Development Economics: Theory and Policy: Assistant Prof. C. B. Mendoza, JR

San Beda University
College of Arts and Sciences

Department of Economics
Development
Economics: Theory and
Policy
DEVECON
Assistant Prof. C. B. Mendoza, Jr.
50 Years of Excellence in Economics
Preliminaries
Course House Rules
Index Card
Note: Provide 1.5 x 1.5 photo
Section / Class Schedule / Classroom Number Indicate if “Varsity” or “Scholar”
Family Name, Given Name, Middle Initial Nickname
Year / Course
Contact number
E-mail
Guardian name / Contact number
What is/are your expectation/s in this subject? Answer concisely.
Discussion Outline
• Introduction
• Course Description
• Course Objectives
• Learning Outcomes
• Course Requirements
• Grading System
• Other Matters
Credentials
CELEDONIO BOQUILON MENDOZA, JR.
Assistant Professor
AB Economics with Computer Applications
Batch 2001, San Beda University
Masters in Applied Business Economics

Batch 2015, University of Asia and the Pacific
Has almost sixteen years of industry work

experience: eight years as a Science Research
Specialist for the Philippine Government’s
Department of Energy; eight years as an
analyst/planner for an airline; and three months
of training as a research executive for a market
research agency.
Email: cbmjr.mnl@gmail.com
Contact No.: 0922-804-0084
Course Description
o This course is designed as an introduction to the
multidimensional aspects of the development
process and the practical problems or issues
involved in boosting the rate of economic growth in
low-income countries.
o The course will discuss the economic growth
models and the critical analysis of these models in
the context of developing country experience.
o Key socio-economic issues will be highlighted
focusing on key theories, economic debates, and
pragmatic insights.
Course Description
o The course is intended to create awareness about
the development process in least developed (LDCs)
and developed countries (DCs) as well as their
social, economic and moral implications.
o Discussion will include similarities and differences.
Reference to Philippine development experience
will be made throughout the course.
Course Objectives
By the end of the semester, the students will

be able to do the following:
• Explain the basic macroeconomic
principles, concepts, and theories that
guide the operations of an aggregate
economy;
• Identify basic macroeconomic problems and
issues and describe how the principles,
concept, and theories are utilized to analyze
such problems;
Learning Outcomes
• Acquire a general appreciation of the development
process, its multidimensional aspects and the
practical problems/ issues related to accelerating
the rate of economic growth in low-income
countries.
• Acquire an appreciation of the economic
perspective and mastery of economic growth
models and their applications in understanding the
context and economic processes in developing
economies relative to developed countries.
Learning Outcomes
• Develop good analytical and critiquing skills and
the capability to write well thought out and
discussed -term paper on selected key national or
international economic issues.
• Ability to effectively work individually and in
groups through the class discussion and group
presentations.
• Demonstrate the Benedictine values of discipline,
humility, stewardship and community in doing
assigned tasks.
Course Requirement
• Classroom activities:
• Recitation
• Group Reporting
• Case Analyses, Article Review, Policy Analysis
• Assignment / Project
• Quizzes and Unit Tests
• Midterms and Finals Written Exams
• Final Economic Paper: ECONOMIC
DEVELOPMENT FINAL PAPER
• Attendance
Basic
House Rules
 Attendance
 Allowable LOA is 7 sessions
 Punctuality
 Tardiness exceeding 30
minutes is considered Absence
 Phones
 Must be in silent mode
 Come to class prepared
 Comply all the requirements
 No Silly Questions
 CHEATING IS A CRIME
Computation of
Midterm Grades
 Class Activities (CS, 60 %)
 Quizzes
 Case Analysis / Assignments
 Group discussions / Report
 Examination (MX, 40%)
 Midterm Examination
 MIDTERM GRADE
 MG = CS + MX
 100%
Computation of
Final Grades
 Class Standing (CS, 50 %)
 Group discussions / Report
 Case Analysis / Assignments
 Quizzes
 Midterm Examination (MX,
20%)
 Final Examination (FX, 30%)
 FINAL Paper
 FINAL GRADE
 FG = CS + MX + FX
 100%
Grade
Equivalent
Percentage Grade Point Description
Equivalent
Below 74 5.00 Failure
75 - 76 3.00 Pass
77 - 79 2.75 Fair
80 - 82 2.50 Satisfactory
83 - 85 2.25 Very
Satisfactory
86 - 88 2.00 Good
89 - 90 1.75 Above Average
91 - 93 1.50 Very Good

94 - 95 1.25 Superior
96 - 100 1.00 Excellent
Recommended Textbooks
Introduction To Development
Economics
Basic Macroeconomic
Concepts
Basic Macroeconomic
Concepts
Important concepts in
macroeconomic analysis
Learning objectives
This chapter introduces you to

• the issues macroeconomists study
• the tools macroeconomists use
• some important concepts in macroeconomic
analysis
ECONOMICS
• From the Greek word OEKONOMIA = management of HH
• Common Problem: matching limited resources available to HH with
unlimited wants and needs of HH
• Philosophical Definition: Study of how men work to overcome scarcity
• Specific Definition: Social science that studies and seeks the efficient
allocation of scarce resources to satisfy the unlimited human wants and
needs
• Common questions/problems: What to produce? How much? How to
produce? For whom?
• Branches: Micro, macro etc.
ECONOMICS: Micro vs Macro
Objective: The efficient allocation of scarce resources to satisfy human needs
and wants
MACROECONOMICS MICROECONOMICS
 Studies the behavior of  Studies the behavior of
aggregate economic variables individual economic units (HH,
(national level) firms)
 Economics of the nation  Economics of the firm
If the economy was a forest

