CAGAYAN STATE UNIVERSITY

GRADUATE SCHOOL
ANDREWS CAMPUS

EXAMINATION IN ECONOMICS OF EDUCATION

PART I. You are REQUIRED to answer ALL questions.

1. Assess the contributions of education to the economy using the macroeconomic model
GNP = C + I + G + (X-M). State and discuss your assumptions. Relate the human capital
theory in your discussion.

Education is always regarded as the key to development both at an individual level and
economic views. To illustrate how education interacts with the economy, is tantamount to
explaining why some workers, businesses, and economies flourish, while others do not.

First to look upon is the labor supply. Many countries have placed greater emphasis on
developing an education system that can produce workers able to function in new industries.
This is partly because older industries in developed economies have become less competitive,
and thus are less likely to continue dominating the industrial landscape. It is believed that the
knowledge and skills of workers available in the labor supply is a key determinant for both
business and economic growth. Those industries with higher education and training requirements
also tend to pay workers higher wages. Further, it is also claimed that there is a possibility that
GNP rises as the number of educated workers increases. A country's economy becomes more
productive as the proportion of educated workers increases since educated workers can more
efficiently carry out tasks that require literacy and critical thinking. However, obtaining a higher
level of education also carries a cost. Some of these costs incurred are construction of classroom
buildings, provision of learning materials and hiring of teachers. Nonetheless, with the known
economic benefits of education, the government is allotting the highest share of budget allocation
through the General Appropriations Act passed and approved yearly.

For businesses, an employee's intellectual ability can be treated as an asset. This asset can
be used to create products and services that can be sold. The more well-trained workers
employed by a firm, the more that firm can theoretically produce. An economy in which
employers treat education as an asset is often referred to as a knowledge-based economy.

Like any decision, investing in education involves an opportunity cost for the worker.
Hours spent in the classroom mean less time working and earning income. Employers, however,
pay higher wages when the tasks required to complete a job require a higher level of education.
As a result, although an employee's income might be lower in the short-term to become
educated, wages will likely be higher in the future, once the training is complete.

Similarly, when the country invests in the education of its population, it assumes
opportunity cost too. It will create spending in different forms including scholarships, linkages to
private schools and institutions. It can also incur foreign debts to finance educational programs,
policies and projects. All these are considered to be governmental interventions and economic
actions in consideration of the expected gain and income to be derived from an education
population.

2. Markets have always been efficient mechanisms in the allocation of scarce resources of
the society. While efficiency in allocation maybe achieved, nevertheless, it may not
 always result to equity. This is the case of education. In view of these considerations,
analyze the market of education.

a. Illustrate this using the simple demand supply analysis framework.

In the context of education, the theory of demand postulates that more education will be
purchased at lower prices and less education at higher prices, when all things are held constant.
This kind of relationship between price of education and demand is inverse. Whereas the price-
quantity relationship in education supply is a direct one. At a higher price more will be supplied;
at a lower price, less will be supplied. The figure below illustrates the trend that when the price
of education decreases, quantity-demand for education increases but when the price for
education increases, there is also an increase in supply for education. This happens because if it
is seen by suppliers that the price they can get from education is high, many would venture into
providing it. Private institutions, businesses and private schools would most likely dwell on the
opportunity of producing and supplying goods for training and education. However, when the
cost of education is too high, demand is also affected. There are factors that may influence the
demand for education. Cost of education, level of personal disposable income and benefits
accruing from educational investments are some of the few factors that may affect ability of
consumers to purchase it. Other factors like social reasons (a particular educational program is
high due to prevailing fashion) and peristaltic process (parental desire for their children to climb
higher the academic ladder than they did) could also change the demand curve. On the other
hand, supply for education is defined as a schedule of various amounts of goods or services that
producers are willing and able to sell at each specific price in a set of possible prices during a
specified time period. Apart from price, there are also other factors that determine supply. These
include technology, price of factors of production and price of related goods. When there are
changes in these three factors, the supply curve for education is also affected.

Based on the framework, there is a possibility that the market may be efficient in
producing and distributing the goods and services on education, but it may fail in achieving
equity in allocating resources. The market may achieve equilibrium, but the equilibrium price
may prohibit members of society to avail of the public goods or service. There could be an
instance of under production, which results to under supply and eventually higher price. Higher
price of education would affect the capacity of every member of society to avail the public goods
and services. Those who can afford higher price can have, but those with low socio-economic
status cannot.

Figure 1: Simple Demand-Supply Analysis Framework

 b. Under what circumstances shall the government intervene in this market?

