Chapter 2: Flashcards
Decrease the capacity of an economy to produce goods and services compared from one period of time to another.
Low Economic Growth
Indicators of Economic Growth
- Unemployment
- Poverty Incidents
- Law of supply and demand
- Inflation
- High Interest Rate
- GDP (Gross Domestic Product)
- Foreign Exhange
Majority of the working population are unemplyed
Unemployment
worker is employed but not in the desired capacity whether in terms of compensation, working hours, or skills level and work experience.
Underemployment
Number of households having an income below the poverty threshold.
Poverty Incidents
Income needed to sustain food and non-food needs of the household
Poverty Threshold
Perhaps one of the most fundamental concepts of economics and it is the backbone of a market
Law of supply and demand
How much of a product or service is desired by buyers.
Demand
Amount of product people are willing to buy at a certain price
Quantity Demanded
Relationship between price and quantity demanded
Demand relationship
Represents how much the market can offer
Supply
Amount of a certain goods producers are willing to supply when receiving a certain price.
Quantity Supplied
Perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy.
Supply and demand
The correlation between the price and how much goods or service is supplied to the market.
Supply relationship
It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
GDP
The monetary value of all the finished goods and services produced within a country’s borders in a specific time period. It is usually calculated on an annual basis.
GDP
The rate at which the general led prices for goods and services is rising and subsequently purchasing power of the peso falls
Inflation
A rate which is charged or paid for the use of money.
High Interest Rates
Often expressed as an annual percentage of the principal
Interest Rate
True or False
High rates increase loan costs, dissuading borrowing and saving. Existing borrowers have less disposable income; therefore, other areas of consumption will fall.
True
True or False
higher interest rates will tend to increase consumer spending and investment.
False
higher interest rates will tend to reduce consumer spending and investment.
True or False
A rise in interest rates encourages investment; it makes firms and consumers more willing to take out risky investments and purchases.
False
A rise in interest rates discourages investment; it makes firms and consumers less willing to take out risky investments and purchases.
True or False
Increased rates elevate mortgage costs, reducing consumer spending. Even slight hikes can significantly impact personal finances and decrease overall expenditure.
True
True or False
Higher interest rates make it more attractive to save in a deposit account because of the interest gained from saving.
True
True or False
Higher interest rates decrease the cost of government interest payments. This could lead to lower taxes in the future.
False
Higher interest rates increase the cost of government interest payments. This could lead to higher taxes in the future.
True or False
High rates attract savings domestically, bolstering the local currency. A stronger currency reduces export competitiveness and boosts import demand.
True
Is the value of it’s currency in the international market.
Foreign Exchange
True or False
If the price of exports rises by a smaller rate than that of its imports, the currency’s value will decrease in relation to its trading partners.
True
True or False
If the price of a country’s exports rises by a greater rate than that of its imports, its terms of trade have favorably improved.
True
Make’s country’s exports more Expensive and Imports cheaper in foreign markets
Higher Currency
Make’s country’s exports more cheaper and Imports expensive in foreign markets
Lower Currency
Lower Country’s Balance of trade; Increasing Country’s Balance of trade
Higher Exchange rate; Lower exchange rate
What causes an Unemployment
- Low economic activities
- Mismatch in education and training to the real manpower requirements
- Over qualification, under qualification, under skilled.
- Lack or poor training programs.
- Lack of support services such as childcare and public transportation.
Higher Country’s Balance of trade
Lower Exchange rate
What causes an unemployment?
- low economic activities
- mismatch in education and training to the real manpower requirements
- over qualification, under qualification, under skilled
- lack or poor training programs
- lack of support services such as childcare and public transportation
are employment rendering working hours based on employer’s policy or the regular working hours per week of 40 based on 120. It comes with full benefits and privileges.
Full employment
Causes of Poverty Incidence
- Non-food basic needs
- Clothing and footwear
- fuel, light, and water
- housing maintenance and other minor repairs
- rental or occupied dwelling units
- transportation and communications
- non-durable furnishing
-household operations - personal care and effects
- education
- medical care
Goods and services bought by households for the satisfaction of their needs and wants
Consumer Spending
Negative effects of Inflation
- increase in opportunity cost of adding money
- hoarding
Positive effects of Inflation
- real interest adjustment to mitigate recession
- encourages investments in non-monetary capital projects
Cause of inflation
excessive growth of money supply in the financial system
An institution authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in Financial transactions, and provide other financial services to its customers.
