• MACROECONOMICS 1.

a = level of consumption at 0
- study of how we can best increase our income
country ' s wealth given the available 2. b = MPC
resources and how these resources are 3. Yd = Disposable Income
transformed by entrepreneurs into final • THE MULTIPLIER CONCEPT
goods and services which we ultimately - MULTIPLIER (K) – process of
consume to satisfy our needs and wants generating income through the
- The study of the aggregate economic circular flow of exchange between
behavior (government, business, the household and the firm
$ $
households and international trade) 𝐾= or 𝐾 =
$%&'( &')
- The study of the economic behavior of - Relationship of MPC to K = direct
the state - Relationship of MPS to K = indirect
• MBA GOALS OF MACROECONOMICS • NATIONAL INCOME ACCOUNTING -
1. Sustained economic growth - expansion Measuring the performance of the
of production, increase national income, economy is one of the main concerns of
increase employment, decrease poverty macroeconomics
2. Price stability - absence of rapid • GROSS NATIONAL PRODUCT (GNP) - Is the
inflation and the absence of wide price
market value or money value of all final
fluctuation
goods and services produced by all
3. Full employment - all resources are fully
nationals in the economy during a given
utilized, no workers should be
period of time
involuntarily out of work
• GROSS DOMESTIC PRODUCT (GDP) -
4. Trade balance – imports = exports
Measures the market value of all final goods
5. Redistribution of income - equal
and services produced within the
distribution of wealth and income
boundaries of the Philippines, whether by
6. Efficiency - producing output at a
Filipinos or foreign-supplied resources.
minimum opportunity costs of the
• Characteristics of GNP/GDP:
inputs used in production
1) It is a flow concept, measured as the
7. Economic development - improvement
quantity of final goods and services
in the quality of life of the people
produced by the economy per period of
8. Economic security - fulfillment of the
time.
economic needs of every member of the
2) It is measured in monetary terms
society including the handicapped
3) It includes goods and services bought
• CONSUMPTION FUNCTION
for final use, not unfinished goods in
- PERSONAL INCOME
their intermediate stages of production
- DISPOSABLE INCOME (Yd): Available
that are purchased for further
income for consumption excluding taxes
processing & resale.
Yd = Personal Income – Personal Tax
4) It includes only final goods and services
• CONSUMPTION EXPENDITURE
produced during the accounting year.
Yd – Savings Licensure Exam for
5) It is a measure of productive activities
• MARGINAL PROPENSITY TO CONSUME (MPC) only
- For every unit of income, how much do you • GROSS NATIONAL PRODUCT
spend for consumption
• NOMINAL GNP/GDP - measures the value
• MARGINAL PROPENSITY TO SAVE (MPS) - For
of output in a given period in the prices of
every unit of income, how much do you save
that period, or, as it is sometimes put, in
MPC + MPS = 1
current pesos
• REAL GNP/GDP OR GNP/GDP AT
C = a + b(Yd)
CONSTANT PRICES - measures changes in
 physical output in the economy between • INFLATION – continuous & sustained
different time periods by valuing all goods increase in prices.
produced in the two periods at the same • CONSUMER PRICE INDEX - Measures
prices, or in constant pesos. changes in the prices paid by consumers for
𝑮𝑫𝑷
• PER CAPITA INCOME: a basket of goods and services
𝑷𝑶𝑷𝑼𝑳𝑨𝑻𝑰𝑶𝑵
• NET NATIONAL PRODUCT (NNP) - General measures of average monthly and
GNP – DEPRECIATION annual changes in the retail prices of
• NATIONAL INCOME (NI) commodities
NNP – INDIRECT TAXES - Approximate reflection of the prices of the
final goods and services of the economy.
• APPROACHES TO GDP MEASUREMENT
A. EXPENDITURE APPROACH - In this
approach, the GNP/GDP is computed by
getting the sum of the final expenditures of
the four major sectors of the economy.
