Jajurie, Nur-Ranji C.

CE 257
2012-53949 October 2020
CE297 Homework 2

Discussion Questions - Macroeconomics and the Philippines

Reading Assignment:

A Brief Introduction to Macroeconomics (pages 1-4 only)

Philippines: A Concise Profile

A Project Management Methodology (pages 1-13)

Submit your answers in Word format and comments will be in red font on the file
that you submit. Kindly avoid using the color red in the text of your reports.

Type your answers after the question

For every submittal, pls use the file format: CE297-B-HW02-FAMILY NAME-
FIRST NAME

For this homework, use CE297-B-HW02-FAMILY NAME-FIRST NAME

Due date: 08 October 2020

1.) What is GDP?

Gross Domestic Product (GDP) represents the monetary value of all the final
goods and services produced within a country in a specific period. This includes
anything produced by the country's citizens and foreigners within its borders. It is
primarily used to assess the health of a country's economy. The calculation of a
country's GDP takes into consideration several different factors about that
country's economy, including its consumption and investment. 1

In general, GDP:

 tracks the health of a country's economy.

 represents the value of all goods and services produced over a specific
time period within a country's borders.
 may be used by economists to determine whether an economy is growing
or experiencing a recession.
 may be used by investors to make investments decisions—a bad
economy means lower earnings and lower stock prices.
1
L. Kramer. “What Is GDP and Why Is It So Important to Economists and Investors?”. 01 June 2020, Web.
Retrieved at https://www.investopedia.com/ask/answers/what-is-gdp-why-its-important-to-economists-
investors/

Page 1 of 8
Jajurie, Nur-Ranji C. CE 257
2012-53949 October 2020

2.) Is the GDP an indicator of a country’s strength? How?

GDP can be used as an indicator of a country’s strength through comparison 2. If

the GDP is rising, it means that the economy is in a solid shape and that the
country is moving forward. Whereas, if the GDP is falling, the economy of the
country might be weak and in trouble.

GDP does not directly measure those things that makes life worthwhile, such as
the quality of education, healthcare of children, intelligence, integrity, devotion to
one’s country, but with GDP, we can measure a country’s ability to obtain many
of the inputs that makes life of citizens worthwhile.

However, GDP is not a perfect measure of a country’s well-being. For one it does
not consider leisure. When everyone is working 7 days a week, GDP would
improve since there’s an increase in the production of goods and services–
however, we cannot conclude that everyone was better off since there was a
reduction in leisure. Also, as GDP uses market prices to value goods and
services, it excludes the value of all activities with took place outside market. For
example, when a baker bakes bread in a bakery- it becomes a part of GDP,
however when the baker bakes it for his family, the value he added to the raw
ingredients is left out of the GDP. Moreover, GDP does not take into
consideration the quality of the environment nor distribution of the wealth.

Overall, although GDP is a good measure of economic wellbeing, it isn’t perfect,

and does it is important to keep in mind what does GDP considers and what
does it not.

3.) What is GNP? How is it different from GDP?

Gross national product (GNP) is an estimate of total value of all the final
domestic and foreign products and services turned out in each period by the
means of production owned by a country's residents.

GNP is commonly calculated by taking the sum of personal consumption

expenditures, private domestic investment, government expenditure, net exports
and any income earned by residents from overseas investments, minus income
earned within the domestic economy by foreign residents. Net exports represent
the difference between what a country exports minus any imports of goods and
services.3 GNP can be viewed as the GDP plus the net property income from
abroad.
4.) What are the factors that increase GDP?
2
L. Smith. “Does High GDP Mean Economic Prosperity?”. 05 April 2020. Web. Retrieved at
https://www.investopedia.com/articles/economics/08/genuine-progress-indicator-gpi.asp
3
J. Chappelow. “Gross National Product (GNP)”. 20 March 2020. Web. Retrieved at
www.investopedia.com/terms/g/gnp.asp#:~:text=Gross%20national%20product%20(GNP)%20is,owned
%20by%20a%20country's%20residents.