Bank
Effect of high Interest rates
- Increases the cost of borrowing
- Increase in mortgage interest payment
- Higher interest rates increase the value of exchange rate
- Increased incentive to save rather than spend
- Rising interest rates affect both consumers and firms
- Government debt interest payments increase
Determinants of foreign exhange
- Differentials in Inflation
- Differentials in Interest Rates
- Public Debt
- Terms of Trade
- Political stability and economic performance
passed a law establishing a central bank, but disapproved by President Franklin D. Roosevelt
1939, (through Tydings-McDuffie Act)
passed same law, but implementation was aborted due to American liberalization
1944, (Japanese occupation)
Pres. Manuel Roxas assumed office, he instructed then Finance Secretary Miguel Cuaderno, Sr. to draw up a charter for a central bank.
1946
1st BSP Governor
Mr. Cuaderno
He selected charter of the Central Bank of Guatemala as model for the BSP because of its similar economic and social conditions.
Mr. Cuaderno
The Commission, which studied Philippine financial,
monetary and fiscal problems in _________, recommended a shift from the dollar exchange standard to a managed currency system. A central bank was necessary to implement the proposed shift to the new system.
1947
Central Bank Council, charter of a proposed monetary authority
1948
PD No. 72, Joint IMF-CB Banking Survey Commission - a study of the Philippine banking system - program designed to ensure the system’s soundness and healthy growth.
29 November 1972
Pres. Fidel V. Ramos signed into law Republic Act No. 7653, the New Central Bank Act, on ________________-establishment of an independent monetary authority to be known as the Bangko Sentral ng Pilipinas, with the maintenance of price stability explicitly stated as its primary objective.
14 June 1993
the New Central Bank Act took effect.
3 July 1993
is the chief executive officer of the BSP and is required to direct and supervise the operations and internal administration of the BSP.
Governor
exercises the powers and functions of the BSP, such as the conduct of monetary policy and supervision of the financial system
Monetary Board
Its chairman is the BSP Governor, with five full-time members from the private sector and one member from the Cabinet.
Monetary Board
The BSP’s Organizational Structure:
Executive Management Services:
Monetary Board
Governor
Functional Sectors:
1. Monetary Stability Sector
2. Supervision and Examination Sector
3. Resource Management Sector
4. Security Plant Complex
The primary objective of BSP’s ________________ is to promote a low and stable inflation conducive to a balanced and sustainable economic growth.
Monetary Policy
Restrict credit and raise interest rates. - Pursued to limit inflation.
Tight Money Policy
Pursued to limit inflation.
Tight Money Policy
Make money plentiful and available at low interest rates.
Easy Money Policy
Pursued to encourage investment and economic growth.
Easy Money Policy
The business activity of accepting and safeguarding money owned by individuals or institutions and lending them out to earn profit is _____________
Banking
Essential Elements of Banks
- Accept deposit
- Pay interest
- Clear checks
- Make loans
- Act as intermediary in financial transactions
- Provide other financial services
has the same powers as a commercial bank
Universal Bank
Classification of banks
- Universal Bank
2.Commercial Bank
3.Thrift Bank - Rural and cooperative bank
The powers of an ________________________ as provided in existing laws and the power to invest in non-allied enterprises.
Investment House
Required Capitalization of Universal Banks
Php 4.95 Billion
Has the power to accept drafts and issue letters of credit;
Commercial Bank
discount and negotiate promisory notes, drafts, bills of exchange, and other evidences of debt;
Commercial Bank
accept or create demand deposits;
Commercial Bank
receive other tyoes of deposits and deposit substitutes;
Commercial Bank
buy and sell foreign exchange and gold or silver bullion;
Commercial Bank
acquire marketable bonds and other debt securities;
Commercial Bank
and extend credit.
Commercial Bank
Required Capitalization of Commercial Bank
Php 2.4 billion
Has the power to accept savings and time deposits, act as a correspondent with other financial institutions and as a collection agent for government entities, issues mortgages, engage in real estate transactions and extend credit.
Thrift Bank
Required capitalization of Thrift Bank
Php 325M
banks are the more popular type of banks in the rural communities.
Rural and cooperative bank
Help farmers through the stages of production, from buying seedlings to marketing of their produce.
Rural and Cooperative banks
Privately owned and managed
Rural Banks
are organized/owned by cooperatives or federation of cooperatives.
Cooperative banks
It shall provide policy directions in the areas of money, banking, and credit.
BSP
It shall hve supervision over the banks and exercise such regulatory powers as provided in this Act and other pertinent laws.
BSP
Functions of BSP
- Liquidity Management
- Currency Issue
- Lender of Last Resort
- Financial Supervision
- Management of Foreign Currency Reserves
- Determination of Foreign Exchange Rate Policy
- Banker, Financial Adviser and official depository of the Philippine Government and GOCC
Is the process of concealing the exxistence, illegal source or application of income derived from criminal activities and subsequently disguising the source of income to make it appear legitimate or charging the form or moving the funds to a pac where they are not likely to attract attention.
Money Laundering
