MACROECONOMICS An Introduction | | Second Editionay +8, 2S Mall 2017 £ i | | \ | he ott | ied in 2017 by C a -fabishing Ine | 199 EDSA, South Tangle Queron Cy hop.com 2017 by C& E Publishing, nen Caso be Masepa, ad Alvin PANE ‘recording, of otherwise—without Permission of the plaber, oo aeedaeaee ree a mentee SS stares x pteennloue 2017 publishing, Ine, 2017. ener leche Wloaphy and inde 1. Macrorsnonie. 1 Ang in. HT ie, Seaior Bor: Alejandro D, Pala Managing Edtor Anne Loraine V Ang. {Layout Artist: Pal Andrew L. Pegs ‘Cover Designer: Lynal§ Nagut TABLE OF CONTENTS PREFACE. CCAAPTER 1: Introduction and the Ten Prnsples of Reoomi Defnitlon of Beonomles ‘Untied Human Wants and the Beonoml Problem eonomies and Philosophy Basie Assimption of Boonomics eonomie Resources or Factors of Production ‘Alternative Deion of Eeonomic in the 2st Century ‘Ten Principles of Seanomles Point tobe Discussed ey Ponts to Remember seatwork L Sextwork 2 (CHAPTER 2: veryday Application of Boonorice Economie Models and Theos ‘Soope of Beonomies: Miteeconomics and Macroeconomics Methods of Eeonomic Anais Pont to be Discussed Key Pints to Remember Seatwori 3 Seatwore 2 (CHAPTER 3: Gains from Trade Absolute Advantage ‘Comparative Advantage and Opportunity Cost Intemational Trade ofthe Palipines Pot tobe Diacutted ey Points to Remember Seatwork 1 Seatwork 2 (CHAPTER 4: Demand and Supply Demand ‘rttng the Sipe ofthe Demand CureShite Demand and Its Determinants ‘supy ‘eting the Sloe of he Supply Curve Shin in Supply on ts Determinants Anatyaing Basie Changes Geting the Egil Computing for Equtrium Pont using Alsbrale Equations Surplus Shortage, and Gverinent interventions Print tobe Discund ey Point to Remember Seattle Seater CUPTER The aos ee “ee Cr And careers Neenng Beni rower Meuron on pe ‘Gross Domestic Product aa DP ug be Va Ried Apach oP wing apenas Roe Dineen Get OF nts GOP oni OD? veus Rew DP rn Mato dace Fer cont OD oon Cun of on OF Posts Deca oP Romane Seiwoaet Secon (CHAPTER 6 Ntonl income Analysia Aasrepste Expenditure uliper Etec Decreasing Consumption Point tobe Discussed Key Point o Remember Seatwere Seatwork 2 aa egeae a ase ” 8 16 7 7 388 or 103 103 105 m (CHAPTER 7: Measuring the Cost of Living ‘consumer Pic Indes ‘Computing for CPL ‘Wht x Contained inte Masket Basket? Correcting the Eft of nation ‘eal ad Nominal intrest ates ‘plication of tterent Rates and Infaton Pont wo be Discussed Key Points to Remember seater Sextwork2 ‘CHAPTER 6: Production and Growth Determinants of Producity Pe Pic's Contribution te Boao Growth Investment fom Abroad dscation Pola Stab Free Trade Poi tobe Disesed Key Points to Remember Sextworc Seatwore 2 {CHAPTER 9: Savings, Invertment andthe Finacial Stet Financial nstition in the Pisin Sevng edness ‘Supply and Demand for Laanabe Punds ‘Shite of the Supply ad Demand for Leanale Fonts Patt be Diseased Key Points to Remember Sextworc Searworc 2 ‘CHAPTER 10: Toole of Finance ‘Measuring the Tie Value of Money (9) Fisk Minimization Miimaing is using Sainte ww ir 5 - 1st 182 19. 4 186 17 8in to be Discunted ey Plasto Reciember Seaton Seater? CHAPTER 11 Inaton, Labor, and Unempyment ‘ater and Labor Probleme nempiyment Underenpleyment Info and Type af iition ‘Conse Pit dex yperntason| : Who Beets om ination? Paint be Dacuend ey Pints o Remember Seater ‘Searwrk 2 ‘CHAPTER 12: Money and Monetary Money ents tpertance G Mooey Supply and Demand for Money =~ Teale for Monetary Conta ‘tect of lnreasing Money in Creation ~ Print tobe Discused en basse Key Point to Remember Seater Seater 2 (CHAPTER 13: Money Grom eneySupey, Demand for Mane Bh ory py a NA Moneta ttn esa They tony ; seek