Macroeconomics examines the Forest
Microeconomics
examines the trees
Micro and Macroeconomics
MICROECONOMICS MACROECONOMICS
Scope Firm / Industry National Economy
Viewpoint Business Manager Govt Policymaker
What to produce? Needs of the customers Of buyers and sellers
How much? Max profit, utility, quality Max production,
productivity, employment,
equity, stability
How? Available resources + Devt objectives
For whom? Owners / shareholders Society at large
Goal Competitiveness Sustained Eco Devy
Factors With some measure of control External
or influence
What is the Influence to
Managers?
MICROECONOMICS MACROECONOMICS
 How markets and How the macro and regulatory
consumers behavior affects environment influences the
revenues factors of microeconomics
 How production technology
and input costs affects
costs
 How competition responds
to firm’s strategies
SIGNFICANCE: SIGNFICANCE:
 Utility of Tools / Concepts ????
(e.g. Market structure, profit
max, relative prices, Porters
Five Forces)
Significance of Macroeconomics
MACROECONOMICS, the study of the economy as a

whole, addresses many topical issues:
• Why does the cost of living keep rising?
• Why are millions of people unemployed, even when the
economy is booming?
• Why are there recessions?
Can the government do anything to combat recessions?
Should it??
Important issues in
macroeconomics
MACROECONOMICS, the study of the economy as a
whole, addresses many topical issues:
• What is the government budget deficit? How does it affect the
economy?
• Why does the country have such a huge trade deficit?
• Why are so many countries poor?
What policies might help them grow out of poverty?
Important issues in
macroeconomics
• Why does the cost of living keep rising?
• Why are millions of people unemployed, even when
the economy is booming?
• Why are there recessions?
Can the government do anything to combat
recessions? Should it??
Important issues in
macroeconomics
• What is the government budget deficit? How does it
affect the economy?
• Why does the Philippines have such a huge trade
deficit?
• Why are so many countries poor?
What policies might help them grow out of poverty?
Key Macroeconomic Indicators
PHI Gross Domestic Product, in billions pesos at 2000 constant prices
10,000 Asian Financial 50.0
Crisis World Financial
9,000 Crisis
40.0
8,000 Martial Law
years
7,000
POST war Era EDSA People 30.0
Power
6,000
Percent Change
In Billion Pesos
5,000 20.0
4,000
10.0
3,000
2,000
0.0
1,000
0 -10.0
947 50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 13 16
1
Actual Exponential (Actual) % Growth
Why learn macroeconomics?
1. The macroeconomy affects society’s well-being.
 example: Unemployment and social problems
Each
Each one-point
one-point increase
increase in
in the
the u-rate
u-rate isis associated
associated with:
with:
 920
920 more
more suicides
suicides
 650
650 more
more homicides
homicides
 4000
4000 more
more people
people admitted
admitted to to state
state mental
mental
institutions
institutions
 3300
3300 more
more people
people sent
sent toto state
state prisons
prisons
 37,
37, 000
000 more
more deaths
deaths
 increases
increases in
in domestic
domestic violence
violence andand homelessness
homelessness
2. The macroeconomy affects your well-being.
 Unemployment and earnings growth
5
4
3
2
1
%
0
-1
-2
-3
-4
-5
1965 1970 1975 1980 1985 1990 1995 2000
growth rate of inflation-adjusted hourly earnings

change in Unemployment rate
Unemployment and earnings growth
14.00 30.00
12.00 25.00
10.00 20.00
8.00 15.00
6.00 10.00
4.00 5.00
2.00 0.00
0.00 (5.00)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Unemployment Rate WAGE % Change Unemployment % Change Avg HH Income % Change
2. The macroeconomy affects your well-being.
 Interest rates and mortgage payments
For a Php150,000 30-year mortgage:
actual rate
monthly annual
date on 30-year
payment payment
mortgage
6/21/2019 6.63% Php960 Php11,520
6/20/2020 5.21% Php824 Php9,888

3. The macroeconomy affects politics & current events.
 Inflation and unemployment in election years
year
year UUrate
rate inflation
inflationrate
rate elec.
elec.outcome
outcome
1976
1976 7.7%
7.7% 5.8%
5.8% Carter
Carter(D)
(D)
1980
1980 7.1%
7.1% 13.5%
13.5% Reagan
Reagan(R)
(R)
1984
1984 7.5%
7.5% 4.3%
4.3% Reagan
Reagan(R)
(R)
1988
1988 5.5%
5.5% 4.1%
4.1% Bush
BushII(R)
(R)
1992
1992 7.5%
7.5% 3.0%
3.0% Clinton
Clinton(D)
(D)
1996
1996 5.4%
5.4% 3.3%
3.3% Clinton
Clinton(D)
(D)
2000
2000 4.0%
4.0% 3.4%
3.4% Bush
BushIIII(R)
(R)
Economic models
…are simplified versions of a more complex reality
• irrelevant details are stripped away
Used to
• show the relationships between economic variables
• explain the economy’s behavior
• devise policies to improve economic performance
Governments Can Sometimes
Improve Market Outcomes
Economic Goals
1. Economic Freedom
2. Economic Equity
3. Economic Efficiency
4. Economic Security
5. Economic Stability
6. Economic Growth
Economic Freedom
 This goal is about the amount of choice people
have in where they work and live, the type of career
they have, what they do with their income and what
they buy or sell.
 Economic freedom is restricted in some cases to
protect the rights of others, for example there are
laws prohibiting the production, sale and purchase
of illegal drugs.
Economic Equity
 Means what is fair. This can be seen as an
equality of opportunity or an equality of
outcome
 This goal centers on fairness. People's beliefs
around what is right or wrong determine
how this goal is achieved.
 Issues that involve Economic Equity
certainly deal with redistribution of income.
Economic Efficiency
 An economic principle holding that
businesses and individuals should fulfill
as many of society’s needs as possible
while maximizing the provided resources.
 When a society achieves economic
efficiency, goods and services are
produced without a lot of waste and those
goods and services are what the
consumers want and or need the most.
Economic Security
 Protecting consumers, producers, and resource owners

from risks that exist in society. Each society must
decide from which uncertainties individuals can and
should be protected
Economic Stability
 This goal involves three aspects: sustained growth

without large swings in output or consumption; stable
rate of employment; and a stable level of prices
without dramatic inflation or deflation. Most nations
with economic freedom allow for some unemployment
and inflation.
Economic Stability
Full Employment
 Full employment does not mean that no one is jobless in a country; rather
full employment refers to the situation when there is no voluntary
unemployment in the country.
 There is always a certain level of unemployment in the country due to
economic instabilities and imperfections. Such level of unemployment is
called the natural rate of unemployment.
 But the government tries its best to reduce the level of unemployment in
a country as much as it can. It is one of the most important
responsibilities of the government of a country to create job
opportunities for its people.
Economic Stability
Price Stability
 Inflation means a general increase in price level. Increase in price level
results in an unequal and unfavorable distribution of wealth in an
economy.
 Due to inflation the growth rate also decreases. It reduces purchasing
power and it also causes a deficit in the balance of payment which effects
the international repute of the country.
 Therefore, the government of a country takes a serious and effective step
to overcome inflation and to keep the prices of commodities stable.
Economic Stability
The balance of payment
 A balance of payment is the statistical record of economic transactions with
the rest of the world.
 Economic transactions refer to international trade that includes the import and
export of goods and services. Where imports increase the exports the balance
of payment becomes unfavorable.
 If the value of imports is greater than the value of exports, then the balance of
payment is in deficit.
 On contrary, if the value of export is greater than the value of imports than the
balance of payment is in surplus.
 A balance of payment deficit in disadvantageous to the country. It affects the
credibility, repute, and ranking of the country.
 In order to keep the balance of payment favorable, the government imposed
duties on imports and provides subsidies on exports.
Economic Growth
 Economic growth is the sustained increase in the
production of goods and services. It is measured
by Gross Domestic Product (the total value of all
final goods and services produced in a nation in a
year).
 A nation's standard of living can only improve if
GDP increases.
 To achieve economic growth a country must
invest in education, technology and capital goods.
This goal is closely related to a country's long
term ability to use resources to achieve the other
goals.
Economic Growth
Mathematical Formulation
•- 1 x 100
-1 x 100
Basic Macroeconomic
Concepts
How the Economy will behave?
How the economy will behave?
Movie Factory Household
Who are the main characters?
Government Banks Workers/Families
Traders Investors Business Firms
Who are the main characters?
Income (Rent, Wage and Interest)
Resources (Land, Labor and Capital)
How do the Main