Page 2 of 8
Jajurie, Nur-Ranji C. CE 257
2012-53949 October 2020

Factors4 that increase GDP, or economic growth, are the country’s natural
resources, the physical capital or infrastructure, population or labor, human
capital, the existing technology, and of course, the governing laws.

Natural resources, like oil and mineral deposits, may increase the GDP as this
shift or increases the production in a country. Whereas, the increase in the
number of physical capital and infrastructures (e.g. factories, machineries, and
roads) lowers the cost of economic activity, thereby, resulting to higher
productivity or GDP. A growing population means that there in an increase in the
available workforce, however, this may also lead to high unemployment. The
quality of the workforce or human capital also increases a country’s GDP, such
that, a skilled labor force will surely increase the productivity of a country.
Technology is also one important factor that influences a country’s productivity; in
general, an improvement in technology will result to an acceleration on the
country’s economic and will promote sustainability. Lastly, the country’s
institutional framework, like governing laws, which regulates economic activity
may also potentially increase a country’s GDP.

5.) Why is government spending necessary?

Government spending refers to money spent by the public sector on the

purchase of goods and services, such as education, healthcare, social
protection, and defense. These acquisitions are primarily financed through taxes
or government borrowing. Government spending is necessary as it enables the
government to produce or purchase goods and services that are needed in order
of it to achieve the country’s economic objectives.

Samples5 of necessary government expenditures are the following:

1. Goods and services that are not supplied by the private sector, such as
military defense, roads and bridges; merit goods such as hospitals and
schools, and welfare payments and benefits including unemployment and
disability benefits.
2. Improvements on education and training on labor to achieve
improvements in the supply-side of the macro-economy.
3. Subsidies to industries that may need financial support for either their
operation or expansion (e.g. transport infrastructure projects).
4. Improvements on social welfare.

4
P. Agarwal. “Economic Growth”. 28 April 2020. Web. Retrieved at www.intelligenteconomist.com/economic-
growth/
5
CFI Education Inc. “Government Spending”. nd. Web. Retrieved from
corporatefinanceinstitute.com/resources/knowledge/economics/government-spending/

Page 3 of 8
Jajurie, Nur-Ranji C. CE 257
2012-53949 October 2020
6.) Is deficit spending advantageous?

Deficit spending refers to the expenditures of the government which intentionally

exceed its revenues during a fiscal period and often meant to stimulate the
economy.

In his 1036 book The General Theory of Employment, Interest, and Money,
British economist John Maynard Keynes argued that during a period of recession
or depression, a decline in consumer spending could be balance by an increase
in government spending. To Keynes, maintaining aggregate demand—the sum
of spending by consumers, businesses and the government—was key to
avoiding long periods of high unemployment that can worsen a recession or
depression, creating a downward spiral in which weakening demand causes
businesses to lay off even more workers, and so on. 6

Once the economy is growing again and full employment is reached, Keynes
said, the government's accumulated debt could be repaid. If extra government
spending caused excessive inflation, Keynes argued, the government could
simply raise taxes and drain extra capital out of the economy.

However, as some economist also say, deficit spending, if left unchecked, could
threaten economic growth. Too much debt could cause a government to raise
taxes or even default on its debt. What's more, the sale of government bonds
could crowd out corporate and other private issuers, which might distort prices
and interest rates in capital markets.

Thus, it may be concluded that deficit spending is advantageous for as long as

the government is able to control its debt and ensure that it can be repaid once
the

7.) How does inflation affect consumption?

As defined by Investopedia7, inflation is the quantitative measure of the rate at

which the average price level of a basket of selected goods and services in an
economy increases over some period. In general, it is the increase of prices
where a unit of currency effectively buys less than it did in prior periods and thus
indicates a decrease in the purchasing power of a nation’s currency.