The provision of education is usually undertaken by the government rather than leave it
to market forces of supply and demand. The level of disposable income (the budget) available to
the government is a direct determinant of the supply of education. Due to the scarcity of
resources the supply of education is determined by the budget allocation available to education.
Due to the challenge of scarcity, resources have to be used well so as to ensure there is no
wastage. This is efficiency. On the other hand, equity concerned with justice and fairness in the
distribution of resources. Balancing between efficiency and equity is a major challenge to the
government.

When circumstances like market failures come into play, the government intervenes.
Some sources of these market failures are: public good, externalities, monopoly and asymmetric
information. The market may produce public goods that may be afforded to only a few, thus it
may fail to achieve equity. Externalities may also give unintended outcomes which may be
positive or negative. An example of this is the construction of internet cafes, malls and business
buildings nearby school classrooms, in so doing, these commercial businesses bring
environmental disturbances such as wastes production, hence negative externalities. When
market fail due to asymmetric information, market agents lack critical information-information
about true cost of production, this could hinder them to come up with efficient decisions.
Whereas in monopoly, supply of public goods and services is manipulated, which in turn gives
so much control and manipulation to the players. These market failures bring inequities. Equity
in education is when every student receives the resources needed to acquire the basic work skills
of reading, writing, and simple arithmetic. Nevertheless, the ongoing public health and economic
crisis has made achieving educational equity even more challenging. In many areas, private
schools were shut down, public schools also suffered. This worsened disparities, as many low-
income families don't have the WiFi connections or computer equipment needed for long-
distance learning.

To achieve equity, there are some government interventions through educational policies,
programs, projects and activities. Specifically, the government can intervene by directly
supplying the resources needed in education. During this time of pandemic, it has provided the
learning materials needed in terms of modules, books and technology. Financial assistance
programs and subsidies also aided private schools in their operational costs. Scholarship grants
are also available for learners in their pursuit of equal learning opportunities. Laws, Orders and
Acts were also constituted to legalize funding for private institutions and individuals availing
higher education.

c. Discuss the interventions of the government vis- a vis education in all levels.

In support to basic education, the government is providing free access to education from
elementary to level to college. Subsidies are also given to private schools for their operational
cost through the Government Assistance for Teachers and Students in Private Education Act.
Financial Assistance is also given to college students enrolling in private colleges and
universities. Education Service Contracting Scheme is also extended to students in private
schools. During this time of pandemic, technological resources and free access to professional
trainings were also made available to teachers from basic education to higher education.

The government also allots funding for scholarship programs to poor but deserving
students and even teachers’ graduate studies. It allocates subsidies, grants and direct transfers to
learners with low socio-economic status. The 4Ps is one of the social programs of the
government that provides cash transfers to qualified families whose children are learners of basic
education.

RA 6728 also itemizes programs of assistance to students and teachers of private post-
secondary vocational and technical institutions. This assistance is likewise extended to students
and teachers of community colleges in degree and non-degree programs. State Colleges and
Universities are funded by the government which gives minimal if not free tuition fees in higher
education levels.

3. Government spending in education at all levels entails considerable budgetary

allocation. What are the expenditures of the government for education? Discuss how
expenditures are financed. Cite historical experiences of the Philippines.

The total percentage of government expenditure on education in Philippines was 13.21 as

of 2009. Its highest value over the past 14 years was 18.18 in 1998, while its lowest value was
12.42 in 2005. Expenditure on primary education was 54.98 in 2009. Its highest value over the
past 29 years was 61.07 in 1983, while its lowest value was 49.96 in 1982. Expenditure on
secondary education was 29.69 in 2009 with its highest value over the past 29 years of 29.69 in
2009, while its lowest value was 10.20 in 1982. Whereas, expenditure on tertiary education was
11.96 as of 2009 with highest value over the past 29 years of 24.59 in 1982, while its lowest
value was 10.42 in 2008.

In 2020, The 2020 General Appropriations Act is P438 billion or 11.8% higher than the
P3.662-trillion national budget for 2019. It represents 19.4% of the country's projected gross
domestic product for the year. The education sector got P654.77 billion, a combined allocation
from the DepEd and its attached agencies (P521.35 billion), the State Universities and Colleges
(P73.72 billion), and the Commission on Higher Education (P46.73 billion).