Characters Interact?
HOUSEHOLDS BUSINESS FIRMS
Output of Consumer Goods and Services
Consumer Spending
Circular Flow and Policy Areas
P. Savings Taxes Imports
HOUSEHOLDS Banks Government World

FIRMS
Income
Prodn
Factors
Consumer
Goods
Purchases Investments Gov’t Exports

Spending
Summary of the Movie’s Plot
At the core: OUTFLOWS:
 Savings
Interdependent economic  Taxes
activities…..  Imports
HOUSEHOLDS
FIRMS
Income
Prodn Factors
Consumer Goods
Purchases
INFLOWS:
… That can be
 Investments
 Gov’t Spending influenced by the
 Exports balance between
inflows and
outflows
Summary of the Movie’s Plot
If Inflows are greater than OUTFLOWS:
 Savings
outflows  Taxes
.. Then income increases  Imports
HOUSEHOLDS
FIRMS
Income
Prodn Factors
Consumer Goods
Purchases
INFLOWS: Question:
 Investments
 Gov’t Spending Should inflows be
 Exports always greater than
outflows?
The Economy As A Factory
 Production has a rated
capacity subject to
technological constraints as
well as the scarcest
resource/input
 Overproduction is possible but
only for limited period as costs
eventually increase (Why?)
 The scarcest resource for
developed countries is labor
 The sign that the economy is
overheating is a low
unemployment rate below the
4-6% natural rate
Relationship of Unemployment Rate to Inflation in US
(1980-2014)
16.00
A one percentage drop in UR leads to 1.5 percentage point increase in
14.00 inflation
12.00
10.00
Unemployment Rate
8.00
6.00
f(x) = − 0.15 x + 6.15
R² = 0.38
4.00
2.00
0.00
(2.00)
0 5 10 15 20 25 30 35 40
Unemployment Rate Avg HH Income % Change Linear (Avg HH Income % Change)
Relationship of Unemployment Rate to Inflation in the
PHILS (1990-2014)
25.00
A one percentage drop in UR leads to 4.0 percentage point increase in
inflation
20.00
15.00
Unemployment Rate
10.00 f(x) = − 0.35 x + 11.05

R² = 0.49
5.00
0.00
0 5 10 15 20 25 30
Relationship of P-Php Rate to Inflation in the PHILS
(1990-2014)
60.00
50.00 f(x) = 1.02 x + 27.15

R² = 0.5
40.00
Unemployment Rate
30.00
20.00
A one peso drop in P-Php leads to 10 percentage point increase in

inflation
10.00
0.00
0 5 10 15 20 25 30
The Economy As A Household
o Traditional farm-
based HH produces
output for itself and
possibly other HH as
exports
o Excess output of
other HH is
exchanged or bought
as imports

FIRMS
Income
Prodn
Factors
Consumer
Goods
Purchases Investments Gov’t Exports

Spending
 Farm-based HH produces
output for itself and possibly
other HH as exports. Excess
output of other HH is
exchanged or bought as
imports
 HH can only live within its
means
HH Income goes to = Expenditure on goods sold =
+ Consumption + Consumption
+ Private Savings + Investments
+ Taxes + Government Spending
+ Imports + Exports
Total Output = Total Income = Total Expenditure

What About Savings?

FIRMS
Income
Prodn Factors
Consumer Goods
Purchases Investments Gov’t Spending Exports
 Income = Expenditure
PS + T + M = I + G + X
 Rearranging by policy areas,
(PS-I) + (T-G) = (X-M)
(PS-I) (T-G) (X-M)
Savings
Surplus
Deficit
Policy
Agency
SUMMARY
o Output serves domestic market
o Also open to external trade
o Value of goods = Money

Transacted
o Output = Income = Expenditure
o Deficit in goods = Deficit in

Funds or savings
o BOP or trade deficit is finances
by the External Savings with
interest to be paid in future
SUMMARY
The Economy as a Movie  Role of Key Actors
 Interdependence of economic
activities
The Economy as a Factory  Capacity Limits
 Operating beyond limits
causes overheating
The Economy as a Household  Availability of foreign
currencies as the limit
 Need to keep watch of
dollar transactions, i.e.
o Cash position
o Income-spending
balance
o Access to other
people’ money
HOMEWORK
 How relevant is macroeconomic performance in
Presidential Elections in the Philippines (1986-
2016)?
 Label the annual data for period as either Pro-
Opposition (O) or Pro- Incumbent Administration
(A) using annual data on:
o Real GDP growth (if > than previous)
o Inflation (if < than previous)
o Unemployment rate (if < than previous)
o P-Php rate (if < than previous)
Economics
Economics of the Nation
Key Indicators Measuring Economic Activity
and Growth
Learning objectives
In this lecture, you will learn about the measures of:

 How much economic activities are taking place
 How much of a nation’s capacity is being utilized
 State of the market as reflected in movements of prices of
goods, funds, foreign currencies and labor
Learning objectives
In this chapter, you will learn about the meaning and

measurement of the most important
macroeconomic statistics on:
 Output: Gross Domestic Product (GDP)
 Inflation: Consumer Price Index (CPI)
 Job: Unemployment Rate
 Forex Flows: Balance of Payments (BOP)
Gross Domestic Product
Two definitions:
1. Total expenditure on domestically-produced
final goods and services
2. Total income earned by domestically-located
factors of production
Why expenditure = income
In
In every
every transaction,
transaction,
the
the buyer’s
buyer’s expenditure
expenditure
becomes
becomes the the seller’s
seller’s income.
income.
Thus,
Thus, the
the sum
sum of of all
all
expenditure
expenditure equals
equals
the
the sum
sum of
of all
all income.
income.
The Circular Flow
Income
($)
Labor
Households Firms
Goods
(bread
)
Expenditure
($)
GDP in Circular Flow
Final goods, value added, and
GDP
• GDP = value of final goods produced
= sum of value added at all stages of
production
• The value of the final goods already includes the
value of the intermediate goods, so including
intermediate goods in GDP would be double-
counting.
Real GDP Growth Momentum, (1950-2018)
0.20 Asian Financial
POST war Era Martial Law Crisis World Financial
years Crisis
EDSA People
0.15 Power
Years AAGR
0.10
1948-2014 4.6%
50s 7.0%
60s 5.1%
0.05
70s 6.0%
% Growth
80s 1.5%
0.00
90s 2.7%
2000s 4.4% UPWARD MOMENTUM
(0.05)
2010s 6.1%
(0.10) BEFORE 2010s WE ARE IN A GROWTH MOMENTUM WHEREIN 5% IS A NO BRAINER

48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 000 02 04 06 08 10 12 14 16 18
2
% Growth2 Exponential (% Growth2) Polynomial (% Growth2)

Key Indicators Measuring
Economic Activity and Growth
Review of National Income
Accounting (NIA)
Accounting (NIA)
• 3 Approaches to GDP
• Expenditure (Demand) Approach
– GDP = C + I + G + (X – M)
• Production (Value-Added) Approach
– GDP = A + I + S
• Income Approach
– GDP = Compensation + Rent + Operating Surplus
Accounting
• What equality do they represent?
– GDP
• Most reliable – Production (Value-Added
Approach)
• Statistical Discrepancy in Demand
• Difference between GDP & GNP
– GNP = GDP + NFIA
– Net Factor Income from Abroad (NFIA)
– Now: Net Primary Income
• + part = OFW remittances
• - part = interest, dividends, royalties paid abroad
– OFW now ~19 of GDP
– GNP is now GNI (Gross National Income)
Accounting - Demand
• What is not counted?
– Illegal goods & services
– Non-market activities (e.g.,household chores)
• How are rice and fish added to obtain total production?
– Use common year peso values
• How are these valued in order to see the changes in total
production over time?
– Convert current prices to constant prices
– Value = Price x Quantity
– Difficult to obtain and add up Quantities, so
• Obtain current Market Values
• Compute Price Index
• Q = V/ P
• Market values with the price effects removed, or (in constant prices) or
real GDP/GNP
Value added
definition:
A firm’s value added is
the value of its output
minus
the value of the intermediate goods
the firm used to produce that output.
Production/Value-added
Approach
Price = P2
Value added by
raw material producing
STAGE 1 firm
P2
Value output of the Value added by
raw material producing intermediate good- Price = P6
STAGE 2 firm producing firm
P4
Value added by
Value output of the intermediate good- final good-
producing firm producing firm
P3
VALUE OF FINAL OUTPUT
STAGE 3
Price = P9
Approach
Activity Cost of Price of Value
inputs Output Added
Growing of oranges 0 100 100
Making Orange Juice 100 150 50
Distributing to Stores 150 225 75
(Wholesale)
Selling Juice to Consume (Retail) 225 350 125
Gross Domestic Product 350
Exercise:
• A farmer grows coffee and sells it to a miller for P20.
• The miller processes the coffee beans, packages it
and sells it to a coffee shop for P50.
• The coffee shop adds flavors to taste and sells it to a
coffee addict for P100.
• Compute
– value added at each stage of production
– GDP
Approach
2000 (P B) 2018 (P B) CAGR
Agriculture 500,111 745,781 2.2
Industry 1,233,773 3,142,846 5.3
Services 1,846,830 5,318,262 6.1
Gross Domestic Product 3,580,714 9,206,890 5.4
Net Factor Income from 616,146 1,803,363 6.1
Abroad*
Gross National Income 4,196,861 11,010,254 5.5
Source: NSCB *Net Primary Income

GDP by Industrial Origin
Industry Gross Value Added (In CAGR % to GDP
Million pesos at 2000
constant prices)
2000 2018 2000 2018
1. AGRI., HUNTING, FORESTRY AND FISHING 500,111 745,781 2.2% 14.0% 8.1%
a. Agriculture and forestry 415,878 623,765 2.3% 11.6% 6.8%
b. Fishing 84,233 122,016 2.1% 2.4% 1.3%
2. INDUSTRY SECTOR 1,233,773 3,142,846 5.3% 34.5% 34.1%
a. Mining & Quarrying 22,518 85,864 7.7% 0.6% 0.9%
b. Manufacturing 876,107 2,145,011 5.1% 24.5% 23.3%
c. Construction 203,932 618,294 6.4% 5.7% 6.7%
d. Electricity, Gas and Water Supply 131,216 293,677 4.6% 3.7% 3.2%
3. SERVICE SECTOR 1,846,830 5,318,262 6.1% 51.6% 57.8%
a. Transport, Storage & Communication 219,235 670,803 6.4% 6.1% 7.3%
b. Trade and Repair of Motor Vehicles, 565,481 1,554,868 5.8% 15.8% 16.9%
Motorcycles, Personal and
Household Goods
c. Financial Intermediation 187,139 681,005 7.4% 5.2% 7.4%
d. R. Estate, Renting & Business Activities 333,727 1,046,693 6.6% 9.3% 11.4%
e. Public Administration & Defense; 184,539 398,859 4.4% 5.2% 4.3%
Compulsory Social Security
f. Other Services 356,709 966,034 5.7% 10.0% 10.5%
GROSS DOMESTIC PRODUCT 3,580,714 9,206,889 5.4% 100.0% 100.0%
Net Primary Income from the rest of the world 616,146 1,803,363 6.1% 17.2% 19.6%
GROSS NATIONAL INCOME 4,196,861 11,010,252 5.5% 117.2% 119.6%
Structure of Output
(% of GDP at current market prices)
Industry PH ID MY TH VN SG CH JP
Agriculture 9.3 13.3 7.6 8.1 16.3 0.0 7.2 1.2
Industrial 30.8 41.4 38.8 32.4 38.0 26.6 40.7 29.3
Services 59.9 45.2 53.6 59.5 45.7 73.3 52.2 69.5
Final goods, value added, and
GDP
• GDP = value of final goods produced
= sum of value added at all stages of
production
• The value of the final goods already includes the
value of the intermediate goods, so including
intermediate goods in GDP would be double-
counting.
GDP by Expenditure Approach
2000 (P B) 2018 (P B) CAGR
Household Final Consumption 2,585,276 6,306,635 5.1
(C)
Government Final 409,049 1,025,691 5.2
Consumption (G)
Capital Formation (I) 657,691 2,835,865 8.5
Exports of goods & services (X) 791,339 2,804,813 7.3
Imports of goods & services (350,830) (953,219) 5.7
(M)
Gross Domestic Product 3,580,714 9,206,890 5.4
Net Factor Income from 616,146 1,803,363 6.1
Abroad*
Gross National Income 4,196,861 11,010,254 5.5
Source: NSCB *Net Primary Income