Inflation maybe classified into three types: (1) Demand-Pull Inflation, (2) Cost-
Push Inflation, and (3) Built-In Inflation. The Demand-Pull Inflation is the increase
in the prices brought by the shortage in supply; economists often described it as
“too many dollars chasing too few goods." Whereas a Cost-Push Inflation is the
6
J. Chen. “Deficit Spending”. 05 April 2020. Web. Retrieved from
https://www.investopedia.com/terms/d/deficit-spending.asp#:~:text=Criticism%20of%20Deficit
%20Spending&text=This%20will%20deprive%20the%20economy,even%20default%20on%20its%20debt.
7
J. Chen. “Inflation”. 26 March 2020. Web. Retrieved from
https://www.investopedia.com/terms/i/inflation.asp

Page 4 of 8
Jajurie, Nur-Ranji C. CE 257
2012-53949 October 2020
increase on prices of goods and services which resulted from the increase in
production costs (which can decrease the supply). Lastly, the Built-In Inflation is
the increase in prices which results from past events and persists in the present.

Overall, inflation erodes the purchasing power of a currency which may

encourage consumers to spend money now rather than later. And as inflation
promotes increase in demand, this will also result to more inflation, especially if
the supply is very limited (Demand-Pull Inflation).

8.) What is the GINI coefficient?

The Gini coefficient (Gini index or Gini ratio) is a statistical measure of economic
inequality in a population. The coefficient measures the dispersion of income or
distribution of wealth among the members of a population.

It is one of the most frequently used measures of economic inequality which

aligns with the following principles8: (1) Anonymity, (2) Scale of Independence,
(3) Population Independence, and (4) Transfer principle.

9.) How does a government’s Fiscal Policy affect the economy?

Fiscal policy refers to the use of government spending and tax policies to
influence economic conditions, such as aggregate demand (AD) and the level of
economic activity.

J. Keynes argued that economic recessions are due to a deficiency in the

consumption spending and business investment components of aggregate
demand. Keynes believed that governments could stabilize the business cycle
and regulate economic output by adjusting spending and tax policies, in
conjunction with monetary policy, to make up for the shortfalls of the private
sector.

Notable recent fiscal policies of the Philippine government are the Tax Reform for
Acceleration and Inclusion (TRAIN) Act which supposedly simplifies tax
administration, and the full connection and connection to the ASEAN Single
Window (ASW) of TradeNet, the government’s online trade facilitation portal.

8
Read more in CFI Education Inc. “GINI Coefficient”. nd. Web. Retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/economics/gini-coefficient/

Page 5 of 8
Jajurie, Nur-Ranji C. CE 257
2012-53949 October 2020
10.) How does a government’s Monetary Policy affect the economy?

Monetary policy9 refers to the macroeconomic policy laid down by the

government which involves management of money supply and interest rate. It is
used by the government in order to achieve its macroeconomic objectives like
inflation, consumption, growth and liquidity. As monetary policy impacts the
money supply in an economy, it also impacts business expansion, net exports,
employment, the cost of debt, and the relative cost of consumption versus saving
—all of which directly or indirectly impact aggregate demand 10, which represents
the total demand for goods and services in an economy.

11.) What is the GDP of the Philippines? Its ASEAN neighbors? Use 2019 data.

The table below shows the GDP11 of members of ASEAN as of 2019. The
Philippines has a total GDP of 376,795.51 million US dollars and ranks third
among its ASEAN neighbors, however if we consider the population of the
Philippine – the GDP per capita is 3,485 USD which ranks fifth among its ASEAN
members.

GDP in millions GDP per capita, GDP

current US current US Growth Rate,
COUNTRY
Dollars (as of Dollars (as of as of 2019
2019) 2019) (%)
Brunei Darussalam 13,469.42 [10] 28,022 [2] 1.0%
Cambodia 27,089.39 [8] 1,620 [9] 7.0%
Indonesia 1,119,190.78 [1] 4,136 [6] 5.2%
Lao PDR 18,173.84 [9] 2,535 [8] 6.8%
Malaysia 364,701.52 [5] 11,415 [3] 4.5%
Myanmar 76,085.85 [7] 1,408 [10] 4.5%
Philippines 376,795.51 [3] 3,485 [5] 6.2%
Singapore 372,062.53 [4] 65,233 [1] 2.4%
Thailand 543,649.98 [2] 7,808 [4] 3.5%
Vietnam 261,921.24 [6] 2,715 [7] 6.5%

