MACROECONOMICS OVERVIEW Macroeconomics studies the economy of a

MACROECONOMICS OVERVIEW

• Macroeconomics – studies the economy of a country in its entirety; studies the sectors to which firms and households belong. • There are things that are beneficial to an individual on a personal level but may not be beneficial to the economy when done by everyone else. (e. g. increase in salary of employees when in fact the company is going bankrupt which could lead to some being laid off)

Expanded Circular Flow of the Economy

• Outflow or leakage – when one decides not to spend his or her money and instead saves this amount in the bank. (e. g. savings, taxes) • Inflow or injection – when firms borrow money from the bank and firms invest in more machines, equipment or factories to meet demand to make decisions grow.

Determination of National Output and National Income Economic Goals of a country: • Economic growth • Employment of all Citizens • Price Stability • Positive balance of BOP • Others: Social Justice, Equity, etc.

Economic growth • Economic growth occurs when the value of goods and services increases every year. • GDP and GNI are determined by computing the total spending of the different sectors of the economy. • Both GDP (Gross Domestic Product) and GNI (Gross National Income) refer to production.

GDP Equation GDP = C +I + G + X-M Where: • C – Consumption: how much the consumer spends. • I – Investment: total private sector investment • G – Gov’t Expenses: total government expenditures • X – for Exports • M – for Imports

• GDP includes only those that are produced domestically or within the economic territories of the Philippines.

GNI Equation GNI = C +I + G + X-M NFIA Where: • C – how much the consumer spends. • I – total private sector investment • G – total government expenditures • X – for exports • M – for imports • NFIA – Net Factor Income from Abroad – refers to how much Filipinos earn (+) or how much foreigners inside the country earn (-)

• GNI – measures the total income of all citizens of a country regardless of their location; GDP along with the income received from goods and services produced and sold in other countries. • OFW remittances add to the country’s GNI while income earned by foreigners and sent to their countries is deducted from our GNI.

• Final good or service – that which is bought by the end consumer of the product. • National Statistical Coordination Board (NSCB) – government agency assigned to determine the country’s GDP.

Investment • Investment – refers to the purchase of capital, or a good that is used to produce other goods; may refer to building of a new factory, purchase of equipment, etc. • Investments exist for an extended period of time because these are used to produce other goods. Food is not an investment because it is consumed instantly

Effect of Investments on GNI and GDP • When firms invest in new plants and equipment, there comes more production therefore more income. • New plants and factories mean more employment increasing income of household. • Become entrepreneurs because it increases investments thereby increasing GNI. • Investment from foreign nations to increase employment and income, adding to our GNI (BPO – call center industries).

Interest Rates and Investment • Interest – a certain percentage of the loaned amount in exchange for the use of the money. • I = PRT

Other Mainline Measures of Growth Population • Income per capita – income of each individual per year; importance: to show the living conditions of each individual. • IPC = GNI / Population

• Based on income per capita, INCOME of each person increases when: – GNI increases while population remains constant. – Population decreases without a change in GNI – GNI increases while population decreases – Increase in GNI is greater than increase in population

Malthusian Theory: Population grows geometrically while food production is constrained by the law of diminishing marginal productivity. • This theory did not come true because: • Discovery of new ways of lengthening the usefulness. • Capacity for high production.

Employment, Unemployment, and Underemployment • Full Employment – when the percentage of people without jobs does not exceed 3% of the labor force. • Labor Force Survey – aims to gather employment statistics throughout the country. – International Labor Organization: 15 -65 years old are part of the labor force.

• Unemployment – those who are 15 years old and above and reported as: – without work – currently available for work – seeking work

• Underemployed – those employed who desire additional hours of work. – Visible underemployment – when a worker works part-time (works less than 40 hours a week). – Invisible underemployment – when a worker is overqualified for his or her job or when his or her skills and abilities are not maximized in his or her current job.

Importance of being employed: • Human resources to increase production – one factor of production. • Avoid social instability – feels part of society

Inflation • Consumer Price Index – basis for the change in the price of goods and services; refers to the price of a market basket of the products that are commonly consumed by an ordinary family

Inflation – general increase in prices of goods and services and the decrease in the purchasing power of the peso. • Demand-pull inflation – demand exceeds supply, and consumers try to compete with each other to buy, prices increase. • Cost-push inflation – increase in the price of one good causes the increase in the prices of other goods.

• Affected by Inflation: – Fixed income earners – fewer goods are bought. – Retirees – monthly pensions are fixed. – Savers – interest rates are not adjusted – Creditor – interest rates are also affected • Stability in prices is important to ensure that no single sector in the society gains or loses the most profits.

Poverty • Poor – refers to individuals and families whose income fall below the poverty threshold as defined by NEDA /or cannot afford, in a sustained manner, to provide their minimum basic needs of food, health, education, housing, and other essential amenities in life.

• Food/ Subsistence threshold – minimum income or expenditure required for a family or individual to meet the basic food needs. • Poverty Threshold – minimum income or expenditure required for a family or individual to meet the basic food and nonfood requirements.

• Subsistence Incidence – refers to the proportion of families or individuals with per capita income or expenditure that is less than the per capita food threshold to the total number of families or individuals. • Poverty Incidence – proportion of families or individuals with per capita income or expenditure that is less than the per capita poverty threshold to the total number of families or individuals.

Causes of Poverty • Increase in prices of basic commodities. • Lack of job opportunities for the less privileged. • Insufficient income especially for minimumwage earners. • Poor education, health or disability. • Natural calamities such as typhoons.