Macoeconomics Flashcards
Entire economy
Inflation, unemployment, government policies, etc.
MACROECONOMICS
People are _____________.
unpredictable
Government policies goals:
1.
2.
3.
- Keep the economy growing overtime
- Limit unemployment
- Keep prices stable
Measurements of economic growth:
Give three
- Gross domestic product (GDP)
- Unemployment rate
- Inflation rate
(Important measurement)
The value of all final gods and services produced within a country’s borders in a specific period of time, usually a year.
GDP
The ________ does not include every transaction.
Ex: second-hand car (nothing new produced), buying stocks, illegal activities, etc.
GDP
____________ – GDP not yet adjusted for inflation
Nominal GDP
____________ – GDP adjusted for inflation
Real GDP
____________ – when two successive quarters in six months show a decrease in real GDP.
Recession
____________ – severe recession
Depression
GDP → ____________
Economic growth
national income
_______________ – calculated by taking the number of people that are unemployed and dividing by the number of people in the labor force, times 100.
Unemployment rate
TRUE OR FALSE
Little kids, old people, those who are not actively looking for a job, and underemployed don’t count in the unemployment rate.
TRUE
____________________ – unemployed people that were looking for work but have given up.
Discouraged workers
__________ unemployment – time period between jobs when a worker is searching for, or transitioning from one job to another.
Friction
__________ unemployment – caused by the lack of demand for a worker’s specific type of labor.
Structural
________ unemployment – “no demand” unemployed due to recession. Seasonal.
Cyclical
__________________ – burst table of unemployment that an economy can sustain over a long period of time.
Natural rate of unemployment
Increase in overall level of prices
Inflation
With government intervention
John Maynard Keynes
Neoclassical
Investment → expense
→ return/ payoff
Hence, S=/ I
Neoclassical
relationship between savings and investment
no government intervention.
Classical school of economics
________________ – invisible hand
Adam Smith
Savings = Y- Consumption
Investment = Y - Consumption
Hence, S=I
Two-sector model (Classical school of economics)
Is monetary or fiscal policy more effective at mitigating recession?
Depends on the monetary and fiscal policy
types of monetary – _____________& ______________
expansionary & contractionary
types of fiscal – _____________& ________________
expansionary & contractionary
Is there a tradeoff between inflation and unemployment?
Yes, Phillips curve.
Monetary policy done by controlling money supply.
To prevent inflation by controlling money supply.
(increase) money in circulation (increase) inflation (<– before)
(NOW) not controlling the money supply anymore– (less) production (high) ______________, hence, less people to purchase goods.
Inflation Targeting; unemployment
Bangko Sentral ng Pilipinas sets inflation rate to control _________________ (add more from source)
consumer spending
{GDP per capita + ________________ + Inflation Rate + Currency rate} > GDP
EQUITY: ________________________
Unemployment rate; Is it distributed well across sectors?
Do determine whether developed or developing countries – more ______________, means many people can only afford _____________ & not cars.
motorcycles
____________ – ex: waiting sheds, roads, etc.
a non-excludability and non-rivalry good
Anybody can use it (& wala kang kaagaw)
Public good
Standard of living measured by output per person.
Am I eating three times a day?
Do I have a car?
Economic Growth
No growth in living standards prior to the _______________.
Industrial Revolution
Tradeoff current for future consumption
Save for future
Saving
________________: banks or other business institutions
Investment
In the classical school of economics, education is a _____________.
public good
REAL GDP & Unemployment Rate – _____________________
Increase in GDP, __________ in Unemployment Rate
Decrease in GDP, __________ in Unemployment Rate
INVERSE RELATION;
decrease;
increase
The Phillips Curve is not applicable in developing countries like the Philippines where there is a __________________.
direct relationship
Falling prices → _____________.
not a good thing
____________ – increase in a currency supply relative to the number of people using it, resulting in the rising prices of goods/ services over time.