The Department of Education utilizes its funding on the following:

“basic education facilities; construction, replacement, and completion of kindergarten,

elementary and secondary school building and technical vocational laboratories; construction,
rehabilitation, renovation, and repair of kindergarten, elementary and secondary school
buildings; acquisition of school desks, furniture and fixtures; amortization or lease payment of
Public-Private Partnership school buildings; annual payment of school building constructed by
National Housing Authority; electrification of on-grid schools; land use development and
infrastructure plan design and purchase of school sites.”

Meanwhile, expenditures in higher education includes funding for Student Financial

Assistance Programs (StuFAPs), Tulong Dunong Program, Tertiary Education Subsidy (TES) to
subsidize college students. These are specific programs under the comprehensive Free Tuition
Law which are budgeted through the General Appropriations Act passed by the senate and
approved by the President annually.
 Other expenditures in education includes construction and repair of schools and leaning
centers, purchase of books and other learning materials and equipment, capital outlays,
Maintenance and Other Operating expenditures (MOOE) and personal services for payment of
salaries and remunerations.

All expenditures in education are based on yearly allocation as approved in the General
Appropriations Act (GAA) which is a term used when referring to the National Budget of the
Philippines. It is one of the laws passed by Congress annually.

4. In so far as your specific agencies/schools or offices are concerned, what are the priority
expenditures which the government should undertake in response to the COVID 19
pandemic? Discuss and defend your answers.

Taking into consideration the pandemic crisis that every government

instrumentality is experiencing, wise spending is crucial to efficiently allocate the
available scarce resources. The school where I am currently teaching is a big secondary
school offering complete secondary education in the west district of the municipality of
Baggao. It caters half of the total 48 feeding barangays in town. In line with the Basic
Education Learning Continuity Plan (BELCP) of the school which specifies that Modular
Distance Learning is the learning delivery modality most appropriate to the learners,
there is a need for the school to prioritize funding on reproduction of modules and
learning activity sheets. This entails purchase of printers, photo copying machines and
related consumable materials like binding and securing of modules and books.
Expenditures on training of teachers should also be directed on designing ang creating
modules and activity sheets. Perhaps training on Radio Based Instruction like script
writing and school on the air, can be budgeted by schools adapting Radio-based as
learning delivery modality and teacher’s training on use of online modality can be
prioritized by schools offering and with specified need to implement online learning
delivery modality.
Wat I am trying to point out is that, schools should be required to allocate their
MOOE based on their approved BELCP. Budget allocation for teacher’s training should
be carefully planned to align every training with expected outcome.
Another priority area where school’s expenditures are directed is the health needs
of teachers and safety measures of school personnel while implementing the distance
learning modalities. Some of these expenses include transportation expenses in delivering
modules, Personal Protective Equipment (PPEs), medicines and vitamins and vaccination
of frontline teachers.
These priority expenses are likewise anchored on approved laws including
specific and institutionalized policies. Guidelines and Issuances on the use of MOOE is
also issued to adapt health and safety measures while carrying out the approved BELCP
of schools.
 5. What is rapid population growth? In the Philippine context, is this a problem or a
potential? Explain your answer. A common observation in developing countries is the
inadequacy of family planning programs as a response to rapid population growth.
Discuss the entry points of the education sector vis a vis rapid population growth.

Rapid population growth is the state of over population in terms of existing means and
resources. Rapid population growth leads to a country with a young average age. Young
populations require creation of new infrastructure including shelter, health care, and schools. If
the country has the resources to employ their new labor, the population increase can lead to rapid
economic growth.

It is a given fact that population could give a positive or a negative outcome depending
on how it is utilized. Some countries make certain measures to make sure that the population
would not be causing a problem. On the other hand; others do not give much emphasis on it.
The Philippine population in a way is not balanced because certain parts of the country
have an enormous population while other parts are smaller geographically. Manila, for example,
already has a big population because it is the center for business and industry. An important
aspect of the population in the Philippines is its continuous increase. The increase of the
population gives way to problems that the country is now facing. The increase gives effects to
the Philippines both positive and negative.

At present, the population of the Philippines is estimated to be over 92 million making it

the world’s twelfth most populous country. Fertile women in the Philippines have, on average,
3.1 babies each — a stark contrast to neighboring Singapore, which had an all-time low average
of 1.16 in 2010. Given its size and increasing growth, the needs of the Philippines are vast —
education, health care, and better sanitation to name a few. But is population growth really the
root cause of these problems and needs? History seems to indicate otherwise.

