WHAT IS

MACROECONOMICS?

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Major Branches of Economics

Microeconomics is:
 the study of the choices of individuals
 the study of decisions made by enterprises, such
as businesses firms
 and the interaction of those choices and
decisions in social frameworks, such as markets.

Macroeconomics is the study of the national

economy and the global economy as a whole.

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 Examples of microeconomic and macroeconomic concerns

Production Prices Income Employment

Microeconomics Production/Output Price of Individual Distribution of Employment by
in Individual Goods and Services Income and Wealth Individual
Industries and Businesses &
Businesses Price of medical care Wages in the auto Industries
Price of gasoline industry Jobs in the steel
How much steel Food prices Minimum wages industry
How many offices Apartment rents Executive salaries Number of
How many cars Poverty employees in a firm

Macroeconomics National Aggregate Price National Income Employment and

Production/Output Level Total wages and Unemployment in
salaries the Economy
Total Industrial Consumer prices
Output Producer Prices Total corporate profits Total number of jobs
Gross Domestic Rate of Inflation Unemployment rate
Product
Growth of Output

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Major Branches of Economics

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dlimikid@yahoo.com
 Examples of microeconomic and macroeconomic concerns

Production Prices Income Employment

Microeconomics Production/Output Price of Individual Distribution of Employment by
in Individual Goods and Services Income and Wealth Individual
Industries and Businesses &
Businesses Price of medical care Wages in the auto Industries
Price of gasoline industry Jobs in the steel
How much steel Food prices Minimum wages industry
How many offices Apartment rents Executive salaries Number of
How many cars Poverty employees in a firm

Macroeconomics National Aggregate Price National Income Employment and

Production/Output Level Total wages and Unemployment in
salaries the Economy
Total Industrial Consumer prices
Output Producer Prices Total corporate profits Total number of jobs
Gross Domestic Rate of Inflation Unemployment rate
Product
Growth of Output

dlimikid@yahoo.com
 Examples of microeconomic and macroeconomic concerns

Production Prices Income Employment

Microeconomics Production/Output Price of Individual Distribution of Employment by
in Individual Goods and Services Income and Wealth Individual
Industries and Businesses &
Businesses Price of medical care Wages in the auto Industries
Price of gasoline industry Jobs in the steel
How much steel Food prices Minimum wages industry
How many offices Apartment rents Executive salaries Number of
How many cars Poverty employees in a firm

Macroeconomics National Aggregate Price National Income Employment and

Production/Output Level Total wages and Unemployment in
salaries the Economy
Total Industrial Consumer prices
Output Producer Prices Total corporate profits Total number of jobs
Gross Rate of Inflation Unemployment rate

Domestic
Product
Growth of Output

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 QUIZ 7-8

1 The amount of one good or service that must be given up to obtain one
additional unit of another good or service is called a. Opportunity Cost b.
Absolute Advantage c. marginal opportunity cost
2 An entrepreneur is competent in achieving something, if he/she is good in:a.
taking chances, setting the product standards and taking the risks. b.
seeking information, setting directions and in planning c. convincing people
d. none of them
3 Economics in Greek word “OIKONOMIKOS” means: a. good housekeeping
b. economizing problem of scarcity c. managing resources d.
utilizing capital goods properly
4 Opportunity costs are the values of the: a. minimal budgets of families on
welfare b. hidden charges passed on to consumers c. best alternatives
sacrificed when choices are made
5 Economics can be defined as a. Proper allocation of resources b. way of
thinking about all decisions c. Study of how people make choices
d. All of them
6 Microeconomics is the branch of economics that focuses on a. national
economic activity b. individual decision makers and markets c. deficit
spending d. inflation and unemployment

7 It deals with the study on the specific economic activity is a.

Macroeconomics b. Scarcity c. microeconomics d. labor economics
 QUIZ 7-9

8 In economics, capital is best defined as: a. produced goods which are used
as productive resources b. private property c. money needed to run a
business d. the primary factor in productivity

9 A God-Given factor of production according to Adam Smith is

a. Labor b. Capital c. Land d. Entrepreneur

10 A process of introducing change in the production of goods and services

Entrepreneur b. Entrepreneurial behavior c. Entrepreneurship d.
Enterprise Development

11 A person who innovates, creates and manages people and resources is

called a. Ordinary Businessmen b. Entrepreneur c. Foreman d.
Worker
12 Economic problems arise fundamentally from: a. the price system and the
existence of money b. the market system c. the relationship
between the private and public sectors d. Scarcity

13 The fundamental economic questions ("what", "how", and "for whom") must
be solved in: a. market economies b. mixed economies c. planned
(command) economies d. all of them

