ECONOMICS
Contractionary Fiscal Policy- reducing
Monetary Policy- government/ central bank policy for the
control of amount of currency available and rate at which
people can borrow money
Money Devaluation- loss in the value of money
BSP’s Monetary Policy- to promote a loan and stable
inflation conducive to a balance and sustainable economic
growth
Goal of Monetary Policy- to assist the economy on
achieving full employment non- inflationary level of total
output
Money Supply
- Coins and bills in circulation
- Demand deposits in bank
- Saving deposits and time deposits
- Deposit substitute
Types of Monetary Policy
1. Inflation Targeting- to keep inflation under a
particular definition such as CPI (consumer price
index); Philippines, Australia, Brazil and Canada
2. Price Level Targeting- similar to inflation targeting
except that CPI growth in one year over or under
the long price term level target; achieve through
long period of time
3. Monetary Aggregates- based on total quantity of
money reserved in country
4. Fixed Exchange Rate- fixed rate on the
conversion of currency; Singapore
5. Gold Standard- based on total quantity of gold
reserved in country for the basis of economic
status
Fiscal Policy- focus on use of government expenditure and
revenue collection (taxes) in influencing the economy
Two Policies involve in Fiscal Policy
1.
government expenditure and raising taxes
2. Expansionary Fiscal Policy- increase in
government expenditure and cut taxes
Drawbacks of Fiscal Policy
1. Delay
a. Recognition Log- takes some time that
there is a need to change in fiscal policy
b. Decision Log- they already have
recognition but it takes time to think
about what revision will they use
c. Impact Log- they have made the decision
and revision but it takes time to feel the
effect
2. Political Visibility- voters are likely to respond
more favorably to increase in government
purchases and cut in taxes
Impact of Fiscal Policy
1. Balance Budget- situation where the government
expenditure and revenues are equal
2. Budget Surplus- revenues exceed government
expenditure
3. Budget deficit- government expenditure exceed
revenues
INCOME DISTRIBUTION AND POVERTY
Personal Income (PI) – the flow of annual income received
by households before payment of personal income taxes.
Personal income includes wages and salaries, corporate dividends,
rent, interest, Social Security benefits, welfare payments, and any
other form of money income.
In-kind Income – non-money income. These are services
provided by the government such as food stamps, education,
medical aid, housing assistance, or any good service that can be
consumed.
Wealth- market value of assets people own
Size of distribution of income- tells how large a share of
total personal income is received by various households,
grouped by income class.
Distribution by Income Category- households are grouped
by income class – lined up in order of income, with
lowest-income recipients on top and highest-income
recipients at the bottom.
Distribution by Quintiles (Fifths)- divide the total number
of individuals, households, or families (two or more
persons related by birth, marriage or adoption) into five
numerically equal groups, or quintiles, and examine the
percentage of total personal (before-tax) income received
by each quintile.
Lorenz curve- displays the quintile distribution of personal
income. It is a graphical illustration of the size distribution.
Poverty Gap- shortfall between actual income and the
poverty threshold
GLOBALIZATION
Globalization- process of global integration of the
economies of nations by allowing the unrestricted flow of
goods, services, investments and currencies between
countries