9
The Economic Times. “Definition of 'Monetary Policy'”. nd. Web. Retrieved from
https://economictimes.indiatimes.com/definition/monetary-policy
10
M. Hall. “How Do Fiscal and Monetary Policies Affect Aggregate Demand?”. 04 April 2019. Web. Retrieved
from https://www.investopedia.com/ask/answers/040315/how-do-fiscal-and-monetary-policies-affect-
aggregate-demand.asp
11
The World Bank. “GDP (current US$)”. nd. Web. Retrieved from
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?name_desc=false&year_high_desc=true

Page 6 of 8
Jajurie, Nur-Ranji C. CE 257
2012-53949 October 2020
12.) What is the Philippines’ infrastructure budget as a percentage of GDP?
How about its ASEAN neighbors? Use 2019 data.

Per the latest DBM data, the Philippine government’s infrastructure and capital
rose to Php 881.7 billion which is 5.2% of the country’s GDP in 2019. Ever since
President Duterte assumed office in 2016, there have been a massive increase
in infrastructure outlays as compared to the past administration.

Infrastructure Spending as % of GDP

(first two years of each administration)

Ramos Estrada Arroyo B. Aquino Duterte

1993 1.3 1998 1.4 2001 1.7 2011 1.8 2017 6.3

1994 1.9 1999 1.7 2002 1.4 2012 2.0 2018 6.2

This is in conjunction with the present administration’s ‘Build! Build! Build!’

program which aims to usher the “Golden Age of Infrastructure” in the
Philippines.

However, no available collective data were found for the infrastructure

expenditures for the ASEAN countries in 2019. Hence, 2016 data will be used for
comparative purposes.

Infrastructure Spending,
COUNTRY
% GDP (as of 201712)
Brunei Darussalam -
Cambodia -
Indonesia 2.6
Lao PDR -
Malaysia 1.8
Myanmar -
Philippines 2.213
Singapore 2.3
Thailand 1.7
Vietnam 5.8

As seen, Vietnam surpassed all ASEAN countries in %GDP infrastructure

spending. This is due to their efforts to attract manufacturers in their country.
12
Asian Development Bank. “Asia infrastructure spend is Vietnam’s race to attract manufacturers”. 2017.
Web. Retrieved from https://www.ventureoutsource.com/contract-manufacturing/asia-infrastructure-
spend-vietnams-race-attract-manufacturers/
13
Public-Private Partnership Center. “2020 gov’t infrastructure spending seen higher than originally thought”.
23 June 2020. Web. Retrieved from https://ppp.gov.ph/in_the_news/2020-govt-infrastructure-spending-
seen-higher-than-originally-thought/

Page 7 of 8
Jajurie, Nur-Ranji C. CE 257
2012-53949 October 2020

13.) Considering the current pandemic that the whole world is experiencing
now, suggest 3 ways on how the country can improve its GDP.

As a result of the pandemic, emerging economies, such the Philippines, are

suffering from the slowdown in investment, trade, and tourism. And as we
continue to impose community quarantine to control the widespread of the
disease, our fiscal space becomes limited.

And in order to cope up with the negative effects of the pandemic, the United
Nations recommends that the country to do the following 14:

 Ensure that essential health services are still available and protecting
health systems, and continue to help people cope with adversity, through
social protection and basic services;
 Protect jobs and support small and medium-sized enterprises, and informal
sector workers through economic response and recovery programs;
 Guide the necessary surge in fiscal and financial stimulus to make
macroeconomic policies work, promote social cohesion, and invest in
community-led resilience and response systems.

In summary, the Philippines needs a sustainable economic growth in order to

improve its GDP during the pandemic. This will require the Philippine government
to create conditions that allow Filipinos to have quality jobs that stimulate the
economy without harming the environment. The government shall also ensure
that there are job opportunities and decent working conditions for the whole
working-age population, especially now that the country is to hit recession. There
is also a need to increase access to financial services in order to manage
incomes, accumulate assets, and make productive investments. Improvements in
trade, banking, and agricultural infrastructure would also help Philippines
alleviate the effects of the world crisis in its GDP.

14
United Nations. “Promote inclusive and sustainable economic growth, employment and decent work for
all”. Nd. Web. Retrieved from https://www.un.org/sustainabledevelopment/economic-growth/

Page 8 of 8