Population explosion is considered as one of the undisputable alarming obstacles that

stand on the path of the less developed countries. These countries produce great numbers in
terms of human resources because the birth rate is much higher than in the rich countries, but the
rate of employment and production in the poor countries is very low. Definitely this is a very
serious problem that the government should never take for granted. The Philippines belong to the
group of these "less developed countries." And as we all know, the growth of population in our
country is unstoppable. In fact, the Philippine population is one of the fastest growing countries
in the world. It is estimated that 3,000 Filipino babies are born every day, 100,000 every month,
or one million a year to round up the figures. There are more babies being born today than there
were in the 1970s. There will be more babies born 20 years from now than the number of babies
that are born this day. In this lies the problem: at first, the babies need milk, diapers and
vitamins. But the trouble is, babies grow up. And when they do, they need education, which
requires more school structures; they need food, clothing, houses, jobs, etc.
 These are basic needs that must be filled. Providing them creates a large number of
problems that demand the fullest utilization of the nation's resources. Overpopulation is like a big
magnifying glass making little problems into big ones. It is destroying our environment,
lowering our standard of living, and generally degrading our quality of life. The resources
necessary to their survival become depleted at a rate faster than those resources can be
replenished. The waste generated by the population exceeds the ability to dispose of it faster than
it is created. This rapid growth of population is quite hard to endure for it really affects both the
social and economic condition of our country. However, population growth cannot be controlled
easily because of cultural and religious reasons, not to mention, the Philippines is known to be
very conservative and very much Catholic, in its broadest sense. The Filipinos are truly bound to
their being "Christians" that their minds are closed to the idea of contraceptives as one of the
ways of family planning. Governments in developing countries see contraceptives as a "bad"
solution rather than a logical one.

Republic Act No. 10354 or The Responsible Parenthood and Reproductive Health Act of
2012, is in essence, an attempt to curb the growing population of the Philippines through a
variety of measures — most notably, a new sex-education program, greater access and
distribution of contraceptives, and eventually, government-funded abortion.

During the 20th century, many Asian countries tried to implement population-control
measures to eradicate poverty and better control limited resources. Countries such as China,
Thailand, Taiwan, Singapore, and South Korea — all thriving economic powerhouses — are
now reporting subpopulation replacement rates and are unsure of how they are going to be able
to replace themselves.

In contrast, Hong Kong — one of the world’s densest populations — has become one of
the hallmarks of Asian economic success. In the middle of the 20th century, the future for Hong
Kong seemed dismal. Food and clean water were in short supply, jobless rates were high, and its
growing population seemed unstoppable. However, rather than imposing population control
measures on its citizens, the Hong Kong government realized that population equals potential.
By providing the right conditions — access to education, health care, food, and water, and a
realization that the best investment to be made was in its people — Hong Kong created one of
the most robust and thriving economies in the world today.

The mid-1950’s demographic situation of Hong Kong is comparable to the Philippines

today. Section three of their proposed bill states that “the limited resources of the country cannot
be suffered to be spread so thinly to service a burgeoning multitude that makes the allocations
grossly inadequate and effectively meaningless.” Not only does this “guiding principle” fail to
recognize that the greatest natural resource of the Philippines is human potential and ingenuity,
but it also neglects the real needs of the country.

After World War II, the Philippines adopted several anti-market and protectionist
economic policies that have resulted in these less than favorable conditions. As a result, roads
were left unfinished and irrigation systems never built, and the poor conditions of seaports and
airports crippled one of the nation’s best natural industries, agriculture. Most hurts by this
environment were small-scale family farmers. In the provinces where they lived, schools were
never built, hospitals and health-care facilities were poorly constructed and the means to access
them were limited. Filipino lawmakers have tried to argue that population control will solve the
nation’s poverty problems, but countless statistics and studies have proven that this just isn’t so.
It is improved working conditions, quality schools, skilled birth attendants, and health-care
facilities that will solve a number of the nation’s problems — maternal health, education, and
employment among them.

The current law on population control in the Philippines aims to provide a roadmap for
“responsible parenthood.” One of the solutions presented to achieve this is mandatory sex
education in all schools. In effect, it focuses on what will go on in schools before the schools or
the roads that lead to them are even built. Rather than looking internally to see what it can do to
promote the family and improve their current working and living conditions, the Filipino
government would seemingly rather penalize the family unit itself for the nation’s economic ills.

In Singapore, Prime Minister Lee Hsien Loong urged his citizens to have more children
by saying: “We also need Singaporeans to produce enough babies to replace ourselves, and that
has proved extremely challenging.” In addition, the Prime Minister noted that additional children
bring “more joy” to families. The Philippines would do well to heed Mr. Loong’s advice. Not
only will they find more joy, but also, like their neighbors in Hong Kong and Singapore, they’re
likely to find prosperity.

