REMIGIO G.

TIAMBENG

MACROECONOMICS
 MACROECONOMICS
MACROECONOMICS  the branch of economics
that studies the behavior and performance of
an economy as a whole. It focuses on the
aggregate changes in the economy such as:
FOCUS:
ECONOMIC GROWTH vs. UNFAVORABLE ECONOMIC GROWTH
PRICE STABILITY vs. INFLATION
FULL EMPLOYMENT vs. UNEMPLOYMENT
BALANCE OF TRADE vs. ADVERSE BALANCE OF TRADE
FISCAL AND MONETARY POLICY vs. MONEY SUPPLY
 ECONOMIC GROWTH
A country's economic growth is usually indicated
by an increase in the country's gross domestic
product, or GDP.
Generally speaking, GDP is an economic model
that reflects the value of a country's output.
In other words, a country's GDP is the total
monetary value of the goods and services
produced by the country over a specific period
of time.
 ECONOMIC DEVELOPMENT
A country's economic development is usually
indicated by an increase in citizens' quality of
life.
'Quality of life' is measured using the Human
Development Index (HDI) -> an economic model
that determines factors not considered in
economic growth, such as:
1. literacy rates,
2. life expectancy, and
3. poverty rates.
 NATIONAL INCOME ACCOUNTING
National Income Accounting -> a bookkeeping
system that a national government uses to
measure the level of the country's economic
activity in a given time period.
For example, NIC measures the revenues earned
in the nation's companies, wages paid, or tax
revenues.
NIC is a mathematical system. It does not
interpret, analyze or judge, and thus it is only
one step in the analytical process of measuring
a country's economic activity.
 GDP versus GNP
Gross Domestic Product (GDP) is a measure of the total
market value of all final goods and services produced
within the boundaries of the Philippines whether by
domestic or foreign-owned sources, during a specified
period of time, usually one year.

Gross National Product (GNP) is a measure of the total

market value of all final goods and services produced by
a Philippine’s residents and businesses during a specified
period of time, usually one year.

GDP -> is the principal measure of the Philippine national

economic health/performance.
 The Three Approaches to Measuring GDP

1. Juan purchased a final good P10,000;

2. the market value of the product is P10,000;
3. the income to the factors is P10,000 .

Three Approaches:
1 2 3
GDP EXPENDITURE = GDP PRODUCT = GDP INCOME
1. EXPENDITURE APPROACH
It measures the total amount spent on the goods
produced by a country in a year.
GDP = C + I + G + (X-M)
• C = Private Consumption Expenditures
• I = Investment Expenditures
• G= Government Consumption Expenditures, and
Investments
• X = Value of Exports
• M= Value of Imports
MAIN POINTS:
• Expenditure on final goods and services
• Expenditure on imports needed to be deducted
from calculation
2. INCOME APPROACH
It measures the total incomes earned by households in a
nation in a year.
GDP = W + R + I + BP + IBT + SA + d + F
• W = Wages, Salaries, Benefits, Pensions, and SSS
Contributions
• R = Rental Income
• I = Interest Income
• BP = Business Profits (of business owners) – P, P, C
• IBT = Indirect Business Taxes (sales tax, business
property tax, license fees)
• D = Depreciation (this is the decrease in value of goods)
• F = Foreign Income(To calculate this, take the total
payments received by domestic citizens from foreign
entities and subtract the total payments sent to foreign
entities for domestic production.)
3. PRODUCTION APPROACH

It sums up the market value of the total production

of all the major economic sectors of the country.
GDP = AS + IS + SS
• AS= Agricultural Sector (fishery, forestry,
piggery, poultry, etc.)
• IS= Industrial Sector (manufacturing and
production)
• SS = Service Sector
 Aggregate Demand
The overall demand for all goods and services in
an entire economy.
It is being interpreted in macroeconomic as:
“Everything bought within a country is the same
thing as everything produced in a country. “

Therefore, aggregate demand equals aggregate

supply which is called (GDP) or Gross Domestic
Product of the economy.
AD (GDP)=C+G+I+NX
 Aggregate Supply
Aggregate Supply (AS) -> the total amount of
goods and services (real output) produced
and supplied by an economy's firms over a
period of time.