Gini Coefficient- numerical measure of the overall Three Major Policies

dispersion of income; the higher the Gini coefficient is, the 1. Liberalization- the reduction and eventual removal
greater the degree of inequality of barriers to the flow of goods, services and
capital from one country to another.
2. Privatization- the total or partial sale of
government-owned or controlled corporations or
institutions to the private sector
3. Deregulation- the removal of government
intervention in settling or regulating the prices of
goods and services regardless of whether this
benefits the consumers or not
Income mobility- movement of individuals or households Characteristics of Globalization
from one income quintile to another over time 1. Denationalization- national boundaries becoming
less relevant.
Reasons for Income Mobility 2. Internationalization- entities cooperating across
1. Education and Training national borders.
2. Gender Discrimination
3. Age Two Forces of Globalization
4. Market Power 1. Falling Barriers to Trade/ Investment
5. Unequal Distribution of Wealth - GATT
6. Luck - WTO
7. Connections 2. Technological Innovation
8. Misfortune
- Internet
9. Rapid Population Growth
- Communication
- Transportation
Poverty- condition in which a person or a family does not
have the means to satisfy basic needs for food, clothing,
World Trade Organization (WTO)- only international
shelter, and transportation
organization dealing with the rules of trade between
nations; goal is to help producers of goods and services,
Causes of Poverty
exporters, and importers conduct their business; main
1. Poor Governance
objective is to open up trade among its member countries
2. Increased Population
by reducing tariffs and quotas on traded products
3. Inequality in Income Distribution
4. Inflation
Two Components
5. Corruption
1. The globalization of markets - that the expansion
6. Unemployment
and access of businesses to all over the world to
reach the needs of the customers internationally
Poverty line or poverty threshold- estimated minimum
2. The globalization of production - refers to the
level of income needed to secure the necessities of life.
sourcing of goods and services from locations
around the globe to take advantage of national
 differences in the cost and quality of factors of
production to lower their overall cost structure
and/or improve the quality or functionality of
their product
Multinational Corporations (MNCs)- companies that
manufacture and market the products or services in several
countries
Types of Globalization
1. Globalization of consumption- the nation in
which a product was made becomes independent
of the nationality of the consumer
2. Globalization of production/ownership- the
nationality of the owner and controller of
productive assets is independent of the nation
housing them
Four Main of Economic Flows
1. Goods and services, e.g., exports plus imports as
a proportion of national income or per capita of
population
2. Labor/people, e.g., net migration rates; inward or
outward migration flows, weighted by population
3. Capital, e.g., inward or outward direct investment
as a proportion of national income or per head of
population
4. Technology, e.g., international research &
development flows; proportion of populations
Effects of Globalization
1. Industrialization- emergence of worldwide
production markets and broader access to a range
of foreign products for consumers and companies,
particularly movement of material and goods
between and within national boundaries
2. Financial- emergence of worldwide financial
markets and better access to external financing for
borrowers
3. Political- which particularly go along with the
decrease of the importance of the state
4. Economic- realization of a global common
market, based on the freedom of exchange of
goods and capital
5. Cultural- growth of cross-cultural contacts; advent
of new categories of consciousness and identities
which embodies cultural diffusion, the desire to
increase one's standard of living and enjoy foreign
products and ideas, adopt new technology and
practices, and participate in a "world culture"
6. Technical- central aspect of globalization has been
the development of a Global Information System,
and greater trans border data flow, using such
technologies which increased the number of
standards applied globally
Negative Effects
1. Developed nations have outsourced
manufacturing and white collar jobs.
2. Globalization has led to exploitation of labor.
3. Job insecurity.
4. Terrorists have access to sophisticated weapons
enhancing their ability to inflict damage.
5. Companies have set up industries causing
pollution in countries with poor regulation of
pollution.
6. Fast food chains are spreading in the developing
world. People are consuming more junk food
from these joints which has an adverse impact on
their health.
7. The benefits of globalization is not universal. The
rich are getting richer and the poor are becoming
poorer.
8. Bad aspects of foreign cultures are affecting the
local cultures through TV and the Internet.
9. Enemy nations can spread propaganda through
the Internet.
10. Deadly diseases like HIV/AIDS are being spread
by travellers to the remotest corners of the globe.
11. Local industries are being taken over by foreign
multinationals.
12. The increase in prices has reduced the
government ability to sustain social welfare
schemes in developed countries.
13. There is increase in human trafficking.
14. Multinatonal Companies and corporations which
were previously restricted to commercial activities
are increasingly influencing political decisions.
Positive Effects
1. Globalization has created the concept of
outsourcing.
2. Increased competition forces companies to
lower prices.
3. Increased media coverage draws the attention
of the world to human right violations.
Drivers of Globalization
1. Individual and social needs and aspirations
2. Technological innovation
3. Reduced technological and economic barriers to
trade
Globalization Encompasses
1. Internationalization (trade & investment)
 2. Liberalization (freeing markets)
3. Universalization (cultural interchange)
4. Westernization (Western cultural dominance)
5. “Deterritorialization” (compression of time and
space)
International Economics- concerned with the effects upon
economic activity of international differences in productive
resources and consumer preferences and the institutions
that affect them
International trade- exchange of capital, goods,
and services across international borders or territories
Theory of International Trade
1. Mercantilism (Thomas Munn)- for a nation to be
rich and powerful, it needs to export more and
import less; the more gold a nation had, the richer
and powerful it was
2. Theory of Absolute Advantages (Adam Smith)- in
free trade, each nation could specialize in the
production of those commodities in which it had
an absolute advantage, and import those
commodities in which it had absolute
disadvantage
3. Theory of Comparative Advantages (David
Ricardo)- even if a nation had a absolute
disadvantage in the production of both
commodities with respect to other nations,
mutually advantageous trade could still take place
4. Heckscher- Ohlin (HO) Theory- each nation will
export the commodity intensive in its relative
abundance and cheap factor, and import the
commodity intensive in its relatively scarcity and
expensive factor
Types of Trade Protection
1. Tariff- tax on import products. It raises the costs
to foreign suppliers and reduces their revenues
thereby reducing the import spending of the
country.
2. Quota- fixed limit placed on the quantity of
imports allowed into a country.
3. Government Regulations- forms of protection
arising from health and safety standards and
preservation of the environment
4. Exchange Controls- the Bangko Sentral ng
Pilipinas restricts the sale dollars (and other forms
of currency) to importers. Only those importers
who have permits are allowed to obtain dollars
due to the necessity of the product they are
importing.
Arguments for the Imposition of Tariff Protection
1. Infant Industry Argument- this arguments
asserts that a temporary imposition of tariff will
cut down imports while local industries learn how
to produce at lw enough costs to compete without
the help of a tariff
2. Higher Standard of Living Argument- a tariff
will promote high wages because local industries
cannot provide competition with foreign
competitors and pay high wages at the same time.
3. Increased Employment Argument- it is also
contended that tariff creates employment
opportunities for labor.
4. Self-sufficiency Argument- this argument is
advocated to secure economic independence or
national self-sufficiency.
Foreign Exchange
• Foreign Exchange Market- organizational
framework wherein individuals, businesses, and
banks buy and sell foreign exchange.
• Foreign Exchange Rate- price of the Philippine
peso versus other currencies. The exchange rate is
made the same in all markets by arbitrage.
• Foreign Exchange Arbitrage- buying of a
currency when its price is low and selling it when
it is high
• Currency Depreciation- when the value of a
currency declines because of market forces
• Currency devaluation- when the value of the
currency declines due to legislation
• Floating Exchange Rate- if the government,
particularly the Central Bank, does not intervene
in the market to defend the currency against its
depreciation.
Two types of Flexible Exchange Rates
• Manage Float- the BSP will intervene in the
market to smooth out short- run fluctuations in
the foreign exchange market without affecting the
long- run movement of the exchange rate.
 • Dirty Float- a country will artificially keep their
currency low to induce their exports.

