ApEcon 1

• Exchange rate

  The value of one nation's currency versus the currency of another nation or economic zone
• Free-floating exchange rate


  The rise or fall of the currency is based on supply and demand
• ISO currency code


  The three-letter alphabetic codes that represent the various currencies used throughout the world
• PHP


  The ISO currency code for the Philippine Peso
• Currency appreciation


  An increase in the value of one currency about another currency
• Currency depreciation


  A decrease in the value of one currency against the other

  
• Peso appreciation


  Exports more expensive, reduces competitiveness of exporting firms, raw materials cheaper
• Peso depreciation


  Exports cheaper, exporting firms benefit, higher costs of imports for firms importing raw materials
• The most traded currency is the US dollar
• A stronger peso means PHP1/1 USD
• The Philippines uses a free-floating exchange rate system
• Consumers who buy imported products will gain when the peso appreciates
• M.F. Moonzajer: 'Somewhere in this small world, you can find a place where everyone appreciates you more than you think you deserve.'
• Saving


  Setting aside the money you don't spend now for emergencies or a future purchase
• Investment


  Buying assets such as stocks, bonds, mutual funds or real estate that is expected to grow in the future
• The levels of investment are affected by interest rates, confidence, and economic growth
• The levels of savings are influenced by interest rates and confidence
• In neoclassical economics, it is assumed that the level of saving is equal to the level of investment
• Effects of saving and investment on economic entities

  1. Consumers

  2. Businesses

  3. Financial Institutions

  4. Government
• An increase in the rate of economic growth will encourage firms to invest to meet future demand
• A low confidence can discourage households to save more
• Higher interest rates make investment more expensive
• The level of saving is equal to the level of investment
• Taxation


  The system of compulsory contributions levied by the government or other qualified bodies on people, corporations, and property to fund public expenditures
• Fiscal Policy


  A government policy that aims to raise funds to finance public expenditures
• Bureau of Internal Revenue (BIR)


  A government agency mandated to comprehend the assessment and collection of all national internal revenue taxes, fees, and charges to promote a sustainable economic growth
• Direct Tax


  • A tax that is demanded from the person who shoulders the burden of the tax
• Indirect Tax


  • A tax that is demanded from a person in the expectation and intention that he/she shall protect himself/herself at the expense of the other, falling finally upon the ultimate purchaser or consumer
• Higher taxes on carbon emissions

  Increases the cost for producers, causing shifts in demand towards alternatives
• High-income tax


  Can enable redistribution of income within society but may have an impact on reducing the incentives to work and supply of labor
• Substitution effect


  Higher tax leads to lower wages – and work becomes relatively less attractive than leisure
• Income effect


  If higher tax leads to lower wages, then a worker may feel the need to work longer hours to maintain his target level of income
• The Philippines adopts progressive taxation
• Higher tax on a good


  Causes the supply curve to shift left, resulting in a higher price and less demand

  
• Rise in tax (excise or VAT)


  Can lead to an increase in prices, causing cost-push inflation
• Cost-push inflation occurs when the overall prices increase (inflation) due to the increase in cost of wages and raw materials</b>