemployment
b. Hiddenemployment
c. Overqualifiedbutcannotfindajob
d. Prematureretirement
4. Impaired
InstrumentsinMacroeconomicPolicies
P2.606billiongoestodebtservices,15.3%goestointerestpayment
2typesofdebtsinPhilippines
Externaldebtinternational
Internaldebtgovernmentdebtincurredindomesticeconomyandborrowedfrom
financialinstitutions
I.
Tradestanding
Comparethelevelofexportandimport
1954untiltoday,importlevelishigherthanexport
II.
Governmentmismanagement
PowerPlantinBataan
o 1983,modeledafterSouthKorea
o Cost$500Mforonereactor
PorkBarrel/CDF/PDAF
o 24SenatorsP200Meach
o 293CongressmanP70Meach
o Norequiredauditofexpenditures
1. FiscalPolicy
Referstogovernmentspendingandtaxingpolicies
Reducedbycrowdingout;increasedgovernmentspendingincreasesinterestrates,
reducinginvestmentandpartiallyoffsettingtheinitialexpansioninaggregatedemand
Executive(initiates) Legislative (approves) Executive (implements)
Whydowehavethesamebudgetin2005and2006?
Becausetheexecutiveandlegislativedepartmentdidnotagreeonthebudgetfor2006thatwill
beusedfortheyear,thusthe2006budgetwasreenacted.
Isthisgoodforthecountry?
Nobecauseinflationeatsupthevalueofmoneyandspendingthesameamountofmoneyfor
twoyearswouldmeanlessconsumptionin2006duetohigherprices(inflation).Thiswould
meanlessermoneywouldbeusebythegovernmentforprojects(suchasinfrastructure,social
services,education,etc.)
Taxes

Levyongoods

 Servesasanincomeforthegovernment
Usedtomonitorinflowand/oroutflowofgoodsandservices
Tomakesurethatresourcesareefficientlyallocated
Typesoftaxes

Directtaxes(incometax)
Indirecttax(sintax)
o VAT(10%) goods only
o EVAT(10%) goods and services
o RVAT(12%)goods and services
Corporatetax(30%)
o Advertising/MarketingExpense

2. MonetaryPolicy
Printingofmoney
Centralbank(19491992)
o ControlledbythePresident
BangkoSentralngPilipinas(1993present)
o Controlledbythemonetaryboard(7members)
HasaBSPgovernor
2governmentofficials
5fromprivatesectors
Fixedtermof6yearsregardlessofchangingofPresident
3. ExchangeRatePolicy
ToolswereusedbyBSPtocontrolmoneysupply
PrimaryTool
SecondaryTool
PrimaryTool

OpenMarketOperation(OMO)
Govtbuysandsellsgovtsecurities
o Treasurybills30365days
o Bonds57years
o Notes11years
o Riskfreecomparedtobankswithrisk
SecondaryTools

ReserverequirementsaportionofbankscapitaliskeptinBSPvault
RediscountraterateatwhichbanksborrowfromBSP
SpecialDepositAccounts(SDA)accountwherebankscandeposittheirmoneytoBSP
withhigheryieldinginterest
Printingmoneythisisinflationary!
Moralsuasionconvincebankstolowerinterestrates(usemoralissuetoconvince)
ExchangeRatePolicy

ControlledbyBSPtodeterminethevalueoflocal/domesticcurrencyvisvisforeign
currency
BSPmustreduceexcessivevolatilityofexchangerate
o Appreciationstrengtheningoflocalcurrencyvisvisforeigncurrency
o Depreciationweakeningoflocalcurrencyvisvisforeigncurrency
Appreciation
o Consumers,importers,government(foreigndebt)
Depreciation
o OFW,foreigninvestors,exporters
NationalIncomeAccounting
Income=GDP/GNP
3Approaches
1. FinalExpenditure
2. IncomeApproach
3. IndustrialOrigin/ValueAddedApproach
FinalExpenditureApproach
GDP=Y=C+I+G(XM)
Components:
Consumption(C)durableornondurablegoods
Investment(I)expendituremadetodaytogenerateincomeinthefuture
o Shortterminvestment
o Longterminvestment
GovernmentExpenditure(G)
o Publicinvestment
Businesses,infrastructure(highwaysfortradeandinvestment),realestate,
billboards
o Publicservice
Export(X)expendituremadebyforeigner
Import(M)expendituremadebylocal
IncomeApproach
GDP=Y=SP+P+C
Sourcesofincome:
Soleproprietorship(SP)
Partnership(P)
Corporation(C)
IndustrialOrigin/ValueAddedApproach
GDP=Y=A+M+S
3MajorIndustriesofthecountry
Agriculture(A)
Manufacturing

 Services(S)
SectorEconomies
1SectorEconomy
Y=Catequilibrium
Income

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