#01 • Lesson 1

FLEX Course Material

Students will become aware of the

economic progress in the Asian Region,

ss
specifically how this region’s ups and
downs in terms of economic growth.
Students will get to distinguish between
economic development and economic
growth.
Students will learn to measure growth
and economic development, specifically,
through the many indicators.

OVERVIEW OF REAL-WORLD ECONOMICS

• Module Goals
 #01
s
At the end of this module, the students are expected to have:
formed themselves into a class section with three groups,
each section will choose a particular developing country to use as the subject of their research about GDP growth,
the World Bank data on GDP account shall be used as a reference.
at least 10 periods (time-series of GDP growth, which include the most recent, (2019,2018,2017, 2016, 2015, 2014, 2013, 2012,
2011 and 2010.
First group will analyze the data using the GDP growth rate.
The second the data using, the GDP per capita.
and Third Group – will analyze the data on population.
Each student must write a reaction paper based on the differences between the two measures, the GDP growth and the GDP per
capita.

A 10 Period time-series regression

analysis on Population Growth.
 Economic Development in Asia
Lesson 1 –Overview of Real World Economics
Overview of Real-World Economics
• One person’s expenditure is another person’s income.
• It is this unalterable linkage between the expenditures
and incomes of millions of thinking households and
businesses that makes the study of the economy both
interesting and unique.
• This relationship means that at a national level, if one
group is saving money, another group must borrow and
spend that money to keep the economy running.
• If everyone is saving and no one is borrowing, all of the
saved funds will leak out of the economy's income
stream, resulting in less income for all. .
• For example, if a person with an income of P1,000
decides to spend P900 and save P100, the $900 that is
spent becomes someone else’s income, which means it
is already circulating in the economy.
• Typically, the P100 that he saved is deposited with a
financial institution such as a bank, which then lends it to
someone else who can make use of the money.
• When that person borrows and spends the P100, total
expenditures in the economy amount to P900 plus P100,
which is the same as the original income of $1,000, and
the economy moves forward.
forward
• In a normal economy, this function of matching savers
and borrowers is performed by the financial sector, with
interest rates moving higher or lower depending on
whether there are too many or too few borrowers.
• If there are too many borrowers for the saved funds,
interest rates will go up and some of those borrowers will
drop out.
• If there are too few borrowers, interest rates will come
down and prompt potential borrowers who stayed on the
side-lines to step forward.
• For the private sector to be borrowing money, it must have a
clean balance sheet and promising investment opportunities.
After all, private-sector businesses will not borrow unless they are
sure they can pay back the debt with interest.
• But with little or no technological innovation before the industrial
revolution, which was essentially a technological revolution, there
were few investment projects capable of paying for themselves.
• Businesses also tend to minimize debt when they see no
investment opportunities because the probability of facing
bankruptcy is reduced drastically if the firm carries no debt.
• Given the dearth of investment opportunities prior to the industrial
revolution, it is easy to understand why there were so few willing
borrowers.
borrowers
• The discussion above suggests an economy is always in one of four
possible states depending on the presence or absence of lenders
(savers) and borrowers (investors).
• They are as follows:
(1)both lenders and borrowers are present in sufficient numbers,
(2)there are borrowers but not enough lenders even at high interest
rates,
(3)there are lenders but not enough borrowers even at low interest
rates, and
(4)both lenders and borrowers are absent.
• If borrowers are absent because businesses cannot find attractive
investment opportunities, which was the cause of the economic
stagnation that lasted for centuries before the industrial revolution,
a very different mind-set is needed to solve the problem.
• To begin with, there are many different potential causes for this
problem depending on the stage of economic development, each
requiring a different policy response.
• Today’s developed economies all started out as agrarian
societies, and the centuries-long paradox of thrift finally ended
with the arrival of the industrial revolution.
• The invention of new products and the machines needed to make
them produced a huge number of investment opportunities for the
first time in history.
• Private-sector businesses that would not borrow money unless
they were sure they could pay it back found many promising
projects and started borrowing.
• The financial sector also developed to meet the newfound
demand for funds.
• This self-financing process could continue as long as the debt-
financed projects were sound enough to pay for themselves.
• Thus began a virtuous cycle in which investments created
more jobs and income, which in turn created more savings to
finance more investments.
