GROUP 1

Literacy - Is traditionally understood as the ability to read and

write.

TWO KINDS OF LITERACY

Basic literacy or simple - Refers to the ability of a person to
read and write with understanding a simple message in
language or dialect.

Functionally literate - Refers to a person who can read, write

and compute or one who can read, write, compute and
comprehend.

How to compute the Literacy rate?

Numbers of literate persons divided by the total population
and multiply by 100
For example:
No. of literate person =847,592
No. of total population=925,478
847,592 divided 925,478 = 0.91584241
Multiply 0.91584241 by 100 = 91.58
TYPES OF LITERACY

Cultural Literacy: Cultural literacy is the ability to

understand and appreciate the similarities and
differences in the customs, values, and beliefs of one's
own culture the cultures of others.
Multicultural Literacy: Multicultural literacy is knowledge
of cultures and languages
Biliteracy: is knowing how to read in two or more
languages.
Visual Literacy: Based on the idea that visual images
are a language, visual literacy can be defined as the
ability to understand and produce visual messages.
Computer Literacy: The ability to use a computer and its
software to accomplish practical tasks.
Technology Literacy: The ability to use new media such
as the Internet to access and communicate information
effectively.

Prose literacy measures how well you understand and

use information found in newspapers, magazines, novels,
brochures, manuals or flyers.
Document literacy measures how well you find and use
information in forms, schedules, charts, graphs and other
tables of information.
Quantitative literacy measures how well you can use
numbers found in ads, forms, flyers, articles or other
printed materials.
Health literacy measures how well you can understand
and use health-related information.
Economic literacy defined as the competence in
identifying and evaluating economic concept as it relates
to the economy, and political system.

Poverty The threshold income level, which is used to

determine who falls into the poverty category, was originally
based on the cost of a nutrionally adequate food plan
designed by the U.S Department of Agriculture.
Absolute Poverty Standard - is the cost of a specific bundle
of goods just sufficient for people to have a minimum
adequate standard of living.
Relative Poverty Standard - is the standard of living below
which a certain percentage of the population lives.
Poor - The traditional perception that most of the poor are
elderly folk or are people who live in remote, economically
depressed areas is simply not accurate today.
CAUSES OF POVERTY
1) A lack of education and training it hinders people in
finding gainful employment; Children raised by poor,
uneducated parents may not realize the value of education.
2) Overt Discrimination refers to the behavior of employers
who refused to hire, train and promote workers based on
personal characteristics not related to the job.
3) Institutional Discrimination evolves from our social
institutions.

4) Children raised in poor families tend to be hindered by poor

nutrition and health.
5) Criminal Records acquired during adolescence can
seriously hinder persons from finding decent jobs as adults.
POLICIES FOR REDUCING POVERTY
Short term poverty Programs it aims at relieving the
symptoms of poverty. Primarily , the lack of adequate income
to buy goods and services.
Long Run Poverty Programs the purpose of this program
is to eliminate the root causes of poverty, such as the lack of
education and skills.
Poverty Duration - If a household is in poverty for a few
months it faces serious hardships during those months.
HOW DOES THE GOVERNMENT MEASURE POVERTY?
Formula:
(Cost per meal X 3 Meals X 4 Person X 365 Days) X 3
1. Social security
-for the retired, the unemployed, and the disabled, social
insurance programs provide increase income payment in
prescribed situations.
2. Supplementary security income
- Many people who are poor but do not qualify for social
security benefits are assisted through other program
3. Food stamps
-food stamps are government issued coupons that can be
used to purchase food.
4. Earned income
-the earned income tax credits programs was created to
provide rebate of social security taxes to low income workers
5. No apparent reduction in poverty rates
-in spite of the numerous programs in existence and the
trillions of dollars transferred to the poor, the officially defined
rate of the poverty.
The Latent poor are people who would fall below the poverty
line in the absence of cash payments from the government

GROUP 2
International trade is the exchange of goods and services
between nations.
1.

Mercantilism by Thomas Munn

- for a nation to become rich and l, it needs
to export more and import less using
precious metals such as gold and silver.

2.

