Professional Documents
Culture Documents
Revenue Spending
Markets for
G&S Goods &
G&S
sold Services bought
Firms Households
Imports
are goods bought from other
countries. This will be reflected as
payments by the purchasing domestic
agent to the rest of the world.
Two Indicators of Aggregate Output:
Gross National Product (of the Philippines)
Is the market value of all final goods and services
produced by all nationals in the economy during a
given period of time.
Gross Domestic Product (of the Philippines)
Measures the market value of all final goods and
services produced within the boundaries of the
Philippines, whether by Filipinos or foreign-
supplied resources.
GNP/GDP = C + I + G + (X - M)
2. The Factor Income Approach
This consists of wages (w), interests (i), rents (r), or
profits (p). In addition, a portion is provided for capital
consumption allowance or depreciation and indirect
business taxes. In symbols:
GNP/GDP = NI + IBT + D
where:
NI = w + i + r + p
IBT = indirect business taxes net of subsidies
D = depreciation/capital consumption allowance
Components of National Income (NI) as reflected
in the National Income Accounts of the Philippines:
where:
1….n = industry 1 up to n
Real and Nominal GNP (or GDP)
Nominal GNP/GDP
measures the value of output in a given period in
the prices of that period, or, as it is sometimes put,
in current pesos.
Real GNP/GDP or GNP/GDP at constant prices
measures changes in physical output in the
economy between different time periods by valuing
all goods produced in the two periods at the same
prices, or in constant pesos.
Real GNP =
Problems of GNP (or GDP) Measurement
1. Some outputs are poorly measured because they
are not traded in the market.
AE = C + I + G + X – M
Letting Aggregate Income = Y, then equilibrium
requires the equality between income and aggregate
expenditure. That is:
Y = AE
AE (in pesos)
E
100 AE
450
0
100 Y
Output, Income (in pesos)
AE (in pesos)
E1
200
E0
100 AE
450
0 Y
100 200
Output, Income (in pesos)
CONSUMPTION, SAVINGS AND INCOME
Consumption Function
The schedule that relates consumption to
disposable income. Drawn as a straight line with a
slope of less than 1, the slope is also called marginal
propensity to consume (MPC) indicates the
percentage of each additional peso of disposable
income that will be consumed. It is given as:
C = a + bYd, where: a>0, b<1.
Given: a = 20
b = 4/5 or 0.8 then,
C = 20 + 0.8 Yd
Note that MPC = 0.8
C
O
N C = a + bYd
S
U C = 20 + 4/5 Yd
M
P
T
I
O 20
N
45°
Y=C+S
Suggesting that households can either spend or
save their income. Subtracting C from both sides
of the equation leads to:
S=Y-C
From C = a + bYd , the saving function can be
derived as:
S = - a + (1– b)Yd
Given: a = 20
b = 4/5 or 0.8 then,
S = - 20 + 0.2 Yd
45°
- 20
NATIONAL INCOME ECONOMY
MPC + MPS = 1 or b + (1 – b) = 1
0.8 + 0.2 = 1
Determination of Equilibrium Income in a
Two-Sector Economy
AE = C + I
Y=C+I
Simple Income Determination
Y=C+I
C = 20 + 4/5 Yd
(I) = P 100 billion
Y = 20 + 4/5 Yd + 100; Yd = Y
Simplifying: Y – 4/5 Yd = 120
1/5 Y = 120
National Income : Y = 600 billion
100 600
- 20
NATIONAL INCOME ECONOMY
αI = 1/0.2
= 5
Δ Y = αI . ΔI
Given: αI = 5 Given: αI = 2
I = 100 I = 100
ΔY = 5 x 100 ΔY = 2 x 100
= 500 = 200
GOVERNMENT IN THE MACROECONOMY
Government plays an important role in the economy.
Government buys good and services for its day-to-
day operations of the project,
participates in the financial market through
borrowing and lending, and collects taxes.
Its policies, or lack thereof, affects the different
economic agents and their transactions.
Government Budget
presents the public sector’s expenditure and
sources of finance.
Government expenditures indicate how much
government spends and on what activities . On the
other hand, sources of finance state where the money
that government sends comes from.
Government Revenues
AE = C + I + G or
I+G=S+T
Where:
C = a + bYd ;
Yd = Y – T
T = tax
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NATIONAL INCOME ECONOMY
Types of Inflation
Demand-Pull Inflation
Inflation is said to be demand-pull if those who buy
goods and services desire to purchase goods and
services greater than what the economy can
produce.
In other words, excess demand for commodities
would tend to push prices up.
Cost-Push Inflation
Is the type of inflation where increases in the costs
of production push prices up
2. Medium of Exchange
means that you can trade your money in the market and in
return, get the goods and services that you want to
purchase because money is generally accepted as a
means of payment.
MONETARY POLICY
Why is there a need to control money supply?