PART II. CHOOSE and ANSWER only two (2) QUESTIONS.

2.Economic stability is a situation where employment and price stability are sustained. Discuss
the nature of these two (2) dynamic phenomena in terms of:

a. The types and theories explaining each phenomenon

A competing theory of income and employment, the monetarist approach, places

the quantity of money in the controlling role. The analysis of the effects of increasing or
decreasing the money supply is approximately parallel to that of the consumption-and-savings
relation. The rules of thumb derived from the two theories are combined: excess demand for
goods or an excess supply of money (the two may be seen as aspects of the same phenomenon)
will be associated with rising income; similarly, an excess supply of goods or an excess demand
for money will be associated with falling income. Monetarists, such as Milton Friedman, have
advocated monetary policy as the proper countercyclical tool of government.

Both the Keynesian and the monetarist theories have two notable shortcomings. First,
both are demand-side theories and are therefore incapable of contributing toward the long-term
considerations of economic growth. Second, both assume that people can be fooled over and
over again; in reality, as they learn to anticipate government policies based on the monetarist or
Keynesian models, people act in ways to offset these policies and thus negate the government
actions.

"General Theory", as stated before, was a major pushback to the classical school of economic
thought in several ways. The purpose of this book was to describe how a market can reach full
employment. During the Great Depression, unemployment skyrocketed to over 25% in theUnited
States in 1933, and the ability for people to find jobs, let alone jobs that paid decent wages,
began looking bleak. While classical economic theory stated employment was determined by the
price of labor, Keynes believed, rather, it was aggregate demand that determined the rate of
employment. This resulted in the single fundamental difference between classical economics and
Keynesian economics. While classical economists abided by a supply-side theory of economics,
Keynes introduced demand-side economics into the discussion. The difference between the two
is that supply-side economic theory aims at increasing the supply of goods and services to the
general public. This is done by keeping regulations and taxes on businesses to a minimum. This
would ensure that businesses would be operating at their most efficient level possible. During
times of economic stress, the regulations and taxes can be lowered to allow these businesses to
increase their efficiency. This is all under the assumption that market forces are inherently more
effective at distributing goods and services than a bureaucratic organization could do. On the
other hand, demand-side economic theory aims at increasing consumer demand. Keynes believed
that instead of de-regulating the businesses that supply the goods and services, the ideal way to
recover from the economic downturn is to make the consumer artificially wealthier so they can
demand more goods and services.
It is important to note at this point that Keynes never focuses on long-term trends within the
economy. As he has been famously quoted countless times, "In the long-run, we're all dead."
Keynes attempts to make economic theory focus as close to the individual
consumer as possible. The average person in society does not care, nor pays attention to,
the long-run effects of certain government policy. When a nation is facing a severe depression
such as what was endured in the 1930's, people are more worried about being able to afford their
day-to-day lives without running into debt.

he use of psychology & praxeology is commonplace among all economic schools ofthought,
which is why economics is typically relegated as among the social sciences ofacademia. Keynes
was no different in his contributions to economics as a social science.Specifically, there are two
basic psychological laws used in Keynesian economic theory.The first law regards to the
individuals' propensity to consume (MPC). This is ameasure of what percent of a marginal
increase in pay would be saved as compared to whatwould be saved. Thus, MPC is measured
between 0 and 1, with 0 meaning all of the extramoney would be saved and 1 meaning all of it
would be spent. This is the primary determinantof the Keynesian multiplier

b. Design/construct a framework or a paradigm within which these conditions are addressed by

the education sector. Identify and discuss the elements of your framework.

4.The rate at which the natural resources of the Philippines have been utilized and exploited has
become alarming. Shed light on this statement. Discuss factors that can be attributed to the
unsustainable use of natural resources. Discuss the role of education in the attainment of
sustainable development.

GOOD LUCK..

Prepared by:

FLORANTE VICTOR MADRID BALATICO, Ph.D.

Why do countries such as the Philippines become highly indebted or characterized as “having
fallen into a debt trap?” Discuss the historical experience of our country. Under what
circumstances can the country get out from this trap? Discuss the role of education sector within
the context of “getting out of the trap”.

3. “Mainstreaming gender and development (GAD) in the Philippines has been a critical strategy
towards better quality of life”. Discuss what this statement means in view of the following:

Equal access to better educational opportunities between men and women

Equal access to better employment opportunities between men and women

Equal opportunities to decision making in the household level and societal level