Chapter 8 It is defined by the department of Labor and

employment (DOLE) as the condition where

This theory states that a firm in a
a family receives insufficient income to
competitive industry will hire workers up to
purchase or meet the recommended
the point where the value of the marginal
minimum nutrient requirements and basic
product just equals the cost of the factor
needs in clothing, education, medical care,
 Classical Theory housing and fuel.

This theory states that individuals’ ought to  Poverty

be free to act in their own self-interest.
The most prominent of the classical
They must be allowed to move about
economist are the following except
without interference, choose their own
business and occupation, gain wealth, do  Rene Descartes
whatever they like with their profits
It is the level affording minimum
property
consumption of basic necessities
 The Laissez-Faire Theory
 Personal Income
This theory argues that the aggregate of
It is an employed person who works for less
labor markets is not self correction. They
than 40 hours per week, despite the fact
advance two reasons: the forces causing
that he wants to work for more hours
and maintaining full employment is largely
outside of labor markets and the self  Underemployment
correcting mechanism has not proven
effective, ie. Free market do not seem to According to this theory, unchecked
reach an equilibrium position at the point of breeding of man causes population to grow
full employment by geometrical progression while the food
supply cannot grow so rapidly only an
 Keynesian Theory arithmetical rate of increase
When is a person under Philippine laws  Malthusian Theory
consider unemployed?

 When he is atleast 15 years old,

willing and able to work, but cannot
find work
According to him, in charging higher prices
for subsistence, landlords were not
exploiting labor, but the employer who has
to pay higher wages. The employer could
not charge any more for his product
because he had to pay the higher wage,
since the prices he receive were
determined in competitive and increase in
labor supply, wages would settle not far
from the level necessary to maintain a
minimum of subsistence
 David Ricardo
Key economic development
 Human Resource
Represents conflicts on social reality with
social ideas that normally rise out at
employment
 Labor problems
Underemployment is divided in two
 Visible Underemployment
o Number of people working
less than 40 hrs. per week
wanting additional work
 Indivisible underemployment
o Number of people working
40 hrs. or more per week
and still wanting additional
work
Inadequate Wages
 Can result from the inability of
wages to catch up with increase in
prices
Poverty Threshold
 Concept of subsistence income as
the level affording minimum
consumption of basic necessities has
been estimated for families
Classical theory prominent
 Adam Smith - “ The Wealth of
Nations” in 1976
 David Ricardo – “ Principles of
Political Economy and Taxation” in
1817
 Thomas Malthus – “Essay on
Population” 1789
 John Stuart Mill – “Principle of
Political Economy” in 1848
The Laissez- Faire Theory
 Political and economic thinking
during the period was influenced by
this theory
 Slogan “Don’t interfere , the world
will take care of itself”
 This theory states that individuals
ought to be free to act in their own
self-interest
 Adam Smith states that when a man
goes in business “he intends only his
own gain and he is in this as in many
other cases led by an indivisible
hand to promote an end which is
not a part of his intention
Thomas Malthus
 His theory was an important and
integral part of the classical liberal
economic and social doctorines
  Malthusian Theory is essentially a
simple one.
 Malthus concluded that on the basis
of historical evidence populations
have an inherent tendency to
multiply rapidly, that is to double
each 25 years. Means of subsistence
of the other hand as illustrated by
gains of production in several nation
appeared to be increasing much
more slowly
 There are two general kind of checks
that limited population growth
o Preventive Check – reduce
the birth rate
o Positive Check – increase the
death rate
 IRON LAW OF WAGES - Large supply
of worker would depress wages.
When wages fall below subsistence
the surplus would be eliminate by
death. Thus wage tends to rise only
of the level of subsistence
David Ricardo
 Took over and systemized Malthus
iron law of wages
 Wages he concluded, tended to
equal the cost of reproducing it.
 Higher pay would increase the labor
supply and lower pay would
decrease it
It is the function of money wages
 Labor supply
Cure to the unemployment
 Inflation
 Government
 Trade unions
Chapter 9
According to them, controlling the supply of
money to influence the course of the
growth of the economy is essential; there is
a general agreement that money supply
affects the level of GNP
 Modern Monetarist
It is intended to provide a general measure
of average monthly and annual changes in
the retail prices of commodities commonly
bought by consumers in the Philippines,
covering all income household
 Consumer Price Index
In this type of inflation, those who buy
goods and services desire to purchase
goods and service greater than what the
economy can produce. In other words,
excess demand for commodities would tend
to push prices up
 Demand Pull
In this type of inflation, the cost of input
rather than the excess demand is the major
cause of inflation
 Cost Push
It is generally used to mean any sustained
or continuing increase in price
 Inflation
The following are the groups of inflation
gainers except
  Fixed Income Earners
The following are the tools policy used by
Bangko Sentral to control money supply,
except
 Updating of currency colors and
image annually
An example of cost push worldwide
phenomenon is the
 The great depression of 2000s
A tool that explains that low unemployment
is associated with tightness in the labor
market and high level of consumer income
and demand. When conditions for rapid
wage and price increase are present on
both demand and supply side, high degree
of business activity follows. Consequently,
demand for work increases causing low
unemployment implies soft labor markets
and low inflation rates.
 Phillips Curve
This refers to the price which sellers accept
orders for spot or earliest delivery usually in
small quantities
 Retail Price Index
Chapter 10
It is the major source of investment
 Savings
It is the bank of all banks
 Worldwide Bank
This where the Central bank persuades
financial intuitions to follow and
implements its policies
 Moral Suasion
It is the percentage of deposits kept inside
the banks vault
 Fractional Reserve System
It is the buying and selling of securities of
Central Bank
 Open Market Operation
Interest rate change by the central bank on
the borrowing of commercial banks
 Rediscount Rate
It serves as a vehicle for the free flow of
products to satisfy human wants since it can
be exchanged for any product available in
the market as a common thing of value
 Money
It is the value of peso in terms of foreign
currency
 Exchange Rate
It determines the volume of money checks
it creates
 Lending operation of the banking
system
They administer the monetary, banking and
credit system
 Bangko Sentral ng Pilipinas
Chapter 11
In this type of tax system, tax rates are high  Taxes
for a low bases and decrease with high
It is one way to control overspending
bases
 Change in Tax Rates
 Regressive
In this tax system the tax rate is uniform for
it is the biggest spender in the economy
all
 Government
 Proportional
In this type of tax system, the tax rate tends
The following are the reason why the
to increase with an increase in the tax base
government tends to borrow funds, except
 Progressive
 They want more savings
It is used as instruments to manipulate
conditions in the economy

 Taxation

it consist all claims against our government

which may have resulted from loans or
advances extended to the Philppines
govermebt or as payment for goods and
services redered to it, for which the
existence of indebtedness has been
acknowledge by the Government

 Public Debt

It is the burden of the person who

ultimately has to pay for the tax

 Incidence

Biggest source of the government fund and

is the lifeblood of the government