Absolute Advantage Theory by Adam Smith

- the ability of the party to produce a greater

quantity of a good and service than others using te same unit
of resources.
3. Comparative Advantage Theory by David Ricardo.
-the ability of a firm to produce goods and services at
a lower opportunity cost than others.
A. TARIFF BARRIERS
TARIFF BARRIERS - Tariff may either be a tax on
imports or exports. (Trade tariff)
Italian word tariffa "list of prices, book of rates.
Arabic word ta`rif "to notify or announce
AD VALOREM TARIFF
means that the tariff applies to a percentage of the
import's value.
Tariff is imposed to obtain revenue or to protect
domestic firms:
1. Revenue Tariff
2. Protective Tariff
B. NON-TARIFF BARRIERS
Non- tariff barrier(NTB)- are licensing requirements set
by the government that specify standards pertaining to
product quality, health and safety.

1) Government Licensing Requirement

2) Import Quota
3) Voluntary Export Restriction (VER)
4) Exchange Controls
5) Embargo and Subsidies
World Trading Blocs and Organization
World Trading Organization (WTO)

Organization for Economics Co-Operation and

Development (OECD)

North American Free Trade Agreement (NAFTA)

Group of Eight

European Union

Economic Integration involves agreement between

countries to permit, to varying degrees, the flow of capital,
labor goods and services across their respective
international borders.

Common Market - establishes free trades in goods and

services sets common external tariff among members and
also allows for free mobility of capital and labor across
countries.
Economic Union - An economic union typically will maintain
free trade in goods and services, set common external tariffs
among members, allow the free mobility of capital and labor,
and will also relegate some fiscal sending responsibilities to a
supra-national agency.
Monetary Union - Monetary union establishes a common
currency among a group of countries. This involves the
formation of a central monetary authority which will determine
monetary policy for the entire group.
Balance of Payment (BOP) is a systemic statement of all
economic transactions between the country and the rest of the
world.
COMPONENT PARTS OF BOP ACCOUNT:
1.

Current account- includes all item of income and

outlay.

2.

Capital Account- records the net change in

ownership of foreign assets.

3.

Financial Account- includes all purchases and sales.

Degrees of Economic Integration

Preferential Trade Agreement (PTA) - is perhaps the
weakest form of economic integration. In a PTA, countries
would offer tariff reductions, though perhaps not eliminations,
to a set of partner countries in some product categories.
Free Trade Area (FTA) - occurs when a group of countries
agree to eliminate tariffs between themselves but maintain
their own external tariff on imports from the rest of the world.
Customs Union - a customs union occurs when a group of
countries agree to eliminate tariffs between themselves and
set a common external tariff on imports from the rest of the
world.

GROUP 3
MONETARY POLICY
I. Functions of Money:
1. Medium of Exchange
2. Unit of Account
3. Store of Value
4. Standard for Deferred Payments

II. Demand for Money

1. Transaction Demand
2. Precautionary Demand
3. Speculative Demand
III. Composition of Money:
1. M1 or Narrow Money- composed of coins and paper bills
2. M2 or Broad Money- composed M1 plus saving and time
deposit
3. M3 or Broad Money Liabilities- composed of M2 plus
deposit substitutes
4. M4 or Liquidity Money held in foreign currency- composed
of M3 plus transferable peso deposits of non-bank residents
IV. Philippine Financial System:
1. Bangko Sentral ng Pilipinas
2. Banking System
3. Non- Bank Financial Institution

3. Taxes on goods and services

4. Taxes on international trade transactions
II. Non-tax Revenues of the Government:

1. Open Market Operations- It involves the buying or selling of

government securities from banks and financial institutions of
BSP.
2. Rediscounting- This refers to transactions whereby the BSP
extends credit to a bank collateralized by its loan papers with
customers.
3. Reserve Requirement- this is the minimum amount of
reserves that banks must hold against deposits.
4. Direct Controls- these consists of quantitative and
qualitative limits on the ability of banks to undertake certain
activities.

It can create unemployment

Inflation distorts the price mechanism
and creates inflation noise
It creates money illusion

III. Government Expenditures:

Deflation can also cause severe economic problems,

including the following

1. Current Operating Expenditures

2. Capital Expenditures

Consumers may delay consumption

IV. Expenditures of Sector

Deflation discourages spending and investment because

consumers, expecting prices to fall further, delay purchases,
preferring instead to save and wait for even lower prices.

1. Economic Services
2. Social Services
3. General Public Administration
4. Defense
5. Debt Servicing

GROUP 4

Price Stability It minimize the fluctuation of the

prices of goods and services

Inflation - general increase of prices for goods and

services

It creates shoe leather and menu costs

1. Operating and service income

2. Income from public enterprises
3. Sale of Assets
4. Grants and aids

V. Monetary Policy Instrument:

Deflation - general decrease of prices for goods and

services In both cases, the effects are potentially
extremely harmful to a countrys economic performance
and to the welfare of its citizens

THE COSTS OF INFLATION

Increase Real Interest Rate

Given that nominal interest rates cannot fall below zero,

falling prices cause real rates to rise. For example, if nominal
interest rates are currently 5% and inflation is 1%, real interest
rates are 4% (which is 5% 1% = 4%).Therefore, deflation
can contribute to an unwanted tightening of monetary policy.

