CHAPTER V
NATIONAL INCOME DETERMINATION ECONOMIC FLUCTUATIONS: THE BUSINESS
AGGREGATE DEMAND - is the total amount of
expenditure (in nominal terms) on domestic goods and
services.
- is made up of
consumption expenditure (C), investment expenditure
(I), government expenditure (G), and net exports
(Xn=X-M). Thus, AD=C+I+G+Xn.
MARGINAL PROPENSITY TO CONSUME (MPC)-
the change in consumption ( C) that occurs as a
consequence of a change in income ( Y).
- This ratio, C/ Y is known as the
MPC.
MARGINAL PROPENSITY TO SAVE - expresses the
ratio of the change in the level of savings ( s) that
occurs as a consequence of a change in income ( Y).
FACTORS AFFECTING AGGREGATE
CONSUMPTION
PERMANENT-INCOME HYPOTHESES - is
compromised of things such as their long-term earnings
from employment such as wages, salaries, retirement
pensions and income derived from the possession of
capital assets such as interest, dividends.
TRANSITORY INCOME - comprises short-term
temporary overtime payments. Bonuses( 13th month
pay bonus, Christmas bonus, and other performance
bonuses).
MULTIPLIER - same manner in economics and
business.
- the number of times money has changed
hands and generate income.
Y=C+I+G
THREE SECTORS COMPRISING OUR ECONOMY
- (C) households
- (I) investments
- (G) government
CHAPTER VI
CYCLE
BUSINESS CYCLE - central concern of
macroeconomics is the upswings and downswings in the
level of real output or economic fluctuations.
- is the fluctuations in the
level of economic activity alternating between periods
of depression and boom conditions.
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BUSINESS CYCLE PARTS
PEAK - economy is at, or close to full employment.
- the highest part of economy wherein it achieves
“economic boom”.
RECESSION - is a downturn in the business cycle
during which real GDP declines or the economy is
slows-down this time.
TROUGH - is where the level of GDP “bottom-out”.
- the economy is experiencing a decline.
RECOVERY - is an upturn in the business cycle during
which real GDP rises.
- the economy is continously recovering from
its downfall.
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REAL GDP - a key indicator pf cycles is the rise and fall
which mirrors changes in employment and the price
levels and other key indicators of the macro economy.
“ONE PROMINENT FACTOR IS THE VOLATILITY
OF FIXED INVESTMENT AND INVENTORY
INVESTMENT EXPENDITURES (INVESTMENT
CYCLE) FUNTION OF BUSINESSES’
EXPECTATIONS ABOUT FUTURE DEMAND”.
ECONOMIC GROWTH - the certain level achieved by
the economy through expansion of its production.
- as an expansion of the national
output usually measured by the annual percentage
increase in a national real GDP.
POTENTIAL GDP - broken line in the hypotheses
model.
 CHAPTER VII
UNEMPLOYMENT
MACROECONOMIC POLICY - its main objective is
the elimination of unemployment and the achievement
of full employment.
HIGH LEVEL OF EMPLOYMENT - one of the main
goals of every economy.
UNEMPLOYMENT - refers to the unemployed labor
resource, which is measured by the unemployment rate
during a particular period of time.
15 YEARS OF AGE OR OLDER - it comprises the
labor force of each member of the household who is
employed or actively seeking for employment during a
given period of time in the Philippines.
-students, housewives, disabled, or retired persons and
seasonal workers.
CONTROLLING OR REDUCING
UNEMPLOYMENT:
DEMAND SIDE SOLUTION - main objective of this
program is to ease short-term adversity and, more
importantly, to allow workers more time to search for a
job.
SUPPLY SIDE SOLUTION - belief those policies can
solve this by making the labor market more susceptible
to flexibility.
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PHILLIPS CURVE - based on the work of British
economist. A.W. Phillips, depicts an empirical
observation of the relationship between the level of
unemployment and the rate of change of money wages,
and by inference, the rate of change of prices (inflation).

-not working, not available, or has other reasons.

UNEMPLOYMENT RATE - is simply the percentage

of people in the labor force who are without jobs and are
actively seeking jobs.

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VARIOUS TYPES OF EMPLOYMENT

FRICTIONAL UNEMPLOYMENT - is when a job

opening occurs: say in a bank, it is rarely filled
instantaneously, even when there is someone ready,
willing and able to fill it.

STRUCTURAL UNEMPLOYMENT - is caused by a

mismatch between jobs offered by employees and
potentional workers.

CYCLICAL UNEMPLOYMENT - our economy has its

ups and downs, a set of fluctuation due to business cycle.

SEASONAL UNEMPLOYMENT - at any given time in

a year, a couple of hundred thousand people may be out
of work because this is their ‘slow season’.

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UNDEREMPLOYMENT - refers to an unemployed

labor force working less than the legal hours set by the
government, which is eight (8) hours.

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