Inflation
____________ – decrease in the general prices of goods and services.
Deflation
In stable prices, increase in GDP, _________ in Purchasing Power
decrease
Based on the preliminary results of the Family Income and Expenditure Survey (FIES) conducted in 2021, the proportion of Filipino families with incomes that are not sufficient to buy their minimum basic food and non-food needs or the poverty incidence among families in 2021 was estimated at ______.
13.2%.
The poverty incidence was _____ in 2021 or 19.99 million poor Filipinos.
18.1%
__________________ = the proportion of families/ individuals with per capita income/ expenditure less than the per capita poverty threshold to the total number of families/ individuals.
Poverty incidence
The proportion of the Filipino families whose incomes were not sufficient to meet the basic food needs in 2021 stood at 3.9%. Among Filipinos, _____ in 100 Filipinos lived below the food threshold in 2021.
6
The average family income needed to meet the minimum basic food and non-food needs of a family with five members in 2021 was estimated at _____________ per month (poverty threshold), which was higher by 11.8% from the estimated Php 10,756 monthly poverty threshold for a five member family in 2018.
Php 12,030
______________ MEASUREMENT TO COMPUTE POVERTY INCIDENCE, UNEMPLOYMENT RATE, ETC. IN OTHER COUNTRIES.
SAME
Corrects for price changes
Comparing the current GDP to the previous years.
Real GDP
- Uses current prices
- Magkano talaga ang na-produce ng Pilipinas na mga produkto at serbisyo sa taon na iyon.
- How much money do you have in your pocket?
- Face value
Nominal GDP
Looking at the growth of the economy by how much the people can have in our GDP.
GDP / population
GDP per capita
No. of people who are looking for jobs but cannot find a job.
For example: Tambay, not employed.
Unemployment
______________ (not part of the unemployment rate)
If you don’t have a job that you specialized in or mastered.
Many work but given low salary
Underemployed
MICRO – increase in ________
MACRO – increase in the ________
price;
price level
Unemployment and Inflation
RELATION: Phillips Curve (______________)
(_____) unemployment (low) inflation
(_____) unemployment (high) inflation
Inverse relationship;
high;
low
Gross Domestic Product
Measure of aggregate output
Monetary measure
One factor we consider in knowing if we have an increasing/ developing economic growth.
Overall production of goods and services within the Philippines.
Lahat ng produkto ng Pilipino na gawa sa Pilipinas ay kasali rito.
—
Final good – (part/ kasali)
Intermediate good – (ignore) a possibility to use it again. Hence, not yet the end.
—
Avoid multiple counting
Market value final goods
Ignore intermediate goods
Count value added
Exclude financial transactions
Public transfer payments
Private transfer payments
Stock (and bond) market transactions
Second-hand sales
Sell used car to a friend
Example:
In 2018, you bought a car– included in GDP. However, in 2020, you sold the car for 660K– not included in GDP. However, If modified (e.g. +pakpak), it is included,
Two Approaches to GDP
Income approach
Count income derived from production
Counting all income that you are getting from all the sectors of the economy.
Kita ng lahat ng tao.
Wages, rental income, interest, income, profit
Components of National Income
Compensation of employees
Rents
Interest
Proprietor’s income
Corporate profits
Corporate income taxes
Dividends
Undistributed corporate profits
Taxes on production and imports.
Income Approach
From national income to GDP
Net foreign factor income
Statistical discrepancy
Consumption of fixed capital
Other national accounts
Net domestic product (NDP)
National income (NI)
Personal income (PI)
Disposable income (DI)
DI = C + S
Income Relationships
Gross domestic product (GDP)
Less: Consumption of Fixed Capital
Equals: Net Domestic Product (NDP)
Less: Statistical Discrepancy
Plus: Net Foreign Factor Income
Equals: National Income
Less: Taxes on Production and Imports
Less: Social Security Contributions
Less: Corporate Income Taxes
Less: Undistributed Corporate Profits
Plus: Transfer Payments
Equals: Personal Income (PI)
Less: Personal Taxes
Equals: Disposable Income (DI)
—
Expenditure approach
Count sum of money spent buying the final goods
Lahat ng gastos (all sectors )
Who buys the goods?