Rising debt burdens

Deflation will cause debt burdens to rise for

households that have borrowed in the past.

Creates problem of unemployment

Due to deflation prices of goods falls which results in

lower profits for companies which in turn force the companies
to reduce the production of goods by cutting down production
in factories or even closing some factories which in turn
results in mass scale layoff of workers

5. Moral Suasion- the BSP persuades banks to make their

lending policies responsive to the needs of the economy.

It erodes the value of money and assets

FISCAL POLICY

It redistributes income between groups

I. Sources of Government Revenue:

It is bad for the balance of payments

MEASURING PRICE CHANGES

1. Income Tax
2. Property Taxes

It causes uncertainty and falling

Measuring changes in average price levels requires

the use of a device called an index.

investment

 Nowadays, we uses a number of indices to track

price changes, including the:
Consumer Price Index (CPI), which was introduced in
2003, and
Retail Price Index (RPI) which was introduced in
1947.
Using an index allows a general picture to develop
to show the average price change for a sample of
goods and services, measured at monthly intervals.
THE CPI (CONSUMER PRICE INDEX)
CPI is a statistical estimate of the level of prices of goods and
services bought for consumption by households. It measures
changes in the price level of a market basket of goods and
services used by households.
The consumer price index expresses the current prices of
a basket of goods and services in terms of the prices during
the same period in a previous year, to show effect
of inflation on purchasing power.
It is one of the best known lagging indicators.
The basket is updated annually to keep it as representative as
possible, and prices are checked on a monthly basis by
recording prices at outlets.
The annual percentage change in a CPI is used as a measure
of inflation
Goods and Services that CPI cover
Food And Beverages
Housing Apparel
Transportation
Medical Care

Recreation Education And Communication

Other Goods And Services

This selection of goods and services are called basket of

goods.

INDICES
All indices, like the CPI and RPI, have certain key
features in common, including:

How it is calculated?
1.

The price of each item in the selection is multiplied

by a weighting.

2.

After the weighting is multiplied by the price, every

single value in the basket is added together.

The use of a sample of different retail outlets, such

as corner shops, supermarkets, and specialist stores
taken from across the country.

3.

The total value of all the goods is then divided by the

number of items in the basket. And quotient is the RPI.

The tracking of changes in prices from a given

starting point, a base year.

The RPIx and RPIy are both adjusted retail price index.

The use of a sample of typical goods and services

bought by average households.

The allocation of different types of good with

different weights to reflect their varying importance in
the consumers shopping basket.
Changes are expressed in terms of the number 100.
An index of 110 means 10% inflation since the base
year, and an index of 92 means 8% deflation since
the base year.
RETAIL PRICE INDEX (RPI)
Method that calculates how the prices of goods and services
change during a set period of time.
It is used to measure the inflation rate in an economy and how
the cost of living for the average household is changing.
What does it compose of?
The RPI is composed of selection of goods and services
which reflect what the average household in an economy
spends on.

RPIx and RPIy

RPIx- the same as RPI but excludes mortgage

interest payment when calculating the price of basket
of goods. This is closer to CPI but not exactly the
same.
RPIy- also known as Core Inflation. This is RPIx
minus the council tax and indirect taxes.
Comparing the CPI and RPI
Comparing the Retail Price Index (RPI) and the Consumer
Price Index (CPI) raises the following issues:
Mathematical technique of calculation
The RPI uses an arithmetic average of price changes whereas
the CPI uses a geometric average, which makes the CPI
mathematically more precise. This is because it can
continually capture the effects of changes in consumer
spending patterns in response to inflation or deflation.
Adjustment
A potential problem with price indices is that they may not
adjust quickly enough to reflect changes in spending. Indices

are based on a sample of goods and services which are

weighted according to how important the good is to the
consumer. The importance of a good is based on how much of
household income is spent on a product.

GROUP 5

1. Final Expenditure Approach

-GDP is the sum of all types of expenditures on final goods
and services from the four sectors in the economy: household
business, government, and the foreign sectors.

