Maria Vicenta C.

Magpantay
Associate Professorial Lecturer II
Department of Economics
College of Social Sciences and Development, PUP
Learning Objectives

 To know the meaning of development

 To identify the different characteristics of developing countries-
classification, diversity and common characteristics
 To learn the various measurements of development
 To determine the links between growth and human development
MACROECONOMICS

 study of the economy as a whole or the basic sector or

aggregates namely:
 Household sector
 Business sector
 Government sector
 Foreign sector
 MACROECONOMIC CIRCULAR FLOW
Injections
₱
₱ Consumption Government
Investment Exports
Revenue Expenditure Expenditures
Fiscal Foreign Trade
Output of Goods and Services Policies Policies

BUSINESS HOUSEHOLD GOVERNMENT FOREIGN

SECTOR SECTOR SECTOR SECTOR

Land, Labor, Capital, Entrepreneur Monetary Foreign Trade

Capital Policies Policies Foreign
₱ Market Market
₱
Cost of Factor
Production Rent, Wages, Interest, Normal Profit
Income Imports
Savings Taxes

Y=C Y=C+S Leakages

PDI = Y- T S=I
MEASURING NATIONAL INCOME AND OUTPUT

2 Schools of Thought to Attain Growth and Development

 Classical Economics
proponent is Adam Smith, the “Father of Economics”
the ideal economy is self regulating with no government
intervention
market system is described as an “invisible hand” that
guides the economy to attain an equilibrium and at the
same time full employment level
 S2 S1
p
S3
P3
P2
2 Schools of Thought P1

 Keynesian Economics D2
D1
Q
Q1 Q2 Q3
 Proponent is John Maynard Keynes
 no automatic mechanism moves output and
employment towards full employment
 advocated government intervention through
monetary and fiscal policies to stabilize
output over the business cycle
Economic Growth and Economic Development

Economic growth
measures the capacity of a country to produce goods and services
Long-term expansion of the potential of the economy
Short-term growth is measured by the annual percentage change
in real Gross Domestic Product (GDP)
.
 PPP =[ 1/CPI] x 100
YEAR CURRENT CPI Inflation QTY OF NOMINAL Real = (1/126.20) x 100
PRICE Rate OUTPUT GDP GDP = 0.79
% (Current
Price)
2014 10 100 - 100 1000 1000
2015 12 120 20 100 1200 1000
2016 15 150 25 100 1500 1000
2017 17 170 13.33 100 1700 1000
2018 20 200 17.65 100 2000 1000
2019 22 220 10 100 2200 1000

CPI= Current Price

X 100 Inflation Rate = CPI2-CPI1 X 100 Real GDP = Nominal GDP
Base Year Price X 100
CPI1 CPI
2
Economic Growth and Economic Development

Economic Development

 defined as the sustained increase in the economic standard

of living of a country’s population by increasing its stocks of
physical and human capital and improving its technology.
Gross Domestic Product
 measures the total market value of the final goods and services produced
in the economy in a given period of time inside the boundaries of the
country
Current or Nominal Gross Domestic Product
 measures the total market value of the final goods and services
produced in the economy at prevailing price at a given time
Real or Gross Domestic Product at Constant Price
 measures the total market value of the final goods and services
produced in the economy at price with base period removing the effect of
inflation or deflation.
3 Approaches in Estimating GDP
Balance of Payments
1. Final Expenditure Approach  Current Account
 Financial Account
 Capital Account
GDP = C + I + G + (X – M)
2. Factor Income Approach
GDP = NY + IBT + D
NY = SUM (W + R + I + P)
3. Value Added from Industrial Origin Approach
GDP = A + I + S
2. Factor Income Approach

GDP = National Income + Indirect Business Tax + Depreciation

National Income

 the sum of all income payments derived from the four factors of production
from (land, labor, capital and entrepreneur) such as the rent, wages, interest
and normal profit