The expenditure components of
GDP
• consumption
• investment
• government spending
• net exports
Consumption (C)
def: the value of all goods • durable goods
and services bought by last a long time
households. Includes: ex: cars, home
appliances
• non-durable goods
last a short time
ex: food, clothing
• services
work done for
consumers
ex: dry cleaning,
air travel
PHIL Consumption, 2018
Expenditure Items 1998 2018 CAGR
HFCE 2,362,391 6,306,635 5.0
Food and Non-alcoholic beverages 996,348 2,573,307 4.9
Alcoholic beverages, Tobacco 41,299 71,453 2.8
Clothing and Footwear 53,211 76,732 1.8
Housing, water, electricity, gas and 295,423 705,780 4.5
other fuels
Furnishings, household equipment 135,998 313,182 4.3
and routine household
maintenance
Health 48,617 161,739 6.2
Transport 222,898 554,302 4.7
Communication 51,470 317,378 9.5
Recreation and culture 49,406 141,731 5.4
Education 84,907 211,071 4.7
Restaurants and hotels 87,414 292,967 6.2
PHIL Consumption, 2018
Food and Non-alcoholic beverages

Alcoholic beverages, Tobacco
Clothing and Footwear
Housing, water, electricity, gas and other
fuels
Furnishings, household equipment and
routine household maintenance
Health
Transport
Communication
Recreation and culture
Education
Restaurants and hotels
Others
Investment (I)
Def. 1: spending on [the factor of production] capital
Def. 2: spending on goods bought for future use
Includes:
 business fixed investment
spending on plant and equipment that firms will use to
produce other goods & services
 residential fixed investment
spending on housing units by consumers and landlords
 inventory investment
the change in the value of all firms’ inventories
PHIL Investment, 2018
2000 (P 2018 (P CAGR
B) B) (%)
Capital Formation (FC+CI) 657,691 2,835,865 8.5
Fixed Capital (FC) 791,339 2,804,813 7.3
Construction 350,830 953,219 5.7
Durable Equipment 326,966 1,609,080 9.3
Breeding Stock & Orchard 94,499 111,286 0.9
Dev't
Intellectual Property Products 19,043 131,228 11.3
Changes in Inventories (CI) -133,647 31,051
Investment vs. Capital
• Capital is one of the factors of production.

• At any given moment, the economy has a
certain overall stock of capital.
• Investment is spending on new capital.
Investment vs. capital
Example (assumes no depreciation):

 1/1/2003:
economy has Php500b worth of capital
 during 2003:
investment = Php37b
 1/1/2004:
economy will have Php537b worth of capital
Stocks vs. Flows
A stock is a quantity Flow Stock
measured at a point
in time.
We might say
“the U.S. capital stock
was Php25.4 trillion as
of December 6, 2003.”
A flow is a quantity measured per unit time.
“U.S. investment was Php1.6 trillion in 2001.”
FYI:
FYI: “Flow”
Department of Economics “Flow”means
means the
thesame
samething
thingas
as“rate.”
“rate.”
Stocks vs. Flows--examples
Flow Stock
stock flow
a person’s wealth a person’s saving
# of people with # of new college
college degrees graduates
the govt. debtthe govt. budget deficit
ASEAN Foreign Direct Investment net inflows
Foreign Direct Investments
Savings vs. Investments (as % of GDP)
Comparative Asian Savings Rate, (Gross Savings as % of GDP)
Comparative Asian Investment Rate, (Gross Investment as % of GDP)
Now you try:
Stock or flow?
The balance on your credit card statement
How much you study economics outside of class
The size of your compact disc collection
The inflation rate
The unemployment rate
Government spending (G)
• G includes all government spending on goods and
services.
• G excludes transfer payments
(e.g, unemployment insurance payments), because
they do not represent spending on goods and
services.
Government spending, 2018
Percent to GDP 11.0%

Fiscal Policies Government Revenues vs Expenditures
Net exports (NX = EX - IM)
def: the value of total exports (EX) minus the value of total
imports (IM)
(
In Billion Pesos
(1,
(1,
98 99 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
An important identity
Y = C + I + G + NX
where
Y = GDP = the value of total output
C + I + G + NX = aggregate expenditure
A question for you:
Suppose a firm
• produces Php10 million worth of final
goods
• but only sells Php9 million worth.
Does this violate the

expenditure = output identity?
Why output = expenditure
• Unsold output goes into inventory,

and is counted as “inventory investment”…
whether the inventory buildup was intentional or
not.
• In effect, we are assuming that
firms purchase their unsold output.
GDP:
An important and versatile concept
We have now seen that GDP measures
 total income
 total output
 total expenditure
 the sum of value-added at all stages
in the production of final goods.
GNP vs. GDP
• Gross National Product (GNP):
total income earned by the nation’s factors of production,
regardless of where located
• Gross Domestic Product (GDP):
total income earned by domestically-located factors of
production, regardless of nationality
(GNP – GDP) = (factor payments from abroad)
– (factor payments to abroad)
Discussion Question:
In your country,
which would you want
to be bigger, GDP or GNP?
Why?
(GNP – GDP) as a percentage of GDP
selected countries, 2001
OFW Remittances continue to increase
GDP vs GNI (GNP), and Net Primary Income
(or Net Additional Income from Abroad)
Poverty incidence on a decline (1991 to 2015)
2015 Regional Poverty incidence on a decline
Self-rated Poverty: Families who are Mahirap
Accounting (NIA)
Real vs. Nominal GDP
Real vs. Nominal GDP
• GDP is the value of all final goods and

services produced.
• Nominal GDP measures these values using
current prices.
• Real GDP measure these values using the
prices of a base year.
Real GDP controls for inflation
Changes in nominal GDP can be due to:
 changes in prices
 changes in quantities of output produced
Changes in real GDP can only be due to changes in
quantities,
because real GDP is constructed using
constant base-year prices.
Real vs. nominal GDP growth
Real vs. nominal GDP growth
How to convert current GDP into real GDP?
Divide current GDP by GDP Deflator Index

to cancel out price effects into real GDP
Practice problem, part 1
2019 2020 2021
P Q P Q P Q
good A Php30 900 Php31 1,000 Php36 1,050
good B Php100 192 Php102 200 Php100 205
• Compute nominal GDP in each year

