ECODEV M3

• ADAM SMITH, the father of Economics, in 1776, published a paper titled, “An Inquiry into the Nature and Causes of the Wealth of Nations” or more simply, “ The Wealth of Nations”.
• The foundations of a lot of economic concepts such as laissez-faire, minimizing the government intervention, free markets, the work of the invisible hands that guide the supply and demand and creation of wealth not only from land but also from assembly lines, and market systems and capitalisms.
• Nation’s wealth is relative to the use of limited resources.
• The market is composed of buyers and sellers who may be the government, firm, or household, and the interaction of the two creates income and expense that may be used to measure the goods and services that flow within the economy or the circular flow of national income
• Gross Domestic Product is considered by economists as a major measurement of a nation’s income at a given time and at a given place or region.
• GDP is the peso value of all final goods and services that are produced in one country in a year.
• Two methods of calculating the GDP:

  1. Expenditure approach
  2. Income approach
• EXPENDITURE APPROACH summarizes the total expenses to buy final goods and services by households, firms, and the government.
• GDP = C + I + G + (X-M)
• CONSUMPTION SPENDING is the total household spending on consumption goods and services.
• INVESTMENT SPENDING is firm’s purchase of plants, equipment, buildings, and addition to inventories.
• GOVERNMENT SPENDING are government spending on goods and services.
• NET EXPORT is exports minus imports or “foreign sales” less “foreign purchases”
• CONSUMER SPENDING is the peso value that households are spending for final goods and services in a year, i.e. supplies at home, food, restaurant spending, and many more.
• GOVERNMENT SPENDING includes both national and local government units’ spending to acquire goods and services that are used for public facilities, for example, when the government hires private contractors to build bridges, roads, hospitals, and the like.
• NET EXPORTS are just the difference between the final goods and services derived from importations from exportations. The ideal situation is to have a trade surplus, if not a trade balance, wherein the value of exports exceeds imports, or they are equal/balanced.
• INCOME APPROACH consists of summing all the factors, or primary, incomes earned in the production process plus taxes less subsidies on products.
• More generally, it consists of the earnings resulting from the use of labor and capital in the production of goods and services during an accounting period.
• Adds the compensation of employees, net interest, rental income, corporate profits, and proprietor’s income.
• GSP = Total National Income + Sale Taxes + Depreciation + Net Foreign Factor Income
• TOTAL NATIONAL INCOME is the sum of all wages, rent, interest, and profits.
• SALES TAXES is the tax imposed on consumers for the sale of goods and services.
• DEPRECIATION is the cost allocated to capital assets over an estimated useful life
• NET FOREIGN FACTOR INCOME is the income that citizens make while in abroad, less the income generated by foreigners in the country.
• We can compare the economic performance on an annual basis by determining the growth rate to help us understand where the economy stands.
• Changes in the volume of output as well as in price largely affect the total spending over a period of time.
• In order to measure the total spending that is minimally affected by the changes in the prices of goods and services, economists have come up with a measure they call real GDP that evaluates current production using constant prices.
• In computing the nominal GDP, the current prices are used to multiply the volume of production given a period of time.
• MPLICIT PRICE DEFLATOR OR GDP DEFLATOR is a metric used by economists to understand the changes in prices of products that are produced in one country.
• CONSUMER PRICE INDEX (CPI) is a measure of the average change in the prices paid over time by urban households for a market basket of goods and services.
• INFLATION – exists when there is a sustained increase in the price level. The price level is the average level of prices. The inflation rate is computed as follows:

  𝐶𝑃𝐼 𝑡ℎ𝑖𝑠 𝑦𝑒𝑎𝑟 − 𝐶𝑃𝐼 𝑙𝑎𝑠𝑡 𝑦𝑒𝑎𝑟 / 𝐶𝑃𝐼 𝑙𝑎𝑠𝑡 𝑦𝑒𝑎𝑟
• The labor force equals the sum of employed plus unemployed workers.
• UNEMPLOYMENT RATE

  𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑜𝑝𝑙𝑒 𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 / 𝐿𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 𝑥 100
• PRODUCTIVITY FUNCTION Y = Tf {L, K, H, N }
• L – quantity of labor

  K – quantity of physical labor

  H – quantity of human capital

  N - quantity of natural resources

  T - quantity of technological advances
• The GDP PER CAPITA is a metric used to measure the overall production of goods and services in a country translated to the value per person.
• OTHER MEASUREMENTS OF A NATION’S INCOME/WEALTH

  
  

  G- Gross National Product

  N- Net National Product

  N- National Revenue

  P- Personal Revenue

  D- Disposable Personal Revenue

  G- Gross National Happiness - Genuine Progress Indicator
• GROSS NATIONAL PRODUCT is the sum of all the finished goods and services produced by the citizens of a country overseas and domestically.
• NET NATIONAL PRODUCT is the sum of all the finished goods and services produced by the citizens of a country overseas and domestically less depreciation.
• NATIONAL REVENUE is part of the national budget of a country that is composed of all revenue sources to be used in national expenditures.