Consumption by Households + Investment by Businesses + Government Purchases + Expenditures By Foreigners = GDP
Wages + Rents + Interest + Profits + Statistical Adjustments = GDP
Expenditure Approach
Personal consumption expenditures (C)
Durable consumer goods
Non-durable consumer goods
Consumer expenditures for services
Domestic plus foreign produced
Gross private domestic investment (I)
Machinery, equipment, and tools
All construction
Changes in inventories
Creation of new capital asset Non-investment transactions
Non-investment transactions
*insert formula and picture
Government purchases (G)
Expenditures for goods and services
Expenditures for social capital
Excludes transfer payments
Net exports (Xn)
Add exported goods
Subtract imported goods
NX = exports - imports
GDP = C + Ig + G + Xn
(additional)
Industrial approach
All industries (agriculture, manufacturing, food, etc.) – all products that they produce have a counterpart price.
Income Approach = Expenditure Approach = Industrial Approach
However, expenditure approach is usually used to for GDP: H + B + G T
Because not everyone announces their income.
Industrial Approach (usually late data)
Nominal vs. Real GDP
GDP is a PESO measure of production
Using PESO value creates problems
Nominal GDP
Use prevailing price
Real GDP
Reflect changes in price
Use base year price
Shortcomings of GDP
Non-market activities
Leisure
Improved product quality
The underground economy (not included)
Ex: blackmarkets
GDP and the environment
Payoff of economic growth, environment. (pareto efficiency)
Composition and distribution of the output
Non-economic sources of well-being
(insert business cycle)
UNEMPLOYMENT AND INFLATION
Durable and nondurable industries are affected differently.
Unemployment
Twin problems of the business cycle
Unemployment
Inflation
Measurement of unemployment
Who’s in the labor force
Problems with the unemployment rate
Part-time employment
Discouraged workers
insert unemployment rate formula
Types of unemployment
Frictional → same work
ex: teacher → teacher
Structural → ibang work
ex: teacher → call-center
Cyclical → cycle/ seasonal
ex: Christmas mascot or farmer sa tanim/ ani
Full employment defined:
No cyclical unemployment
Natural rate of unemployment
Full employment rate
Natural rate of unemployment
1980s 6%
Today 4-5%
Aging labor force
Temp agencies and the internet
New welfare laws and work requirements
Prison population has doubled
Cost of Unemployment
Foregone Output
Potential Output
GDP gap
(Actual output - potential output)
Okun’s Law
Each 1% above NRU creates negative 2% output gap
Unemployment
Unequal burdens
Occupation
Age
Race and ethnicity
Gender
Education
Duration
Non-economic costs
Inflation
Rise in general level of prices
Consumer price index (CP)
Market basket
300 goods and services
Typical urban consumer
2 year updates
insert CPI formula
Types of inflation
Demand pull – You’re getting/ attracting an increase in the prices of goods and services in the demand.
(increase) P
more demand attracts higher prices
Cost-push – Resources are expensive
(high) production of those goods, thus, (high) price of goods and services.
Redistributive Effects
Nominal and real income
Growth in nominal income vs. inflation rate
Anticipated vs. unanticipated inflation
Who is hurt by inflation?
Fixed-income receivers
Savers
Creditors
Who is unaffected or not hurt by inflation?
Flexible-income receivers
Cost-of-living- adjustments (COLAs)
Debtors
Other inflation Issues
Deflation – (decrease) price level
(add.) Stagflation – Big (increase) in price level
(increase) unemployment
Mixed effects
Arbitrariness
Cost-push inflation and real output
Demand-pull inflation and real output
Hyperinflation
(add)
Savings = ex: Php 500 → Php 500 (after months)
Invest - spend = spend + payoff
(increase) money in circulation (MS)
(increase) production
(increase) employment
(increase) GDP