Normal Profit
 sum of proprietors’ income and corporate profits
 corporate profits include corporate income taxes, dividends,
and undistributed corporate profits
 MACROECONOMIC CIRCULAR FLOW
Injections
₱
₱ Consumption Government
Investment Exports
Revenue Expenditure Expenditures
Fiscal Foreign Trade
Output of Goods and Services
Policies Policies
Agriculture
BUSINESS Industry HOUSEHOLD GOVERNMENT FOREIGN
SECTOR Services SECTOR SECTOR SECTOR

Land, Labor, Capital, Entrepreneur Monetary Foreign Trade

Capital Policies Policies Foreign
₱ Market Market
₱
Cost of Factor
Production Rent, Wages, Interest, Normal Profit
Income Imports
Savings Taxes

Leakages
1. Final Expenditure Approach
GDP = C + I + E + (X – M)
Where C is the Household Final Consumption Expenditure representing
almost all purchases by households of durable consumer goods,
non-durable consumer goods, and consumer expenditures for
services
I is the Investment or the Capital Formation.
G is the Government Consumption Expenditures including all
government spending on the finished products of business, all
direct purchase of resources by government but exclude transfer
payments, veterans payments and welfare payments
(X-M) Net Export is the difference between exports and imports of goods
and services representing the net effect of foreign trade on GDP
in our in our economy.
Gross Domestic Product by Expenditure Approach

Expenditure Amount in Million

at Current Price
(2019)

Household Consumption Expenditure (C) 14,288,140

Capital Formation (I) 5,300,351
Government Consumption Expenditure (G) 2,444,698
Exports 5,530,950
Imports 7,858,661
Gross Domestic Product 19,516,418
Net Primary Income from Abroad 1,940,973
Gross National Income 21,457,391
Real GDP = Current GDP X 100
(2012) CPI

Real GDP = 19,516,418 x 100 = 16,386,581

119.1

Real GNI = Current GNI X 100

(2012) CPI

Real GDP = 21,457,391 x 100 = 18,016,281

119.1
Indirect Business Taxes (IBT) are taxes on the sales of goods and services
including value added tax (VAT)

Depreciation (D) also called capital consumption allowance or consumption of fixed

capital.
cost of the used capital goods in a given period of time

Depreciation = Gross Investment – Net Investment

Net Primary Income is the Net Factor Income from Abroad which is the difference
between the aggregate flow of factor payments from the rest of the world

Inflow (+) consists of receipts from the use of the economy’s resources from the
rest of the world like salary remittances of OFWs
Outflow (-) consists of payments for the economy’s use of foreign investments in
the Philippines
3. Value Added from Industrial Origin Approach

 reflects the sectoral contributions to economic activities such as in

agriculture, industry and service sectors
 derived by adding together the gross value added originating from the
various industries
Example: production of rice

Channel of Output Sales Value Value Added

Farmer 5,000
Trader 5,000 500
Miller 5,500 1,500
Wholesaler 7,000 1,000
Retailer 8,000 1,000
Consumer 9.000 9,000
Source: Payumo, Casiana, et. Al.”Understanding Economics”. 2014
Value Added from Industrial Origin Approach
Industry Amount
In Million Pesos
at Current Price

Agriculture, Forestry, and Fishing 1,722,211

Industry 5,887,300
Services 11,906,907
19,516,418

Net Primary Income from Abroad 1,940,973

Gross National Income 21,457,391

GOVERNMENT FUNCTIONS
 Resource allocation  Resource Distribution
Sectoral allocation of resources  Income support
 Social services  Redistribution in kind
 Economic services  example 4Ps as Conditional
 National defense Cash Transfer
 General administration
 Debt servicing

 Stabilization
Fiscal policies - taxation and expenditures
Monetary policies - to control inflation and manage supply of money
Sources of Government Revenues
 Tax revenues
 Non-tax revenues
 Operating and service income
 Income from public enterprises/investments
 Sale of assets
 Grants and aids
 Borrowings