14 Economic choice and competitive behavior are the result of a. basic

Human Greed b. Poverty c. Private ownership d. Scarcity
 QUIZ 7 - 10

1 The amount of one good or service that must be given up to obtain one
additional unit of another good or service is called a. Opportunity Cost b.
Absolute Advantage c. marginal opportunity cost
2 An entrepreneur is competent in achieving something, if he/she is good in:a.
taking chances, setting the product standards and taking the risks. b.
seeking information, setting directions and in planning c. convincing people
d. none of them
3 Economics in Greek word “OIKONOMIKOS” means: a. good housekeeping
b. economizing problem of scarcity c. managing resources d.
utilizing capital goods properly
4 Opportunity costs are the values of the: a. minimal budgets of families on
welfare b. hidden charges passed on to consumers c. best alternatives
sacrificed when choices are made
5 Economics can be defined as a. Proper allocation of resources b. way of
thinking about all decisions c. Study of how people make choices
d. All of them
6 Microeconomics is the branch of economics that focuses on a. national
economic activity b. individual decision makers and markets c. deficit
spending d. inflation and unemployment

7 It deals with the study on the specific economic activity is a.

Macroeconomics b. Scarcity c. microeconomics d. labor economics
 QUIZ 7 - 11

8 In economics, capital is best defined as: a. produced goods which are used
as productive resources b. private property c. money needed to run a
business d. the primary factor in productivity

9 A God-Given factor of production according to Adam Smith is

a. Labor b. Capital c. Land d. Entrepreneur

10 A process of introducing change in the production of goods and services

Entrepreneur b. Entrepreneurial behavior c. Entrepreneurship d.
Enterprise Development

11 A person who innovates, creates and manages people and resources is

called a. Ordinary Businessmen b. Entrepreneur c. Foreman d.
Worker
12 Economic problems arise fundamentally from: a. the price system and the
existence of money b. the market system c. the relationship
between the private and public sectors d. Scarcity

13 The fundamental economic questions ("what", "how", and "for whom") must
be solved in: a. market economies b. mixed economies c. planned
(command) economies d. all of them

14 Economic choice and competitive behavior are the result of a. basic

Human Greed b. Poverty c. Private ownership d. Scarcity
National Income
Accounting

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 7 - 13

National Income
Accounting
 Theydeveloped national
income accounting – a set of
rules and definitions for
measuring economic activity
in the aggregate economy –
that is, in the economy as a
whole.
 7 - 14

Measuring Total
Economic Output of
Goods and Services
 Gross Domestic Product (GDP)
is the total market value of
all final goods and services
produced in an economy in a
one-year period.

 The total value at market prices of final goods

and services produced within the domestic
boundary of a territory in a specified period
Measuring Performance 7 - 15

using GDP
BIZ
Moon
PHIL
(SK)
Mkt
Value

PHIL
GDP
Mkt
Value

Du30 BIZ PHIL

(Phi)
 7 - 16

Measuring Total
Economic Output of
Goods and Services
 Gross National Product (GNP)
is the aggregate final output
of citizens and businesses of
an economy in one year.

 The total value at market prices of final goods

and services produced by the citizens in an
economy in a specified period.
Measuring Performance 7 - 17

using GNP
SK
PHIL GDP
GNP

Mkt Mkt
Value Value

Du30
SK
BIZ
Measuring Performance 7 - 18

using GDP
BIZ
Trump
PHIL Mkt
Value
Mkt
Value

PHIL
GDP
Mkt
Value

BIZ PHIL US
Du30
GNP
 7 - 19

GDP Measures Final Output

 Final output – goods and services
purchased for final use.
 Intermediate products are used as
inputs in the production of some other
product.
Cakes
Banana Powder/ Katchup
Fresh Flour Paste
etc
 Gross Domestic Product
»The circular flow diagram shows the transactions among households,
firms, governments, and the rest of the world.
 Gross Domestic Product
»The circular flow diagram shows the transactions among households,
firms, governments, and the rest of the world.
 Gross Domestic Product
Firms hire factors of production from households. The blue
flow, Y, shows total income paid by firms to households.
 Gross Domestic Product
–Households buy consumer goods and services. The red
flow, C, shows consumption expenditures.
 Gross Domestic Product
Households save, S, and pay taxes, T. Firms borrow some of
what households save to finance their investment.
 Gross Domestic Product
–Firms buy capital goods from other firms. The red flow I
represents this investment expenditure by firms.
 Gross Domestic Product
–Governments buy goods and services, G, and borrow or
repay debt if spending exceeds or is less than taxes
 Gross Domestic Product
The rest of the world buys goods and services from us, X and
sells us goods and services, M—net exports are X - M
 Gross Domestic Product
And the rest of the world borrows from us or lends to us
depending on whether net exports are positive or negative.
 Gross Domestic Product
–The blue and red flows are the circular flow of income and
expenditure. The green flows are borrowing, lending, and taxes.
 Gross Domestic Product
The sum of the red flows equals the blue flow.
 Gross Domestic Product
Expendinture Approach
–That is: Y = C + I + G + X - M (Xn)
 7 - 32