These major sectors include the following:
1. Household – personal consumption
expenditure (C)
2. Businesses – private domestic
investment (I)
3. Government – government
• HYPERINFLATION – it is the higher
consumption expenditures (G)
destruction of the value of the currency
4. Foreign Sector – net exports (X – M)
• Kinds of Inflation
GDP = C + I + G + (X - M)
1. Demand Pull Inflation – due to the shift in
B. INCOME APPROACH
the economies demand curv
GDP = W + R + i + P + IBT + D
1. W = Wages, Salaries, and Supplements
/ Compensation of Employees
2. R = Rental Income of Persons
3. i = Net interest
4. P = Corporate profits before taxes +
Income of unincorporated enterprises
5. IBT = Indirect Business Taxes, a. Increased money supply
adjustments, stat discrepancy b. Cyclical boom
6. D = Depreciation (Overall) Measurement c. Wartime period
C. INDUSTRIAL ORIGIN APPROACH d. Election time
GDP = AS + IS + SS 2. Cost Push Inflation – due to the shift in the
1. AS = Agrifishery economies demand curve
2. IS = Industry Sector
3. SS = Services Sector
• GDP SHORTCOMINGS
1. Non-market Transactions – homemade
production, childcare, homemade
services like repairs and maintenance
2. Distribution, Kind, and Quality of
Products • Increase in Oil Prices
3. Underground Economy • Increase in Wages
4. Economic Bads • Monopolies
• LOSERS OF INFLATION:
 1. Fixed income earner when they believe that the economic cycle
2. Pensioners has reached its peak.
3. Creditors 3. CONTRACTION - A correction occurs when
• GAINERS OF INFLATION: growth slows, employment falls, and prices
1. Flexible Income stagnate.
2. Speculators – perceptive businessmen - As demand decreases, businesses may not
3. Debtors immediately adjust production levels,
• DIFFERENT ECONOMIC CONDITIONS leading to oversaturated markets with
•Inflation •Hyperinflation •Recession surplus supply and a downward movement
•Depression •Stagnation in prices.
• ECONOMIC CYCLES - An economic cycle, - If the contraction continues, the
also known as a business cycle, refers to recessionary environment may spiral into a
economic fluctuations between periods of depression.
expansion and contraction. 4. RECOVERY - The recovery phase is when the
- Factors such as gross domestic product economy hits its trough, bottoms out, and
(GDP), interest rates, total employment, begins the cycle anew.
and consumer spending can help determine - Policies enacted during the contraction
the current economic cycle stage. phase begin to bear fruit. Businesses that
- FINISHED 5 - 7 YEARS retrenched during the contraction begin to
ramp up again. Stock values tend to rise as
investors see greater potential returns in
stocks than bonds. Production ramps up to
meet rising consumer demand and with it,
business expansion, employment, income,
and GDP
MONEY MARKET
• MONEY - Medium for exchange
• CURRENCY - Money of a certain country
• MONEY DEMAND - Money held by the bank
1. EXPANSION - During expansion, the • DEMAND FOR MONEY
economy experiences relatively rapid 1. Transactions demand – everyday
growth, interest rates tend to be low, and transactions
production increases. 2. Precautionary demand – for unforeseen
- The economic indicators associated with events/emergency purposes
growth, such as employment and wages, 3. Speculative demand – for liquidity
corporate profits and output, aggregate purposes (investments/luxuries)
demand, and the supply of goods and • MONEY SUPPLY - Money in circulation in
services, tend to show sustained uptrends the economy
through the expansionary stage. - Stock of money serving as a vehicle of
2. PEAK - The peak of a cycle is when growth economic activities
hits its maximum rate. 1. Coins and bills in circulation
- Prices and economic indicators may 2. Demand deposits in the bank – current
stabilize for a short period before reversing account/checking account
to the downside. 3. Quasi money – money used by the bank
- Peak growth typically creates some though owned by different individuals
imbalances in the economy that need to be 4. Deposit substitutes – savings in bank,
corrected. As a result, businesses may start loan associations, and credit unions
to reevaluate their budgets and spending
 • SOURCES OF MONEY SUPPLY:
1. Printing of New Money - should be back
up with gold
Ø this is called monetization of debt since
government is exchanging interest
bearing for non-interest-bearing debt.
Without commodity to back up creation of
money
a. token coins – issued coin is not worth its
face value
b. credit or fiat paper currency
2. Lending operation of the banking
system

3. Foreign Currency Inflows