• Compute real GDP in each year using 2019 as the
base year.
Answers to practice problem, part 1
Nominal GDP multiply Ps & Qs from same year

2019: Php46, 200 = Php30  900 + Php100  192
2020: Php51, 400
2021: Php58, 300
Real GDP multiply each year’s Qs by 2002 Ps

2019: Php46, 200
2020: Php50, 000
2021: Php52, 000 = Php30  1050 + Php100  205
20,000
18,000
16,000
14,000
12,000
In Billion Pesos
10,000
8,000
6,000
4,000
2,000
0
47 50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 13 16
19
Real Current
GDP Deflator
• The inflation rate is the percentage increase

in the overall level of prices.
• One measure of the price level is
the GDP Deflator, defined as
Nominal GDP
GDP deflator = 100 
Real GDP
Practice problem, part 2
GDP inflation
Nom. GDP Real GDP
deflator rate
2002 Php46,200 Php46,200 n.a.
2003 51,400 50,000
2004 58,300 52,000
• Use your previous answers to compute

the GDP deflator in each year.
• Use GDP deflator to compute the inflation rate from
2002 to 2003, and from 2003 to 2004.
Answers to practice problem,
part 2
GDP Inflation
Nom. GDP Real GDP
deflator rate
2019 Php46,200 Php46,200 100.0 n.a.
2020 51,400 50,000 102.8 2.8%
2021 58,300 52,000 112.1 9.1%
Two arithmetic tricks for
working with percentage changes
USEFUL
USEFULTRICK
TRICK#1#1 ForForany variables XX and
anyvariables andYY,,
the
thepercentage change inin((XXYY))
percentagechange
 the
thepercentage changeinin XX
percentagechange
++ the
thepercentage changeinin YY
percentagechange
EX: If your hourly wage rises 5%

and you work 7% more hours,
then your wage income rises approximately 12%.
Two arithmetic tricks for
working with percentage changes
USEFUL
USEFULTRICK
TRICK#2 #2
the
thepercentage changeinin ((X/Y
percentagechange X/Y))
 the
thepercentage
percentagechange
changein in XX
 the
thepercentage changeinin YY
percentagechange
EX: GDP deflator = 100  NGDP/RGDP.

If NGDP rises 9% and RGDP rises 4%,
then the inflation rate is approximately 5%.
Chain-weighted Real GDP
• Over time, relative prices change, so the base year should be
updated periodically.
• In essence, “chain-weighted Real GDP” updates the base year
every year.
• This makes chain-weighted GDP more accurate than constant-
price GDP.
• But the two measures are highly correlated, and constant-price
real GDP is easier to compute…
• …so we’ll usually use constant-price real GDP.
The Philippines Experience
10,000 Asian Financial 50.0
Crisis World Financial
9,000 Crisis
40.0
8,000 Martial Law
years
7,000
POST war Era EDSA People 30.0
Power
6,000
Percent Change
In Billion Pesos
5,000 20.0
4,000
10.0
3,000
2,000
0.0
1,000
0 -10.0
4 7 49 5 1 53 55 5 7 59 6 1 63 65 6 7 69 7 1 73 75 7 7 79 8 1 8 3 85 8 7 89 9 1 9 3 95 9 7 99 01 03 0 5 0 7 09 1 1 13 1 5 1 7
19
Actual Exponential (Actual) % Growth

Real GDP Growth Momentum, (1950-2018)
0.20 Asian Financial
POST war Era Martial Law Crisis World Financial
years Crisis
EDSA People
0.15 Power
Years AAGR
0.10
1948-2014 4.6%
50s 7.0%
60s 5.1%
0.05
70s 6.0%
% Growth
80s 1.5%
0.00
90s 2.7%
2000s 4.4% UPWARD MOMENTUM
(0.05)
2010s 6.1%
(0.10) BEFORE 2010s WE ARE IN A GROWTH MOMENTUM WHEREIN 5% IS A NO BRAINER

48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 000 02 04 06 08 10 12 14 16 18
2
% Growth2 Exponential (% Growth2) Polynomial (% Growth2)

Real GDP (In Bn pesos) Long Term Growth
14,000.00 9%
8%
12,000.00
7%
10,000.00 6%
5%
8,000.00
4%
6,000.00
3%
4,000.00 2%
1%
2,000.00
0%
0.00 -1%
90 91 92 93 94 95 96 97 98 99 000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 est Fcst Fcst Fcst Fcst
2 19 20 21 22 23
Column1 % Growth
Real GDP Growth Rates of Past Presidents
7.0%
6.0%
5.0%
4.0%
Growth
3.0%
2.0%
1.0%
0.0%
Marcos (1966- Aquino C (1986- Ramos (1992-98) Estrada (1998- Arroyo (2001- Aquino B (2010- Duterte (2016-
86) 92) 01) 10) 16) present)
Global Risk Scenarios
Average Economic Growth (2000-2017), PH vs Asia
10.0
9.3
9.0 8.9
8.0 7.9
7.3
7.0 6.7
6.0 5.9
5.4 5.3
5.0 4.9
4.6
4.0 3.8 3.7

3.4 3.3
3.0
2.0
1.5
1.0
0.0
Department of Economics CAGR
Average Economic Growth (2010-2017), PH vs Asia
9.0
8.0 7.9
7.7
7.5
7.0
6.6
6.4
6.1 6.0
6.0
5.6 5.5
5.0 4.8
4.0
3.5 3.4 3.4
3.0
3.0
2.0 1.7
1.0
0.0
Department of Economics CAGR
ECONOMIC STRUCTURE
DEMAND SIDE
Economic Structure of the Philippines
12,000
EXPENDITURES % Contribution CAGR
ITEM 1980 1990 2000 2010 2017 2018 2010-
10,000
18
HFCE 59.2 65.5 72.2 69.2 68.9 68.9 6.0