• Unlike the government-financed investments in earlier
centuries that eventually ran into financing difficulties, private-
sector-led investments could sustain themselves as long as
attractive new products were continuously brought to market.
• The result was the rapid economic growth observed since the
industrial revolution.
Philippine Economy Seen Recovering in
2021,with stronger growth in 2022 - ADB
• ADB’s flagship economic publication, forecasts the Philippine
economy to grow by 4.5% in 2021 and 5.5% in 2022
• Substantial progress in the country’s vaccination rollout will help
restore consumer and business confidence, though uncertainties
over how the pandemic will unfold globally and domestically can
pose risks to growth prospects.
• “Our 4.5% growth forecast is at the lower end of economists’
estimates, so there are upsides to this projection,” said ADB
Philippines Country Director Kelly Bird.
• “Priority should be given to addressing the scarring effects of the
pandemic on private sector employment.
• Programs supporting workers and firms impacted by labor market
adjustments and reforms to boost productivity growth and
investment will help counter the negative effects of the pandemic
on employment over the medium term.”
• The government’s expansionary fiscal program and
accommodative monetary policy will put the economy on a firm
recovery path by the second half of 2021.
• The Philippines’ COVID-19 vaccine rollout may suffer from global
supply shortages in the short term, and local community
quarantines could be extended to curb the spread of COVID-19.
• Inflation is forecast to rise to 4.1% in 2021, up from 2.6% in
2020, due to rising global commodity prices and other
supply-side factors.
• For instance, the African swine fever has resulted in
disruptions to the pork supply in the Philippines.
• Inflation is expected to ease to 3.5% in 2022 as government
takes measures to address supply-side pressures.
• The current account surplus is forecast to narrow to 2.5% of
gross domestic product in 2021 and 1.8% in 2022.
• Merchandise exports are expected to increase with the rise
in global trade, as imports, especially capital goods,
rebound to support public infrastructure development.
The Main Philippine Economic
Indicators
• For the latest updates on the key economic responses from
governments to adress the economic impact of the COVID-19
pandemic, please consult the 
IMF's policy tracking platform Policy Responses to COVID-19 .
• The Philippines' economy is considered as one of the most dynamic
economies in East Asia and the Pacific. In 2020, however, GDP
contracted by an estimated 8.3%, due to the outbreak of COVID-19.
• Nevertheless, according to the IMF's October 2020 forecast, GDP
growth is expected to pick up to 7.4% in 2021, subject to the post-
pandemic global economic recovery.
• Key economic drivers include solid fundamentals, a competitive
workforce, a stable job market, steady remittances, and investment in
the construction sector (World Bank). In its most recent January 2021
update of the World Economic Outlook, the IMF has revised its GDP
growth projections for the Philippines to 6.6% in 2021 and 6.5% in 2022
(representing a difference from October 2020 WEO projections of -0.8%
and +0.1%, respectively).
• .
• The Philippines' public deficit reached 7.5% of GDP in 2020 and it is
expected to remain at 7.1% in 2021 and 6.2% in 2022. Public debt
also significantly increased, reaching 48.9% of GDP in 2020 and is
expected to further increase in  2021 and 2022, to 52.5% and 55%,
respectively.
• Inflation rate remained stable in 2020, at 2.4%, and respecting the
central bank’s target (2-4%). Although inflation is expected to
increase in 2021 and 2022, it should remain at 3%, according to the
latest IMF World Economic Outlook.
• Domestic consumption is expected to remain the main driver of the
economy, accounting for 70% of GDP.
• Institutional reforms are needed in business freedom, investment
freedom, and rule of law, according to the Heritage Foundation. The
COVID-19 crisis has put the Philippines into recession and revealed
long-existing cracks in the country’ systems and institutions, as tough
containment measures have ground the economy to a halt.
• However, the government launched a 4-pillar socioeconomic strategy
against the effects of the pandemic, which includes support to
vulnerable groups and individuals, expanded resources for frontline
medical workers, as well as fiscal and monetary measures, such as a
USD 12 billion fiscal package for low-income households, vulnerable
workers, small businesses, and companies and workers in hard-hit
industries, such as agriculture, transportation, and tourism.
• The unemployment rate was heavily affected by the negative
economic impact of the COVID-19 pandemic and nearly doubled in
2020, reaching 10.4%.
• Nevertheless, that rate should decrease to 7.4% in 2021 and 6.7% in
2022. About a third of the population lived below the poverty line in
2019. However, inequality in wealth distribution and poverty rates
are estimated to have worsened during the pandemic, pushing
around 2.7 million more Filipinos into poverty.
• Nevertheless, Duterte's administration wants to reduce the poverty
rate to 17% and expects the economy to reach upper-middle income
status by 2022.
The Main Sectors of the
Industry
COVID-19 Response
COVID-19 Response
COVID-19 Response