Two Approaches to Calculating

GDP
 7 - 33

 The expenditure approach is shown on

the bottom half of the circular flow.
 Specifically, GDP is equal to the sum of
the four categories of expenditures.
GDP = C + I + G + Xn(X - IM)
 7 - 34

A Simplified Economic Circular Flow

RESOURCES (Factor Markets)

WAGES AND SALARIES

Households Businesses

EXPENDITURES
FINISHED GOODS (Product Markets)
7 - 35
 7 - 36

Consumption
 When individuals
receive income,
they can spend it on
domestic goods,
save it it, pay taxes,
or buy foreign
goods.
 7 - 37

Consumption
 Consumption is the largest and most
important of the flows.
 It is also the most obvious way in which
income received is returned to firms.
 7 - 38

Investment  Business spending on

equipment, structures,
and inventories is
counted as part of
gross private
investment, together
with household
spending on new
owner-occupied
housing.
 7 - 39

Government Expenditures
 Government
payments for goods
and services or
investment in
equipment and
structures are referred
to as government
expenditures.
 7 - 40

Net Exports
 Spending on foreign goods escapes the
system and does not add to domestic
production, thus spending on imports
are subtracted from total expenditures.
 7 - 41

Net Exports
 Exports to foreign nations are added to
total expenditures.
 These flows are usually combined into
net exports (exports minus imports).
 7 - 42

The Incomes Approach

 The income approach is shown on the
top half of the circular flow.
 Firms make payments to households for
supplying their services as factors of
production.
 7 - 43

A Simplified Economic Circular Flow

RESOURCES (Factor Markets)

WAGES AND SALARIES

Households Businesses

EXPENDITURES
FINISHED GOODS (Product Markets)
 7 - 44

The Incomes Approach

Formula:

= C + R + I + P
 7 - 45

The Factor Incomes

Approach
 National income is the total income
earned by citizens and businesses of a
country.
 It consists of employee Compensation,
Rent, Interest, and Profits.
 7 - 46

The Incomes Approach

 Compensation:

that firms pay to

workers constitute
the largest
component of
GDP.
 7 - 47

The Incomes Approach

 Furtherincluded in incomes are those
incomes earned by owner-operators.
Rental income is included in this
category.
 7 - 48

The Incomes Approach

 Interest and investment income
measures the difference between
interest payments that households
receive on loans they have made, and
interest payments that they make on
borrowed funds.
 7 - 49

The Incomes Approach

 Profits
before taxes are also included in
income.
Measuring GDP using the Income Approach and the Ex.mp4

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GNP Calculation

Suyopako (a Pinoy firm) buys auto parts in Japan in 2006 for P1,000,000. It spends
P1,200,000 in labor costs in 2007 to build a car in Japan. It sells the car for
P3,500,000 to a visiting Pinoy businessman in 2007 and invests the 1,300,000 of
profit in a bank in Philippines. In 2008, the Pinoy businessman re-sells the car to
aJapanese resident for P2,400,000.

What are the additions to Phils' GNP for 2006, 2007, and 2008? D
2006 2007 2008
A P1,000,000 P3,500,000 P2,400,000
B P1,000,000 P1,200,000 P2,400,000
C P1,000,000 P1,200,000 P0
D P0 P3,500,000 P0
E P0 P1,300,000 P1,100,000

The economic activity occurs inJapan. Phils' GNP is the profit on the
operations plus the labor income of Pinoy workers in Japan. The profit
does not have to be invested in a Phils' bank to be part of Phils' GNP.

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GDP Calculation

Suyopako (a Pinoy firm) buys auto parts in Japan in 2006 for P1,000,000. It spends
P1,200,000 in labor costs in 2007 to build a car in Japan. It sells the car for
P3,500,000 to a visiting Pinoy businessman in 2007 and invests the 1,300,000 of
profit in a bank in Philippines. In 2008, the Pinoy businessman re-sells the car to
aJapanese resident for P2,400,000.

What are the additions to Phils' GDP for 2006, 2007, and 2008? E
2006 2007 2008
A P1,000,000 P3,500,000 P2,400,000
B P1,000,000 P1,200,000 P2,400,000
C P1,000,000 P1,200,000 P0
D P0 P3,500,000 P0
E P0 P0 P0

The economic activity occurs in japan. Phil GDP is not affected.

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 Calculate GDP
Using the data below, calculate the GDP using the two approaches. As
you can see, the table contains more data than is necessary so you
have to look for the parts which make up the expenditures approach
and Income Approach to calculating GDP.
Transfer Payments P54,000
Interest Income P150,000
Depreciation P36,000
Wages P67,000
Gross Private Investment P124,000
Business Profits P200,000
Indirect Business Taxes P74,000
Rental Income P75,000
Net Exports (X-M) P18,000
Net
CashForeign Factor Income
Incentives P12,000
Government Purchases P156,000
Household Consumption P304,000

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