8,000 GOVERNMENT 13.7 12.8 11.4 10.0 10.5 10.5 7.6
SPENDING
CAPITAL 27.3 24.3 18.4 20.8 28.9 28.9 11.5
6,000 FORMATION
NET EXPORTS -0.2 -2.6 -2.0 0.0 -8.4 -8.4
4,000
2,000
0
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
HFCE Govt Investment Net Exports
Trends in Components of Private Consumption
HFCE ITEM % Contribution CAGR
2000 2005 2010 2015 2017 2018 2010-
18
Food and Non-alcoholic 41.9 41.9 41.9 41.3 41.1 40.8 5.4
beverages
Alcoholic beverages, Tobacco 1.7 1.6 1.5 1.4 1.3 1.1 3.4
Clothing and Footwear 2.2 1.9 1.8 1.5 1.3 1.2 2.7
Housing, water, electricity, 12.2 11.6 11.3 10.8 10.9 11.2 4.4
gas and other fuels
Furnishings, household 6.0 6.0 5.7 5.1 5.0 5.0 4.7
equipment and routine
household maintenance
Health 2.1 2.2 2.2 2.5 2.6 2.6 5.7
Transport 9.4 8.6 8.5 9.0 9.2 8.8 4.1
Communication 2.6 5.0 5.3 5.4 5.1 5.0 15.3
Recreation and culture 2.1 2.1 2.3 2.4 2.3 2.2 6.4
Education 3.4 3.1 3.2 3.0 3.1 3.3 4.7
Restaurants and hotels 3.9 3.8 4.0 4.4 4.6 4.6 6.0
Miscellaneous goods and 12.4 12.2 12.4 13.4 13.7 14.1 5.4
services
ECONOMIC STRUCTURE
SUPPLY SIDE
10,000,000
9,000,000 SECTOR % Contribution CAGR

2010-
1980 1990 2000 2010 2015 2017 2018
18
8,000,000
7,000,000 AFF 16.4 15.4 14.0 12.5 9.5 8.5 8.1 1.5
INDUSTRY 41.6 35.9 34.5 35.1 33.5 34.0 34.1 6.8
6,000,000
SERVICES 42.0 48.7 51.6 23.9 23.2 23.6 23.3 6.8
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Department of Economics AFF Industry Services

SECTOR % Contribution
10,000.0
1998 2000 2005 2010 2015 2017 2018
AFF
9,000.0 13.3 14.0 13.3 11.6 9.5 8.5 8.1
Agriculture and forestry 10.8 11.6 10.8 9.2 7.8 7.1 6.8
8,000.0
Fishing 2.5 2.4 2.5 2.4 1.7 1.4 1.3
INDUSTRY 35.3 34.5 32.7 32.6 33.5 34.0 34.1
7,000.0
Mining 0.7 0.6 1.0 1.2 1.1 1.0 0.9
6,000.0
Manufacturing 24.5 24.5 23.7 22.2 23.2 23.6 23.3
Construction
5,000.0 6.5 5.7 4.4 5.7 6.0 6.2 6.7
EGWS 3.6 3.7 3.6 3.6 3.2 3.2 3.2
4,000.0
SERVICES 51.4 51.6 54.0 55.8 57.0 57.5 57.8
TSC
3,000.0 5.8 6.1 8.1 7.5 7.6 7.3 7.3
Trade 14.6 15.8 16.5 16.6 16.7 16.9 16.9
2,000.0
Finance 5.3 5.2 5.7 6.6 7.2 7.3 7.4
1,000.0 9.9 9.3 9.4 10.3 11.2 11.5 11.4
Real Estate
Public Admin
0.0 5.6 5.2 4.7 4.5 3.9 4.0 4.3
98 99 00 01 02 03 04 05 06 07 08
Other Services 10.2 10.0 9.609 10
10.211 12
10.313 14
10.3 15 16
10.5 17
AFF Mining MFG CONS EGWS TSC

Department of Economics Trade Finance Real Estate Public Admin Other Services
Manufacturing Resurgence
GROWTH IN MANUFACTURING LEADS TO

JOB CREATIONS
REGIONAL
ECONOMY
Gross Regional Domestic Product
A I S
100% NCR 0.2% 18.8% 81.0% 3,000
CAR 10.3% 50.9% 38.9%
90% I 23.8% 26.0% 50.2%
II 38.4% 13.0% 48.6% 2,500
80% III 17.2% 43.3% 39.5%
IVA 5.7% 62.1% 32.2%
70% IVB 22.9% 35.0% 42.0% 2,000
V 23.7% 19.8% 56.6%
60% VI 21.9% 20.5% 57.6%
VII 6.0% 39.4% 54.6%
50% 1,500
VIII 18.0% 41.4% 40.7%
IX 20.8% 36.3% 42.9%
40%
X 23.4% 34.6% 42.0%
XI 14.4% 33.3% 52.2% 1,000
30%
XII 27.9% 34.3% 37.7%
20%
XIII 19.6% 34.7% 45.7%
ARMM 58.8% 6.6% 34.6% 500
10%
0% 0
NCR CAR I II III IVA IVB V VI VII VIII IX X XI XII XIII ARMM
AFF Industry Services GRDP

Price Stability Indicator:
Consumer Price Index (CPI)
Consumer Price Index (CPI)
• A measure of the overall level of prices
• Published by the Philippine Statistical Authority
(BSA)
• Used to
– track changes in the
typical household’s cost of living
– adjust many contracts for inflation
(i.e.,“COLAs”)
– allow comparisons of dollar figures from different
years
How the BLS constructs the CPI
1. Surveys consumers to determine composition of
the typical consumer’s “basket” of goods.
2. Every month, collects data on prices of all items in
the basket; compute cost of basket
3. CPI in any month equals
Cost of basket in that month

100 
Cost of basket in base period
Exercise: Compute the CPI
The basket contains 20 pizzas and

10 compact discs.
prices: For each year, compute

pizza CDs  the cost of the basket
2002 Php10  the CPI (use 2002 as
Php15 the base year)
2003 Php11  the inflation rate from
Php15 the preceding year
2004 Php12
Php16
2005 Php13
answers:
cost of inflation
basket CPI rate
2002 Php350 100.0 n.a.
2003 370 105.7 5.7%
2004 400 114.38.1%
2005 410 117.12.5%
The composition of the CPI’s
“basket”
Food and bev.
5.8% 5.9%
Housing 17.6%
2.8%
Apparel 2.5%
4.5% 4.8%
Transportation
Medical care
Recreation
16.2%
Education
Communication
40.0%
Other goods and
services
Reasons why
the CPI may overstate inflation
• Substitution bias: The CPI uses fixed weights,
so it cannot reflect consumers’ ability to substitute toward
goods whose relative prices have fallen.
• Introduction of new goods: The introduction of new
goods makes consumers better off and, in effect, increases
the real value of the dollar. But it does not reduce the CPI,
because the CPI uses fixed weights.
• Unmeasured changes in quality:
Quality improvements increase the value of the dollar, but
are often not fully measured.
The CPI’s bias
• The Boskin Panel’s “best estimate”:

The CPI overstates the true increase in the cost of
living by 1.1% per year.
• Result: the BLS has refined the way it calculates the
CPI to reduce the bias.
• It is now believed that the CPI’s bias is slightly less
than 1% per year.
CPI vs. GDP deflator
prices of capital goods
• included in GDP deflator (if produced domestically)
• excluded from CPI
prices of imported consumer goods