Pes rng Hyperion sig Pore: Drop ater ‘Rito be Dacuneg aon? 168 169 169 m 7 178, 179 179 ie 5 165, 195 210 210 au 213 ae 21s 215 a7 2a ‘CHAPTER 14: Fiscal Policy Fiscal Potey ‘ets of nressing and Decressng Taxes ‘What Happens if the Goverment Decesses Taxes? Status of Government Spending Bets of inctessng snd Decreasing Government Expendes Dilleret Types of Fea! Paces Point to be Discussed Key Points to Remember Seatwore 1 Seatwork 2 ‘ouossary Dex 2 26 m8 2 25‘summingup, ths extbok provides an overall view of macroeconomics and hee stnt anne the present state ofthe economy with regard ta the fee of economic principles and the interplay of households, firms, andthe goverment ~The Authors CHAPTER 1 Introduction and the Ten Principles of Economics ee rakes eer moa eter ce fon ec ee eet etre Pein cere Seer clue es Nori etan ts Ceaser ecole12 Macroeconomics Anitroductian DerinrrioN oF Economics ‘eootics is afield of knowledge concerned with managing scarce reapurcen to aatfy unlimited human wants and needs. Scarelty fers to the inadequacy of resources [e, land, labor, capital, and {ntrepreneuship) tobe allocated properly tall sector ofthe economy, As aforementioned, the lack of parking spaces is an example of land alloested improper. It can be asstimed that land in the ety is Inet and improper ange defo nrge population dene ‘and thus, « high demand for space, — cond ‘UnuimrTeD Human Wanrs AND THE EcoNoMic PronLeM India, period objectives a 7 1 concentrated in ting what ane denies. The probe is that nobody can have everyting, Eres fen wrk an ee tine, he/she wil never ear eau ty ‘piyiigthate/ste wat Forinutanee, a young ale ae bing ream car and spacing t up will crentally think ef fling anew no feo rung ev mene eae new ca Me a eds const se ay const be route and verve that andi ana Class amy ving inthe city pends it get on fod, school worms Meine gig feline, lowaness, and payments for rent and tities SNS cece Tagua he ncienrarncensucie a ts EEL ROm cg erm ett seo haa fats thee cab a Sear pene wey The itntan fet Te uate te eh and want, however, sat ace ates wh us a SA eee he nes of rr, Clit Waat Bouse ofthese eS Mt becoming a need rather tha & is ao inportane tg an ot MY that technology provide edna ea mt 1 dean hat ech prn an eet ‘ana eng ce Soe tet FeonomIcs AN PaLosopuy and Cat Seth 0776) wrote the uses Of the Wealth of Nar famous An tr ose Inquiry into the ons and separated economies £0 Introduction andthe Ten Fines olteonemics 3 philosophy as a source of knowledge. He explained that sockeye based fn the interdependence ofall people regardless of what they do The Cindevying interconnection lies In the movement of good and services Im relation fo the needs and wants of people. This meana that each, individual has to sttistybis/er needs and wants, whic ie he una reason for working Basic Assumt Economics is able to predict actions of people based on rattonaly Rationality le defined as the decision-making proces of an individu that in conslotent and results ina logical cuteome most beneficial to the person To ilustrate further, the rationality tet may be considered For example, if a person prefers mango over banana and banana ort rus, then it follows thet he/she prefers mango over guar, Eomonics fssumes that individuals make decisions rationally, and tho, tebe to predict certain behavioral outcomes. oF Economics Economie RESOURCES OR FACTORS OF PRODUCTION Land covers all natural resources that exist without mart intervention. It encompasses all things derived from the elements ot components of nature such aa a, wate, forest, vegetation, and ober forma beneath the earth’ surface, Lkeslneals