1.

Perfect Competition
Ø A market structure characterized by
homogeneous products in which there are
so many buyers and sellers that none has
significant influence on price.
2. Monopolistic Competition
Ø A market structure in which many firms sell
products that are similar but not identical.
Ø Sellers sell heterogeneous and well
differentiated products giving them some
control over prices.
3. Oligopoly
} A market structure in which only a few
sellers offer similar or identical
products.
} evidenced by high start-up costs that
form barriers to keep out new
competitors
4. Monopoly
} A market structure in which a single
seller dominates trade of a good or
service for which buyers can find no
close substitutes.
 Types of Number of Ease of Entry into Similarity of Control Over
Market Competitors Industry by New Products Offered Prices By
Structure Firms By Competing Individual Firms
Firms

Pure/Perfect Many Sellers Easy Similar None

Competition

Monopolistic Few to many Somewhat Different Some

Competition Difficult

Monopoly No Direct Regulated By No Directly Considerable

Competitors Government Competing Goods
or Services

Oligopoly Few Difficult Can Be Either Some

Similar or
Different
 } Definition of Money
Money is defined differently by authorities in this
field:
1. Money is any good that is widely accepted for
purposes of exchange and in the repayment of
debts (Roger A. Arnold).
2. Money is the set of assets in an economy that
people regularly use to buy goods and services
from other people (Gregory Mankiw).
3. Money constitutes all those things which are at
any time and place, generally current without
doubt or special enquiry as a means of purchasing
commodities and services and of defraying
expenses (Alfred Marshal).
4. Money can be anything that is generally
acceptable as a means of exchange and that the
same time acts as a measure and a store of value
(Crowther).
1. As a medium of exchange – Money serves as
a go-between in the exchange of commodities
such as food, clothing, tuition fees, bills,
gasoline, rent, transport fare, etc.

2. As a unit of account – Money serves as the

standard by which the value of all other
commodities is measured.
3. As a store of value –Money (currencies,
deposits, deposit substitutes) can be
held and used at a future time for
consumption or for emergency
expenditures.
4. As a standard of deferred payments –
Money is used as a standard for future
payments or to repay debts or loans at
an agreed period of time
1. Generally Acceptability – A good money is
one which is generally acceptable by
everybody without any hesitation in the
settlement of debt, in discharge of any
obligation or in exchange of goods or
services.
2. Divisibility – A good money is capable of
being divided into smaller denominations.
Thus, goods and services of varying values
can be bought from such money.
3. Portability – A good money is one that can be carried
conveniently or can be easily moved from one location
to another when such movement is needed to complete
exchanges.
4. Stability –Money should have a stable value, so that
when contracts are made involving the payment of
money in the future, both parties will feel assured that
they will have the same absolute and relative position
to each other at the end of the contract as they had at its
beginning.
5. Malleability – A good money is one wherein it
is capable of being molded, stamped or
printed.
6. Cognizability – A good money must be easily
recognized by its color, form, weight, or other
distinctive qualities by the eye, ear or the
touch.
7. Durability – A good money should be durable
so that it will not lose its exchange power
through decay, deterioration or with the
passage of time.

8. Non-counterfeitability – A good money is one

which is difficult to duplicate. There should
be no danger of fake issuance of money.
 Bangko Sentral ng Pilipinas (BSP) defines
money on the basis of its components.
Four measures of Money:
1. M1 (narrow money)
2. M2 (broad money)
3. M3 (near money/total domestic
liquidity/broad money liabilities)
M1 = currency in circulation (or currency outside
depository corporations) + demand or checkable
deposits + travelers’ checks
M2 = M1 + peso savings deposits + peso time
deposits
M3 = M2 + peso deposit substitutes (promissory
notes, commercial papers, etc.)
SAVINGS DEPOSIT – a bank account that earns
interest and can be withdrawn anytime.
TERM DEPOSIT - a deposit in a bank account
that cannot be withdrawn before a set date or
for which notice of withdrawal is required.
DEMAND/CHECKABLE DEPOSIT – a bank deposit
which can be withdrawn by writing a check on
demand.
COMMERCIAL PAPERS - an unsecured, short-
term debt instrument issued by a corporation
to meet short-term liabilities.
 MONEY SUPPLY

