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• Four sectors/groups that create economic transactions in the economy

  • Household
  • Firms
  • Government
  • The rest of the world
• Gross Domestic Product (GDP) It measures the market value of all final goods and services produced within an economy in a given period of time by factors of production located within the countryIt measures the market value of all final goods and services produced within an economy in a given period of time by factors of production located within the country Gross Domestic Product (GDP)
• GDP


  • GDP is concerned only with new and current production
  • GDP excludes output produced abroad by domestically owned factors of production
  • Intermediate goods (those goods that are produced by one firm for use in further processing by another firm) are not counted in the GDP
• 3 Approaches for measuring GDP

  • Expenditure Approach
  • Industrial Origin/Value Added Approach
  • Income Approach
• Sectors in the Expenditure Approach


  • Household - Personal Consumption
  • Business/Firm - Investment
  • Government - Government Expenditure
  • The rest of the World - Net Export
• Personal Consumption Expenditure


  Spending of households and private non-profit institutions on goods and services
• Non-durables


  Goods and services that are consumed rapidly
• Durable goods


  Goods that last for a longer period of time
• Gross Domestic Capital Formation


  Investment spending of domestic agents - spending by firms and households on new capital, plant, equipment, inventory and new residential structures
• Government Consumption Expenditure


  Government's payments for the salaries of its workforce as well as purchases of goods and services used for the government's day to day operations and projects
• Exports of Goods and Services

  The spending of the rest of the world on goods and services produced in the country
• Imports of Goods and Services


  The country's purchases of goods and services from the rest of the world
• Net Exports


  Exports minus imports - net spending by rest of the world
• Statistical Discrepancy


  Accounts for accounting and reporting errors in the accounts. Needed to ensure that GDP value from all approaches are the same
• The Production Approach/Industrial Origin approach calculates the GDP based on industrial origin wherein the domestic economy is divided into 3 productive sectors: a) agriculture, fishery, and forestry b) industry; and c) services. This approach sums up the value added contribution of each sector to obtain the total contribution to the economy.
• Gross National Product/Gross National Income is the market value of all products and services produced in one year by labor and property supplied by the citizens of a country.
• Monetary policy


  The control over the money supply
• Monetary policy tools


  • Reserve Requirement
  • Discount Rate
  • Open Market Operation
• Reserve Requirement


  Private loaning
• Discount Rate


  Bank loaning
• Open Market Operation


  1. Government loaning

  2. Buying and selling of bonds
• Money supply changes


  Affects the circulation
• Money supply


  The quantity of money available in an economy
• Discount Rate


  Affects money supply, interest rate, aggregate demand
• Buying bonds


  Increases money supply
• Selling bonds


  Decreases money supply
• Monetary expansion/stimulus


  Decreases reserve requirement, decreases discount rate, buys bonds
• Monetary contraction/restraint


  Increases reserve requirement, increases discount rate, sells bonds
• Liquidity trap is a situation when expansionary monetary policy (increase in money supply) does not increase the interest rate
• Monetary policy has short-term vs long-term effects, time lags, and inefficiencies
• Objectives of economic policy


  • Increasing production
  • Stable prices
  • Low unemployment
  • Balance of payments
  • Economic development
• Fiscal policy


  Easier to implement, slower effect
• Monetary policy


  Difficult to implement, faster effect
• Net Factor Income from the Rest of the World


  measures the difference between the earnings of Philippine residents in other countries and foreign residents in the Philippines.