These resources a ‘erepraducile, The payment for land is ealled ret Labor refers to human inputs such as manpower sls wich oe use transrming resource into erent procs tht ADSM Pople need, Payments or labor re cal wages an slate we ceute Capital is the man-made factor of prodeton td nother product Exampiy-ace machinry and equipment wed PY nanufacturing companies. The payment for capitis iterest. Entrepreneurahip integrates land, aor, and capital 9 Sal 5p profuse, An erteprener i person who nora 0 5G product to reat neve ne A eros sels BAST Gittet to expore «ew rat or the product. Howe B/S innovate aod Topackage the basket wth oer ems aL {ocery items lope, but ose the wile Bal 82 tenth this way he bash of grocery tems can e soda ier Proper packaging. . soxmenn ott ‘The sary ofthese four ators of 2 oe are onl? cannot produce much; rather, want odes lveilabiity ot theve reapurees- The Be aatare Of 1880, ace tnd entrepreneurship consequently makes t2¢ PESESES. Sage, Of shortage, on fop of the unlimited Raman wo ‘universal and perpetual phenomen2®| 4 macroeconomics: Anitrodueton -ArenuariveDerinrrion oF ECONOMICSIN THE 21ST Cenruny ‘hs the modern economy is den by technology and innovation, ccc nosis to have dedicated ystem of organization the ‘Slane the matching of emurss and man weasts and esd espn tat ceonomte desea are eo ncenties, hoe, a {functoning et of to ake things wor, alstalning equity tas hemi on he Row ef ifreation To trate tis pot, the wey Of managing ot inplenentng tafe rules may be examined. Tole congestion an stn hinted uber of and ean demas weeds alo und by well tafe vilatone, Most athe ‘ls yonishnoncomplanc. The reese of ponishiment fa prong Inge oe Woe wich ing acount Yo vegeteig ‘hice omnel hou alte vations ina ear. Hower he ees ‘the rues ely as pod ast conistent implementation, adbetnce te slandrdeperating procedures, and the aval of information o ‘Ten Principuss oF Economics Manksw (2008) observed and elcid land ehucidated the different principles of fonomies. They are a flows: diferent principles of 1 People face tend ‘ends concert ticket and purchasing @ nev RE. Only oe cane ected over the wees Anothr ours 28th cations ofa month salary Wie Souci en then buy durable goods after Fa ‘monthly car or house amortization and spend feat for food lem? ti a fe ee Hem hays important to know what 2. The cot of * prngpa gi stmetlag te what one glee up to get Ht. This Technet ROO comparing the cout of setoel ehematies diem te don, ct st cay 0 ientiy cate implicit ones. Opportunity cost * ore ih teed bet che: nen separ ed them cen es SE compelled to decide how to ma wan termine how much of ei wal? Sse. Hen is a, Rms ether oly ens pater et ont kate mart, aria pes “os ae ferences in small sou = il benefn i YY Comparing marginal costs ( Sone tam Qe. gy aA fC is 100 from 1-0 ta pero Introduction andthe Ten Princes oFEconomics § 4. Poole ropond te lacentne, On eto fr wn oductvity is poor attendance. To cores ths ples, particular fle can give « heath Bonus. An incetne thomas piven can be a one-month slary fr pars peel tttendance. Afters yea, workers may even inti on ering Ghuring helidays, Asocer example fa cable few that get discounts fo subscribers whe pay on tine, The cempen cat tren g further by giving a one-month servic reco charge fbr every eleven months of advance payment. After thee incentives, collector wil hardy get eiged moth payers. 