GROSS DOMESTIC PRODUCT (GDP)

- it measures the total market value of the final goods and
services produced in the economy in a given period of time
GDP= C + G + I + (x-m)
Where:
C= all private consumption/ consumer spending in a nations
economy
G= sum of government spending
I= sum of all countrys investment including business capital
expenditure
x-m = difference between exports and imports

Net Primary Income

3 APPROACHES IN ESTIMATING GDP

2 . Factor Income Approach

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

COMPONENTS OF NATIONAL INCOME

Compensation of Employees

Rents

3. Valued added from Industrial Origin Approach

- This approach reflects sectoral contribution to economic
activities. It is derived by adding together the gross value
added originating in various industry.
Net Domestic Product (NDP) vs. GDP -GDP does not make
allowances for replacing the capital goods used up in each
years production. As a result, it does not tell us how much
output was available for consumption and for additions to the
capital.
NDP = GDP D
Gross Domestic Product vs. Gross National Income (or GNP)
-GNI includes only goods & services produced by a nations
own citizens and firms. Hence, GDP are goods & services
produced within a nations boundaries by foreign citizens and
firms.
GNI = GDP + Net Primary Income

Current GDP or nominal GDP measures the market value

of final goods and services produced in the economy at price
prevailing in that period

Interest

Normal Profit

National Income (NY) vs. GDP -GDP

Real GDP or GDP at constant prices measures the market

value of produced output in the economy at price with base
period.

Proprietors Income

Corporate Profits

measures the market value of the total output produced in the

economy while NY measures output produced at its factor
cost.

Real GDP= x 100

Per Capita RGDP is the amount of goods and services

produced per person
Per Capita RGDP= Per Capital= Real GDP Population

To arrive at GDP from the National Income, there are three

factors, to be added to national income as follows:

Indirect Business Taxes

Depreciation

NY = GDP (Net Primary Income + D + IBT)

National Income (NY) vs. Personal Income (PY)

-NY is the total amount earned within a country while PY
refers to an individuals total earnings from wages, investment
enterprises, and other ventures.

PY = NY (undistributed corporate profit + corporate income

tax + SSS / GSIS contribution) + (transfer payments)
Personal Disposable Income (PDY) vs. Personal Income (PY)
-PDY is the total amount of money available for an individual
to spend or save after taxes have been paid.

Increase in leisure time has clearly a positive effect on overall

well being. But the system of national income accounting
understates well being by ignoring leisures value.
Because GDP is a questionnaire measure rather than a
qualitative measure, it fails to take into account the value of
improvements in product quality.

PDY = PY PT or PDY = C + S

EXCLUSION FROM GDP

An increase in the expenditure in the economy such as C,I,G
and X-M as much as an increase in income from land, labor
capital, entrepreneur increase in GDP.
Example of productive non market activities which are not
included in the GDP:

The growth GDP is inevitably accompanied by the social costs

or the negative by-products of economic well being. Since
those costs are not deducted from GDP it overstates our
national well being
The distribution of output may make big difference for
societys overall well being but not reflected in the
measurement of GDP.
GROUP 6

1. Housewife Services

UNEMPLOYMENT RATE

2. Consumption of home grown food.

- measure of the prevalence of unemployment.

3. Production in the underground economy or the informal

sector

The work force is made up of those people who want to work;

it excludes people who are retired, disabled, and able to work
but not currently looking for a position; for instance, they may
be taking care of children or going to college.

Example of expenditures excluded from the GDP

1. Purely financial transaction like the purchase of bonds and
stocks.
2.Payment of government transfers such as pensions, grants
and aid provided by donor degree Agencies for social
services.

Second hand sales.

Debt Payment

Search unemployment

Wait unemployment

FRICTIONAL UNEMPLOYMENT

Inevitable

Desirable

Many workers who are voluntarily between jobs are moving

from low-paying, low-productivity jobs to higher-paying, higher
productivity positions.

Structural Unemployment

A longer-lasting form of unemployment caused by

fundamental shift in an economy.

Caused by a mismatch between the skills that

workers in the economy can offer, and the skills
demanded of workers by employers.

Often brought about by technological changes that

make the job skills of many of todays workers
obsolete.

The unemployment rate is expressed as a percentage, and is

calculated as follows:
Unemployment rate =( )/(
) 100%
KINDS OF UNEMPLOYMENT RATE
Frictional Unemployment
BETWEEN JOBS

SHORTCOMINGS OF GDP

Economist use the term FRICTIONAL UNEMPLOYMENT

consisting of:

Moving voluntarily from one job to another

Have been fired and will be seeking reemployment

Cyclical Unemployment
A type of unemployment that occurs when there is
not enough aggregate demand in the economy to
provide jobs for everyone who wants to work.

