Economic Planning and Strategy

1. ECONOMIC PLANNING AND STRATEGY

2. Economic Growth and Development Economic Strategy Economic Planning
3. ECONOMIC GROWTH • An increase in the capacity of an economy to produce goods and services,
compared from one period of time to another. • Occurs whenever people take resources and
rearrange them in ways that make them more valuable
4. ASPECTS OF ECONOMIC GROWTH • Standard of living • Government spending • Domestic
problems • Global role models
5. ECONOMIC DEVELOPMENT • A process that influences growth and restructuring of an economy to
enhance the economic well-being of a community • Long-term, multidimensional, rational process
involving the reorganization and reorientation off entire economic and social system
6. ECONOMIC PLANNING • A branch of planning in which a nation decides in advance what to be done
for the purpose of stability and development of economy
7. COMMON CHARACTERISTICS OF DEVELOPING NATIONS • Low levels of living • Low levels of
productivity • High rates of population growth and dependency burden • High and rising levels of
unemployment and underemployment • Significant dependence on agricultural production and
primary products • Dominance, dependence, and vulnerability in international relations
8. MEASURES OF DEVELOPMENT • The most popular indicators of economic development are per
capita gross National Product (GNP) or per capita Gross Domestic Product (GDP)
9. Uses ten criteria: trade, taxation, government intervention, monetary policy, foreign investment,
banking, wage and price, property rights, regulation, and black market activities Considers three
objectives of development:: to be nourished and healthy, to be capable of safe and healthy
reproduction • Economic Freedom Index  Combines the normalized measures of life expectancy,
literacy, educational attainment, and GDP per capita for countries • Capability Poverty Measure
(CPM)  An attempt to measure the quality of life or well-being of a country. The value is the
average of three statistics: basic literacy rate, infant mortality, and life expectancy all equally
weighted on a 0 to 100 scale • Human Development Index (HDI) OTHER INDICATORS OF
DEVELOPMENT • Physical Quality of Life Index (PQLI)
10. THEORIES ON ECONOMIC GROWTH
11. JEAN BAPTISTE SAY Supply creates its own demand
12. is a system where anybody can do what he/she wants to be or anybody can pursue what he wants
to pursue within the bound set by society or the natural legal system • The system of natural
liberty is associated with the invisible hand • The free market economy • The system of natural
liberty promotes self-libertyADAM SMITH • An Inquiry into the Nature and Causes of the Wealth of
Nations • Believed in the Natural Law • Natural Law dictates natural Liberty Natural Liberty
13. Increase in income will increase demand thereby will expand further the market a. Division of labor
will happen b. Specialization will happen c. It will increase productivity d. It will result into
economic growth (more income, more output) e. More income, more goods f. The process will go
on and on againADAM SMITH • Self-interest promotes exchange A. More exchange means more
goods 1.Market will expand 2.Income will increase
14. ADAM SMITH B. Increase in income means increase in savings 1.Increase in savings will lead to
capital accumulation 2.Capital accumulation will expand the market and economic growth
15. POLICY INSIGHTS FROM THE IDEAS OF ADAM SMITH • There is a need to increase income by
increasing labor productivity and capitalization in the production process. • There is a need to
increase savings by encouraging the activities of manufacturers and merchants.
16. THOMAS MALTHUS • The power of population is indefinitely greater than the power in the earth to
produce subsistence for man
17. MALTHUSIAN ANALYSIS • Economic growth will result in a situation where the demand for labor is
greater than the supply of labor • Wages will go up • Standard of living will go up • Number of
marriages will increase • Population will increase
18. PROBLEMS 1.Population Explosion 2.Food Shortage 3.Collective or Mass Misery SOLUTIONS
1.Positive and preventive check 2.Technical Innovation in agriculture 3.More Equitable Distribution
of Income MALTHUSIAN ANALYSIS
19. DAVID RICARDO • Principles of Political Economy and Taxation • Wishes to explain how economic
growth will stop
20. RICARDIAN PRINCIPLE • Ld > Ls • Wage increase • Standard of living will increase • Number of
marriage will increase • Population will increase • Food demand will increase • Population pressure
 in land • Motivate farmers to use good land (intramarginal land) • Use up all good land • Use of
bad land (marginal land)
21. price of food must therefore be high • If the marginal cost is high, then the price of food must be
high • Workers in the industrial will demand higher wages • Profit of capitalists will decrease •
Profit squeeze (Profit=0) • Economic growth will stop marginal cost of producing food in bad or
marginal land is high  price of food is determined by the marginal cost of producing EFFECTS OF
THE USE OF MARGINAL LAND • Price of food will increase relative to industrial and manufacturing
products
22. As capitalism grows and advances, the competition among firms will increase • Law of the Falling
The desire of capitalists to accumulate more and more capital • Law of increasing Centralization
and Concentration of Capital KARL MARX • Law of Capital Accumulation Capitalism will meet a
violent end As capitalism grows and advances, the rate of profit of the capitalist will fall and will
cause the capitalist system to breakdown • Law of Increasing Pauperization Tendency of the Rate
of Profit
23. Entrepreneur Make use of the old, but do things differently • Major Source of Innovation  Doing
things differently in order to improve productivity JOSEPH SCHUMPETER • Popularized the term
creative destruction • Economic Growth = Investment • Investment = Capital
accumulation/Innovation • Economic Growth = Capital accumulation/innovation • Innovation
24. SCHUMPETERIAN ANALYSIS • Economic growth depends on investment • Innovation is a form of
investment • Economic growth depends on innovation • Since the major source of innovation is the
entrepreneur, economic growth therefore, depends on entrepreneurship
25. Attitude of society towards business success Class Structure  Social Values  social, political,
socio-psychological atmosphere within which an entrepreneur must operate Elements of Social
Climate WHAT DETERMINES THE SUPPLY OF ENTREPRENEUR? • Entrepreneurs depend on the
social climate Social Climate
26. PROCESS OF ECONOMIC DEVELOPMENT • Innovation in the production method • Innovation on
products • Innovation in markets • Innovation in industrial organization
27. JOHN MAYNARD KEYNES • General Theory of Employment, Interest and Money • Father of
Macroeconomics
28. KEYNESIAN ANALYSIS • A central idea is that when the amount of money being saved exceeds the
amount being invested, then unemployment will rise • This is in part a result of people not
spending too high a proportion of what employers pay out, making it difficult, on aggregate, for
employers to make a profit • In a state of unemployment and unused production capacity, one can
only enhance employment and total income by first increasing expenditures for either consumption
or investment • Without government intervention to increase expenditure, an economy can remain
trapped in a low employment equilibria • Activist economic policy by government to stimulate
demand in times of high unemployment.