It represents the ability of an economy to deliver

goods and services to meet the aggregate
demand
 Criteria for Judging Economic Outcomes
1. Efficiency -> an efficient economy is one that
produces what people want at the least
possible cost.
2. Equity-Fairness -> a more equal distribution of
income.
3. Growth -> an increase in the total output of the
economy.
4. Stability -> the condition in which national
output is growing steady, with low inflation
and full employment of resources.
 BUSINESS CYCLE
The business cycle -> the rise and fall in
production output of goods and services in
an economy.

Business cycles are generally measured using

rise and fall in Real GDP (inflation-
adjusted) –which includes output from the:
1. Household sector
2. Nonprofit sector
3. Government sector
4. Business sector.
 PHASES OF BUSINESS CYCLE
A peak/boom phase of business cycle:
1. the highest point of the business cycle,
2. the economy is producing at maximum
allowable output,
3. employment is at or above full
employment, and
4. inflationary pressures on prices are
evident.
• Following a peak,
Recession/Contraction/Slump phase of business
cycle is a period of temporary economic decline
during which trade and industrial activity are
reduced, generally identified by a fall in GDP in
two successive quarters
 PHASES OF BUSINESS CYCLE
3. Trough or Depression the economy has hit a
bottom from which the next phase of expansion
and contraction will emerge.
5. An economic recovery is a period of increasing
business activity signaling the end of a
recession.
4. An expansion is characterized by increasing
employment, economic growth, and upward
pressure on prices.
 INFLATION
Inflation is a sustained increase in the general price
level of goods and services in an economy over a
period of time.
EFFECT:
When the price level rises, each unit of currency
buys fewer goods and services; consequently,
inflation reflects a reduction in the purchasing
power per unit of money – a loss of real value in
the medium of exchange and unit of account
within the economy.
 Inflation Rate
A chief measure of price inflation is the inflation
rate, the annualized percentage change in a
general price index, usually the consumer price
index(CPI), over time.

The inflation rate is a measurement of the rise in

price of a good or service over a period of time
reflected as a percentage.
It is usually measured on a monthly and annual
basis in the Philippines.
 Inflation Rate Formula
In order to calculate the inflation rate for any
product or service, you will need the price of the
goods or services for the two periods of time in
question. You then use this formula to calculate
the inflation rate:

Inflation Rate = ((T2 - T1) / T1) x 100

T1 = Price for the first time period (or the starting number)
T2 = Price for second time period (or the ending number)
 Consumer Price Index
A consumer price index (CPI) measures changes in
the price level of market basket of consumer
goods and services purchased by households.

The CPI is a statistical estimate constructed using

the prices of a sample of representative items
whose prices are collected periodically.
 Different Types of Inflation
1. Demand-pull inflation – this occurs when the
economy grows quickly and starts to ‘overheat’ –
Aggregate demand (AD) will be increasing faster
than aggregate supply (LRAS).
2. Cost push inflation – this occurs when there is a rise
in the price of raw materials, higher taxes, e.t.c
3. Wage Push Inflation - Rising wages increase costs
for firms, and so these are passed onto consumers in
the form of higher prices. Also rising wages give
consumers greater disposable income and therefore
cause increased consumption and AD.
4. Imported Inflation - A depreciation in the
exchange rate will make imports more expensive.
Therefore, the prices will increase solely due to
this exchange rate effect.
=========================================

OTHER TERMS:
Stagflation – persistent high inflation combined
with high unemployment and stagnant demand
in a country's economy.
• Disinflation is a decrease in the rate of inflation –
a slowdown in the rate of increase of the general
price level of goods and services in a nation's
gross domestic product over time.
• Reflation is the act of stimulating the economy
by increasing the money supply or by reducing
taxes, seeking to bring the economy (specifically
price level) back up to the long-term trend,
following a dip in the business cycle.
• Deflation is a decrease in the general price level
of goods and services. Deflation occurs when the
inflation rate falls below 0% (a negative inflation
rate).
 UNEMPLOYMENT
Unemployment is a phenomenon that occurs
when a person who is actively searching for
employment is unable to find work.