An unemployment caused by the recession phase of

the business cycle.

Is the fluctuation rate of unemployment resulting

from swings in the business cycle.

Statistic of unemployment rate

Unemployment rate in the Philippines increased to

6.50% in the second quarter of 2015.

Unemployment rate in our country averaged 8.82%

from 1994 until 2015 reaching in all time high of
13.90% in the first quarter of 2000 and a record low
of 6% in the fourth quarter of 2014.

Top 3 countries with highest unemployment rate:

1. Zimbabwe
2. Mozambique
3. Djibouti
Top 3 countries with lowest unemployment rate:
1. Thailand
2. Singapore
3. Hong kong

of output is produced while changing the quantities

of two or more inputs.

Isoquants are typically drawn along with isocost

curves in capital-labor graphs, showing the
technological tradeoff between capital and labor in
the production function, and the decreasing marginal
returns of both inputs.

As with indifference curves, two isoquants can never

cross.

GROUP 7
ISOCOST

In economics an isocost line shows all combinations

of inputs which cost the same total amount
A line joining tangency points of isoquants and
isocosts (with input prices held constant) is called the
expansion path
The isocost line is an important component when
analysing producers behavior
The equation of the isocost line is rK+wL = C\, where
w represents the wage rate of labour, r represents
the rental rate of capital, K is the amount of capital
used, L is the amount of labour used, and C is the
total cost of acquiring those quantities of the two
inputs

An isoquant shows the extent to which the firm in

question has the ability to substitute between the two
different inputs at will in order to produce the same
level of output.

An isoquants shows all those combinations of factors

which produce same level of output. An isoquants is
also known as equal product curve or iso-product
curve.
Is a curve that shows the combinations of certain
inputs such as Labor (L) and Capital (K) that will
produce a certain output Q. Mathematically, the data
that an isoquant projects is expressed by the
equation
f (K,L) = Q

An isoquant (derived from quantity and the Greek

word iso, meaning equal) is a contour line drawn
through the set of points at which the same quantity

The budget line has two other significant characteristic:

Income Changes
Price change
- The Location of the budget line varies with money
income.
- Any Changes in product prices also shifts the
budget

Indifference curves: what is preferred?

-

Shows all the combination of two products A & B that

will yield the same total satisfaction or total utility to a
consumer.

Indifference curves are down slopping

- Slopes downward became more of one product
means less of the other of total utility is to remain
unchanged.
Indifference curve
-

The slope of an indifference curve at each point

measures the marginal rate of substitution (MRS) of
the combination of two goods represented by point.

The Indifference map

-

An indifference map is the collection of indifference

curves possessed by an individual.

Equilibrium and Tangency

-

ISOQUANT

Is a schedule or curve showing various combinations of two

selected products that a consumer can afford at
specified prices for the products given their
particular income level.

GROUP 8

Consumers equilibrium position is the combination lying

on the highest attainable indifference curve

Budget line
Point Y-Lower indifference curve12

Point Z-Lower indifference curve1

Point beyond the budget line
MRS=PB
Pa
(Marginal Rate of substitution)

GROUP 10
FOUR MARKET MODELS
Pure Competition

Equivalency and equilibrium

Marginal Utility theory assumes that utility is numerically
measurable.
Marginal utility of A Marginal Utility of B
Price of A
Price of B

Involves very large numbers of firms producing

identical products.
Free entry and exit. No significant legal,
technological, financial, or other obstacles prohibiting
new firms from selling their output in any competitive
market
No control over the price. Price Takers
Demand is perfectly elastic.

Pure Monopoly

Only one firm is involved.

Product is unique with no substitutes.
Entry to the industry is often blocked by the
government. It requires patent or licenses.
There is control over the price Price Makers
Imperfect competition

Monopolistic Competition

Involves large number of firms, but not as many as in

pure competition.
Produces differentiated products
Focuses mostly on advertising, brand names and
trademarks
Firms can easily enter or leave this market, although
not easily as firms in purely competitive market.
Imperfect Competition
Limited control over the price. Its either price maker
or price taker

Oligopoly

Involves a few firms that exert considerable influence

over the industry
Produces either standardized or differentiated
products
Control over price limited by mutual
interdependence: considerable with collusion(the
decision of rivals)
Harder for a firm to enter and exit
Imperfect competition