Fixed Exchange Rate System – the CB allows the

exchange rate to move within a range of values, and
permits that rate to fluctuate in that range.

Two Types of Fixed Exchange rate

• Adjustable Peg System – the CB will setup a

maximum and minimum value of currency.

• Crawling Peg System – the pegged exchange

rate is changed often according to discretion of
the CB or some economic indicators.

Balance of Payment- summary of information about

the country’s exports, imports, earnings by domestic
residents on properties located abroad or outside the
country, earnings on domestic assets owned by foreign
residents, international capital movements between
countries, and official transaction by Bangko Sentral
ng Pilipinas and governments.

The balance payment is listed in four sections:

1. The Current- Account Balance- summarizes the

difference between total exports of goods and
services and the total imports.

Current account deficit- export of goods and

services fall short of imports of goods and services
plus net unilateral transfer.

2. The Capital Account- records all transaction

pertaining to private foreign investments, grants
and loans, such as capital movements.
3. Statistical Discrepancy- net sum of all
unrecorded transactions.
4. Official Monetary Reserve or Cash Account-
assets of Central Bank in the form of gold
reserves, currency reserves and international
“paper gold” or SDRs.

Exports- sales of goods and services to people and firms

of other countries

Imports- purchases of goods and services from people

and firms of other countries.

Net Exports- the balance of international trade, equals

export minus imports.