5. Trade can make everyone better off if there re 0 canter producing goods A and B wih dire lees Of efficiency, i fe beter to let these contin continue ‘oanulacturing both goods or make one country produce god ‘Rand the other good B and trade the excess withthe oer Country that does not prodice the goed respective? A tre: tit between partlpanta usualy ges bigger orp wi input 6 Markets are anually & good way to organise economic fctiviey, There was a particular time in the ial conse hhimtory when the central planners tn a command ezonomic sjtem une to deck on the alloration af county conic ‘esources, This centralized eatem proved toe instrumental oosting one's output Mon nation turned oe mart stem where the dessions on allocating resoucen are dependent tn houschola and firm, Ie is beter for tem t0 determine the proper and wie allcation of tenacrs bens cial Banners do not now anything about pce dnote Dryers relative tates and prelrenen opie chane Consumer speculations, For these rearon, communis Inks raison tre which isthe sooty wel-beig nS ations were able to achieve sch wel: being using th Oe fa marke economy where tere ian exetnce fn “ov ‘and? that places every cre o ahi e 7. Governments can sometimes improve mashat eaten, ‘ous the “vie and sein pat ey the existence of the givernment is all ncesety 1 © laws and ensure that the mechanisms of the market wick syetematcally. 8 A country's standard of living depends of SLT fo produce goods and services, Way do Fi recur pastures and wosk roroa? 1s # penute tN dog? ive oppreantes in te Palins? Omen Fe and services produced by Phin sie oa Uaited Sates cr Japa, can be obaered that= {6 macroeconomics: Anineroduction eee eee ee eae mere oes eee ee ‘quality oftheir ie, they need to work overseas . Prices ie when the government prints too much Iie later chet, wl be explained why an incre toney spn without an increase inthe nation’s ouput lad {latin Forintance the total tpt ofthe ema ‘eh fr 100 an the soernmen ncreasen money BS he ceo sae output of 1h off bs Societies face a short-run trade-off between inflation and Sssemployment. Te increase in money supply in the set ‘i fc the economy to increase spending, prompting fas trie output nd ate pres, This in thrn eds feb ein employment and a decrease in unemployment. Introduction andthe Ten Princes fons 7 Point ro ne DiscusseD Why do Fitipinos want to work abroad? A) eerromre ro ences ‘Economics deals with maneging scarce resources to eatey ‘unlimited human wants and needs. ‘The factors of production—iand, abor, capa, and nirepreneurship—are scarce. Thus, wants or desire are Felaive to the availability of these various reourees. Scarcity refer to the inadequacy of resources (Le, land, 1b capital, and entrepreneurship) to be alloeted property © ‘sectors ofthe economy. Land covers all natural resources that exst without max Labor refers to human inputs auch as manpower ails used {im transforming resources into different products that meet peoples needs Capital is the man-made factor of production used to crete fanether product. Entrepreneurship integrates land, labor, and cuit io ceate new products. An entrepreneur is tomcbndy wha innovates an reinvents an old product to creat anew oe ‘The finite nature of lan, labor, capital, and entrepreneurship Consequently makes the possibility or ecurrence of sect 08 top ofthe unlimited amen wants and needs, a waivers! and perpetual phenomenon. ‘The ten principles of economics areas flows People fae trade-off. “The cost of something is what one gies up 0B Rational people think atthe marta People respond to incentives. “Trade can make everyone beter of Markets are usually « good war © activity. : 17. Governments can sometines improve make STR 8. A country’s standard of living depends 9° Deoac pdh 19, Prices rise whea the government print a 10. Sosehen cea ahoreran trade ewes ‘unemployment oreo cxgnize conan