• included in CPI
• excluded from GDP deflator
the basket of goods

• CPI: fixed
• GDP deflator: changes every year
Two measures of inflation
Percentage
change 16
14 CPI
12
10
6
GDP deflator
4
-2
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998
Year
Price Stability
Indicators
Two measures of inflation vs GDP Growth
25.0% 9.0%
PRICE INDICATORS 8.0%

20.0%
7.0%
6.0%
15.0%
5.0%
10.0% 4.0%
3.0%
5.0%
2.0%
1.0%
0.0%
0.0%
-5.0% -1.0%
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
GDP Inflation Inflation GDP Growth

Inflation, Interest Rates and Currency Value
Unemployment Rate
Categories of the population
• employed
working at a paid job
• unemployed
not employed but looking for a job
• labor force
the amount of labor available for producing goods
and services; all employed plus unemployed
persons
• not in the labor force
not employed, not looking for work.
Two important labor force
concepts
• unemployment rate
percentage of the labor force that is
unemployed
• labor force participation rate
the fraction of the adult population
that ‘participates’ in the labor force
Exercise: Compute labor force
statistics
U.S. adult population by group, May 2003
Number employed = 137.5 million
Number unemployed = 9.0 million
Adult population = 220.8 million
Use the above data to calculate

• the labor force
• the number of people not in the labor force
• the labor force participation rate
• the unemployment rate
Answers:
• data: E = 137.5, U = 9.0, POP = 220.8
• labor force
L = E +U = 137.5 + 9.0 = 146.5
• not in labor force
NILF = POP – L = 220.8 – 146.5 = 74.3
• unemployment rate
U/L = 9/146.5 = 0.061 or 6.1%
• labor force participation rate
L/POP = 146.5/220.8 = 0.664 or 66.4%
Okun’s Law
• Employed workers help produce GDP, while
unemployed workers do not.
So one would expect
a negative relationship between unemployment
and real GDP.
• This relationship is clear in the data…
Okun’s Law Okun’s
Okun’sLaw
Lawstates
one-percent
statesthat
one-percentdecrease
thataa
decreaseinin
unemployment
unemploymentisis
Percentage change associated
associatedwith
withtwo
two
10
percentage
percentage pointsofof
points
in real GDP
additional
additionalgrowth
growthininreal
real
8 GDP
GDP
1951
6 1984
2000
4 1999
2 1993
1975
0
-2 1982
-3 -2 -1 0 1 2 3 4
Change in
unemployment rate
Chapter Summary
1. Gross Domestic Product (GDP) measures both
total income and total expenditure on the
economy’s output of goods & services.
2. Nominal GDP values output at current prices; real
GDP values output at constant prices. Changes in
output affect both measures, but changes in prices
only affect nominal GDP.
3. GDP is the sum of consumption, investment,
government purchases, and net exports.
Chapter summary
4. The overall level of prices can be measured by
either
 the Consumer Price Index (CPI),
the price of a fixed basket of goods purchased
by the typical consumer
 the GDP deflator,
the ratio of nominal to real GDP
5. The unemployment rate is the fraction of the labor
force that is not employed.
When unemployment rises, the growth rate of real
GDP falls.
Inflation and Unemployment
25.0% 9.0%
PRICE INDICATORS 8.0%
20.0% 7.0%
6.0%
15.0% 5.0%
4.0%
10.0% 3.0%
2.0%
5.0% 1.0%
0.0%
0.0% -1.0%
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Unemployment Rate Inflation GDP Growth

Economics
The Philippine Development Experience: Key
Indicators Measuring Economic Activity and
Growth

Development Economics: Theory and Policy: Assistant Prof. C. B. Mendoza, JR

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Development Economics: Theory and Policy: Assistant Prof. C. B. Mendoza, JR

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San Beda University

College of Arts and Sciences

Masters in Applied Business Economics

Has almost sixteen years of industry work

By the end of the semester, the students will

91 - 93 1.50 Very Good

This chapter introduces you to

 Economics of the nation  Economics of the firm

If the economy was a forest

MACROECONOMICS, the study of the economy as a

Actual Exponential (Actual) % Growth

growth rate of inflation-adjusted hourly earnings

Unemployment Rate WAGE % Change Unemployment % Change Avg HH Income % Change

For a Php150,000 30-year mortgage:

6/20/2020 5.21% Php824 Php9,888

 Protecting consumers, producers, and resource owners

 This goal involves three aspects: sustained growth

Movie Factory Household

Government Banks Workers/Families

Traders Investors Business Firms

Resources (Land, Labor and Capital)

How do the Main

Output of Consumer Goods and Services

HOUSEHOLDS Banks Government World

Purchases Investments Gov’t Exports

Unemployment Rate Avg HH Income % Change Linear (Avg HH Income % Change)

10.00 f(x) = − 0.35 x + 11.05

Unemployment Rate Avg HH Income % Change Linear (Avg HH Income % Change)

50.00 f(x) = 1.02 x + 27.15

A one peso drop in P-Php leads to 10 percentage point increase in

Unemployment Rate Avg HH Income % Change Linear (Avg HH Income % Change)

HOUSEHOLDS Banks Government World

Purchases Investments Gov’t Exports

Total Output = Total Income = Total Expenditure

HOUSEHOLDS Banks Government World

Purchases Investments Gov’t Spending Exports

 Rearranging by policy areas,

(PS-I) + (T-G) = (X-M)

(PS-I) (T-G) (X-M)

o Value of goods = Money

o Deficit in goods = Deficit in

In this lecture, you will learn about the measures of:

In this chapter, you will learn about the meaning and

(0.10) BEFORE 2010s WE ARE IN A GROWTH MOMENTUM WHEREIN 5% IS A NO BRAINER

% Growth2 Exponential (% Growth2) Polynomial (% Growth2)

Source: NSCB *Net Primary Income

Source: NSCB *Net Primary Income

Food and Non-alcoholic beverages

• Capital is one of the factors of production.

Example (assumes no depreciation):

Percent to GDP 11.0%

Does this violate the

• Unsold output goes into inventory,

• GDP is the value of all final goods and

Divide current GDP by GDP Deflator Index

• Compute nominal GDP in each year

Nominal GDP multiply Ps & Qs from same year

Real GDP multiply each year’s Qs by 2002 Ps

• The inflation rate is the percentage increase

2004 58,300 52,000

• Use your previous answers to compute

2021 58,300 52,000 112.1 9.1%

EX: If your hourly wage rises 5%