INCREASE DECREASE

RISE IN INCREASE IN FALL IN FEWER

PRICE LEVEL SUPPLY OF PRICE LEVEL FUNDS
LAONABLE AVAILABLE
FUNDS FOR LENDING

MARKET REAL MARKET REAL

INTEREST INTEREST INTEREST INTEREST
RATES FALL RATES FALL RATES RISE RATES RISE

INVESTMENTS INVESTMENTS
WILL RISE WILL FALL
MARKET INTEREST RATE - prevailing rate of interest offered
on cash deposits, determined by demand and supply of
deposits.
NOMINAL INTEREST RATE - the cost of credit or the return on
savings. If a person borrows from a bank, then the interest
rate is what he/she pays for their loan. When saving at a
bank, interest is the return the person receives on his/her
savings (Interest rate + inflation rate)
REAL INTEREST RATE - an interest rate that is adjusted for
inflation (nominal interest rate – inflation rate)
* nominal interest rate will tell you how fast your investment
will increase in pesos over time, the real interest rate will
tell you how fast your purchasing power will increase in
time. If inflation is higher than your interest rate, you
actually are losing purchasing power.
A saver who deposits 1,000 in an account for
one year may get a nominal rate of interest of
2.5%, and thus receive 1,025 in a year’s time.
However, if prices increase by 3%, he or she
will need 1,030 to purchase the same goods
or services that, one year earlier, would have
cost 1,000. This means that the real return
will actually have been -0.5%. This is the real
interest rate, and it is calculated by
subtracting the rate of inflation (3%) from the
nominal interest rate (2.5%).
Ø Economic policies are formulated to attain
specific objectives or solve certain problems.
Ø Economic policies are formulated by policy
makers such as politicians or top government
officials who have been elected by the people
or appointed by the president.
Ø Economic policies are as good as their
makers.
Ø A good Economic policy is one that has deep
concern for the welfare of the people
especially the poorest of the poor.
Ø The control of money supply is vested normally in a
monetary authority known the central bank (Bangko
Sentral ng Pilipinas)
Ø The desirable supply of money depends on factors such
as:
ØThe desired level of economic growth or growth of the GNP
ØThe desired level of government spending and its
relationship with government’s budget
ØThe level of credit consistent with the requirements of the
rest of the economy to carry out normal activities
ØThe level of the new money needed to meet the
requirements of the country’s international trade and
payments
ØThe velocity of circulation of money
1. MONETARY POLICY – the process whereby
the monetary authority attempts to achieve
a desired set of economic goals by
controlling either money supply, cost and
availability of credit or the allocation of
credit to its various uses.

1. FISCAL POLICY – refers to the revenue and

expenditure measures of the public budget.
1. ISSUANCE OF PAPER MONEY
2. BANKS’ RESERVE REQUIREMENTS
3. USE OF DISCOUNT POLICY
4. USE OF OPEN MARKET
OPERATIONS
5. MORAL SUASION
1. ISSUANCE OF PAPER CURRENCY
Ø The decision to print money is a governmental
decision
Ø BSP prints new money if the government desires to
spend so much money for its fiscal programs and
does not have the income to back these expenses
Ø BSP then credits the account of the national
government through the Treasury with the money it
needs
Ø Money supply expands as a result of the printing of
new money
Ø Over printing of currency to meet government
expenditures can cause serious inflation
2. BANKS’ RESERVE REQUIREMENTS
Ø BSP raises the reserve requirement if it
wants to constrict money supply
Ø BSP lowers the reserve requirement if
it wants to expand money supply
3. USE OF DISCOUNT POLICY
Ø BSP is the bank of all banks and the lender of
last resort
Ø BSP lends money to other banks that are
short of funds
Ø BSP lends to other banks on the basis of their
own promissory notes
Ø BSP raises discount rate if money supply
increases
Ø BSP lowers discount rate if money supply
decreases
} The documents of indebtedness (IOU’s) of
some borrowers of a bank are presented to
BSP for discounting so that the bank can have
more funds.
} BSP then credits the bank with the face
amount of the note minus a rate of discount.
} The discount rate or (rediscount rate) is
determined by the BSP
} The discount rate represents a base for the
cost of funds to the borrower bank
4. OPEN MARKET OPERATIONS (Buying or
selling of Government Securities)

Government Securities
Øare bonds or other types of debt obligations that
are issued by a government with a promise of
repayment upon the security's maturity date with
interest.
Ø Government securities are usually considered
low-risk investments because they are backed by
the taxing power of a government.
4. OPEN MARKET OPERATIONS (Buying and
selling of government securities)
} During budget deficits, the government either
borrows internally or externally
} Internal borrowing is done through the
issuance of government securities
} If money supply increases, government sells
securities to contract money supply
} If money supply decreases, government buys
securities to expand money supply
5. MORAL SUASION
} Basically means utilizing the persuasive
powers of the monetary authority to have
bankers undertake certain courses of action
without utilizing actual regulation.
} BSP tells bankers to reduce levels of lending
in order to decrease money supply
} BSP tells bankers to increase levels of lending
in order to increase money supply
Any of the following will increase money supply:
1. Issue more paper currencies

2. Reduce reserve requirements of banks

3. Reduce the discount rate

4. Purchase of government securities by the BSP

in the open market
5. The use of BSP’s persuasive powers to
bankers to lend more

v To reduce money supply, the opposite

activities by the BSP would be needed.