Labor Force - the total number of people who are

eligible, willing and able to work, in legal age,
including employed and unemployed people
within an economy.
 What is the Unemployment Rate?

The unemployment rate is defined as the

percentage of unemployed workers in the
total labor force.
 Types of Unemployment
1. Frictional unemployment is defined as the
unemployment that occurs because of people
moving or changing occupations.
For example, Demographic change can also play a
role in this type of unemployment
2. Structural unemployment is defined as
unemployment arising from technical change such
as automation, or from changes in the composition
of output due to variations in the types of products
people demand.
For example, a decline in the demand for typewriters
would lead to structurally unemployed workers in
the typewriter industry.
3. Cyclical unemployment is defined as workers
losing their jobs due to business cycle
fluctuations in output, i.e. the normal up and
down movements in the economy as it cycles
through booms and recessions over time.
 Balance of Trade
Balance of Trade (BOT) is the difference between the
value of a country's imports and its exports for a
given period.

When exports are greater than imports, that's

a trade surplus (positive or favorable trade balance)

When imports are greater than exports, that's

a trade deficit (negative or unfavorable trade
balance)
 GOVERNMENT ECONOMIC POLICIES
1. Fiscal Policy refers to the use of government
spending and tax policies to influence
macroeconomic conditions, including aggregate
demand, employment, inflation and economic
growth.
2. Monetary policy consists of the actions of a
BSP, currency board or other regulatory
committee that determine the size and rate of
growth of the money supply, which in turn
affects interest rates.
 Keynesian Theory
Keynesian theory: An economic theory named after
British economist John Maynard Keynes.
The theory is based on the concept that in order for
an economy to grow and be stable, active
government intervention is required.
Meaning, the government should increase demand
to boost growth.
Keynesian economics is an economic theory of total
spending in the economy and its effects on output
and inflation.
 Fiscal Policy
The purpose of Fiscal Policy:
• Stimulate economic growth in a period of a
recession.
• Keep inflation low (Philippine government has a
target of 2%)
• Fiscal policy aims to stabilize economic growth,
avoiding a boom and bust economic cycle.
• Fiscal policy is often used in conjunction
with monetary policy.
• In fact, governments often prefer monetary
policy for stabilizing the economy.
 Expansionary (or loose) Fiscal Policy
• This involves increasing Aggregate
Demand.
• Therefore, the government will increase
spending (G) and cut taxes (T). Lower taxes
will increase consumers spending because
they have more disposable income (C)
• This will tend to worsen the government
budget deficit, and the government will
need to increase borrowing.
 Contractionary, Deflationary
(or tight) Fiscal Policy
• This involves decreasing Aggregate
Demand.
• Therefore, the government will cut
government spending (G) and/or increase
taxes ->Higher taxes will reduce consumer
spending (C)
• Tight fiscal policy will tend to cause an
improvement in the government budget
deficit.
 MONETARY POLICY

The purpose of Monetary Policy:

• Maintaining a low or a stable rate of

inflation.
• Promoting sustainable economic growth
and low unemployment.
 Expansionary Monetary Policy
Expansionary monetary policy is an economic
policy being used by BSP as a tool to stimulate
the economy. That is, increasing the money
supply by lowering the interest rates; hence, it
increases aggregate demand.

Likewise, it lowers the value of the currency,

thereby decreasing the exchange rate.
 Contractionary Monetary Policy
Contractionary monetary policy -> an economic
policy used to fight inflation by decreasing the
money supply in the economy in order to increase
the cost of borrowing which in turn decreases
GDP and dampens inflation.

In other words, It is used by the BSP to decrease

the supply of money in the market in an effort to
control inflation.