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Disposable Income
Consumption is dependent on
Positive Inventory
Surplus from what you produced
Contraction Policies
Used to pull down GDP
Expansionary Policies
Used to pull up GDP
Fiscal Surplus
Govt Ex < Taxes
Deflationary
Overproduction
Multiplier Effect
An increase in CIGNx, equates to a bigger increase in the GDP
Labor Supply
Worker
Labor Demand
Firms
Formula for Underemployment
(no. of unemployed/employed) x 100
Members of LF
People willing and able to work
Discouraged Worker not part of UE
not actively looking for work
Regular Employment
working at least 40 hrs a week
working partime
voluntary working for less than 40 hours a week
underemployed
working for less than 40 hours a week and willing to work for more hours
frictional UE
temporary state - in between jobs
structural UE
loss in demand for certain skills; obsolete skills
cyclical UE / deficient demand
caused by a decrease in spending
okuns law
relationship between the UE rate and the GDP gap
inflation
general increase in prices in all or nearly all markets
hyperinflation
overstated inflation
stagflation
higher UE, economic stoppage
Price Index
average of a commodity price in relation to their price in a specified base year
CPI
what price index we use
Inflation Effects Losers
fixed salary employees, retirees with fixed pensions, creditors, savers
Inflation Effects Gainers
Flexible Income Earners, Speculators, Debtors
Demand-Pull
When buyers of final goods and services desire to purchase quantities of outputs greater than what the economy can produce
Cost-Push
Occurs when overall prices increase due to increases in the cost of wages and raw materials.
Philips Curve
Shows the inverse relationship between inflation rate and UE rate
Functions of Money: Medium of Exchange
Purchasing
Functions of Money: Unit of Value
Loan 10,000 pay 10,000
Functions of Money: Store of Value
A bill or coin’s value does not change despite its condition
Money Supply
Currency in Circulation (CIC)
M1 - Transaction Money
CIC + Demand Deposit
CIC
Paper bills and coins or cash onhand
Functions of Money: Legal Tender
Money is a debt from Central Bank, assures that it has value
Demand Deposit (Checking Account)
Acts as paper bills. You deposit that amount in the bank and at anytime u can demand it
M1
most liquid
M2
M1 + Savings Account + Time Deposit
M3 = Total Liquidity
M2 + Debt Papers Issued by Central Banks
M4
M3 + Peso Equivalent of dollar deposits
Dollar Deposits
Foreign Currency Deposit Units + Offshore banking units
Central Bank
Implement Money Stability, GDP Growth and Independent from Government
Expansionary
Used in time of recession
Contractionary
Used in inflation/overheating economy
Monetary Tools: Rediscounting Rate
Rate of Interest that the BSP sets for loan papers of borrowers from commercial banks
Monetary Tools: Buy Sell government securities
Financial Papers - Bonds, Repurchase Agreements
Transaction Demand
Intend to spend for daily transactions
Precautionary Demand
Intend to spend for precautionary measure
Monetary Tools: Reserve Requirement
% of total reserve
Fractional Reserve System
Fraction of total deposits reserved by Commercial Banks
Ways to Create Money: Buy and Sell EXPANSIONARY
When CB buys forex from Commercial Banks they increase MS
Ways to Create Money: Buy and Sell CONTRACTIONARY
When CB sells forex to Commercial Banks they decrease MS
Ways to Create Money: Lending Money to Banks
BSP or Central Bank lends to Commercial Banks - EXPANSIONARY
Ways to Create Money: Lending Money to PH Government
EXPANSIONARY
EXPANSIONARY RR
Lowering the RR increases loanable
CONTRACTIONARY RR
Higher RR decreases the loanable
Fiscal Deficit
Govt Ex > Taxes
USE OF GOVT FUNDS: Consumption Expenditures
Salaries and wage, social instruments; purchase of goods and services to produce and provide for the public
USE OF GOVT FUNDS: Capital Outlay
Public works construction, infrastructure and new equipment
USE OF GOVT FUNDS: Economic Services
Assisting particular industries
Taxes
Main revenue source of Public Funds
Govt Expenditure
Inflows in FP
Taxes
Outflows in Govt Expenditure
Taxes
Principle Source of revenues in financing govt expenditures
Tax revenues
Primary control in determining level of govt spending
PRINCIPLES OF TAXATION: Towards Equity or Social Justice
Taxes withdraw purchasing power from society members
Benefit Principle
Those who pay taxes should benefit from the use for which tax is spent
Ability to pay/Sacrifice Principle
Those who have greater income/wealth should pay a greater income should pay a greater proportion than those with less income
PRINCIPLES OF TAXATION: Administrative Ease of Tax
Tax measures should be devised so that it can be implemented with ease and at a low cost (VAT)
PRINCIPLES OF TAXATION: Adequacy of Revenue
To be worth the effort, a tax should yield sufficient revenue
Other Principles of Taxation - Sin Tax
Aimed at discouraging the use of a commodity or service
Tax Relief
Affects the allocation of resources in a specific activity and redistribution of income
Tax Revenue Formula
Tax rate X base
Base
Object of Tax
Progressive Tax
Increases as the base increases
Example of Progressive Tax
Income Tax and Business Tax
Regressive Tax
Lower Income Earner pays higher tax
Direct Tax
Directly imposed on people or on the income of businesses
Indirect Tax
The burden of tax is passed to another (VAT)
EXPANSIONARY Progressive tax
Decrease Taxes
CONTRACTIONARY Progressive Tax
Increase Tax
Deficit Stabilization
When economy is overheating
Surplus Stablization
When the economy is under full capacity and unemployment is high
Human Capital
Investment in Education
Debt Servicing
Lessen the amount of available funds for necessary services and infrastructures
Current Account Deficit
Any negatives in the domestic side
Theory of absolute advantage
A country that produce a good cheaper than others could specialize in that good and export to other countries
Theory of comparative advantage
Even if a country has AA over another country, that country could still benefit with the technically inferior one
Tariffs
Tax on imports
Increase Tariffs
Less imports
Non tariff barriers
Import quotas, local content requirements, health and stringent standards
Bilateral Trade Agreement
I give you you give me
Regional Free Trade Area
Some countries in the same region agree to decrease tariffs among themselves and impose common tariffs vis avi non membering countries
Price of Dollar
Exchange Rates
Dollar Demand
Downward sloping
Dollar Supply
Upward sloping
Balance Of Payment
Summarized the accounting for receipts and disbursement of dollars
Current Account
Trade in goods, services, primary income, secondary income
Note 
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