ECONOMICS II

Presented by: Vanessa A. Arambala

Joreza S. Suarez

Presented to : Mr. Roman Asiño

Introduction to Economic
Growth and Instability
• Philippine economic growth moderated to 6.2 in 2018, weighed down
by weak global trade and high domestic inflation.
• A weak and uncertain external environment and subpar performance
in net exports contributed to an overall balance of payments
deterioration and a depreciation of the Philippine peso in 2018.
• Headline inflation peaked at 6.7 percent in October, before gradually
decreasing in the last two months of the year. The main drivers of
inflation were rising food, energy, and transport prices.
• Capital inflows increased, yet balance of payments deficit widened
due to current account deficit.
• What is Economic Growth?
• Economic growth is an increase in the the production of
economic goods and services, compared from one period of time
to another. It can be measured in nominal or real (adjusted for
inflation) terms. Traditionally, aggregate economic growth is
measured in terms of gross national product (GNP) or gross
domestic product (GDP), although alternative metrics are
sometimes used.
 • Growth is a widely held economic
goal.
• In short, Growth lessen the burden of
GROWTH AS Scarcity ,and
A GOAL • By relaxing society’s constraints on
production
Main source of Growth
There are two
fundamental ways
society can increase its
real output and
income:

By increasing the
By increasing its inputs
productivity of those
of resources and
inputs
Growth in the
Philippines
 The country’s Gross
Domestic Product
(GDP) posted a
growth of 5.6
percent in the first
quarter of 2019. This
was slower than the
6.5 percent growth
recorded in the first
quarter of 2018.
 • Trade and Repair of Motor Vehicles, Motorcycles, Personal and
Household Goods; Manufacturing; and Financial Intermediation
were the main drivers of growth for the quarter.

• Among the major economic sectors, Services had the fastest

growth with 7.0 percent. Industry followed with a growth of 4.4
percent. Agriculture, Hunting, Forestry and Fishing had a growth
Growth in the of 0.8 percent.

Philippines • Net Primary Income (NPI) from the rest of the world grew by 1.9
percent resulting in the 4.9 percent growth of Gross National
Income (GNI).

• With the country’s projected population reaching 107.4 million

in the first quarter of 2019, per capita GDP grew by 3.9 percent.
Meanwhile, per capita GNI and per capita Household Final
Consumption Expenditure (HFCE) posted corresponding
growths of 3.3 percent and 4.6 percent.
The Business Cycle
• The term “business cycle” (or economic cycle or boom-bust
cycle) refers to economy-wide fluctuations in production, trade,
and general economic activity. From a conceptual perspective,
the business cycle is the upward and downward movements of
levels of GDP (gross domestic product) and refers to the period
of expansions and contractions in the level of economic activities
(business fluctuations) around a long-term growth trend.
• A Peak is the highest point of the business
cycle, when the economy is producing at
maximum allowable output, employment is at
or above full employment, and inflationary
pressures on prices are evident.
• the economy typically enters into a correction
which is characterized by a Contraction where
growth slows, employment declines
(unemployment increases), and pricing
pressures subside.
• The slowing ceases at the Trough and at this
point the economy has hit a bottom from
which the next phase of expansion and
contraction will emerge.
• An Expansion is characterized by increasing
employment, economic growth, and upward
pressure on prices.
Cyclical Impact: Durables and Nondurables:
• Consumer durables are automobiles, computers, etc. firms and
industries producing these are most affected by the business
cycle along with firms producing capital goods like housing. As
the economy recedes, producers frequently delay the purchase
of new equipment.

• Nondurable consumer goods and service industries are

insulated from the most severe effects of recession. People
cannot cut back on needed medical and legal services.
 Unemployment
is when the labor force is seeking employment but cannot find it. Unemployment
is a cost to the economy in terms of the deficiency in production. In other words,
when people don't have jobs those employees aren't able to produce, and
therefore the economy produces less.
• Labor force: includes people that are employed and those who are
unemployed but actively seeking work.
• Unemployment rate = (unemployed/labor force) X 100
• Part time employment: all part time workers are listed as fully
employed.
• Discouraged workers: you must be actively seeking work in order to
be counted as unemployed.
Measurement of unemployment
To calculate the unemployment rate, you need to know two
things: first, you need to know the number of unemployed
persons, and second, you need to know the number of people
that are in the labor force. The unemployment rate represents
the number of unemployed persons as a percentage of the
labor force.
 Types of Unemployment:

Frictional Unemployment:
• workers who are either searching for jobs or waiting to take jobs
in the near future.
Structural Unemployment:
• workers that find their skills and experience have become
obsolete or unneeded. They have to retrain.
Cyclical Unemployment:
• happens when demand for goods and services decrease.
• Definition of Full Employment:

 full employment occurs when there is no cyclical

unemployment. At the natural rate of unemployment (NRU), the
economy is said to be producing its potential output. The NRU
occurs when the number of job seekers equals the number of job
vacancies.
 Economic Cost
of
Unemployment
• More Details on Costs of Unemployment:

 Loss of earnings to the unemployed

Potential homelessness
Stress and health problems of being unemployed
Increased government borrowing
Lower GDP for the economy
Increase in social problems
• Economic Cost of Unemployment:

 GDP Gap and Okun’s Law

Unequal Burden
Noneconomic Costs
International Comparisons
• GDP Gap and Okun’s Law:

 Okun's Gap occurs when a country's actual gross

domestic product differs from its predicted gross domestic
product when applying Okun's law.
 However Okun’s Law only applies in the United States
Economy but the principles applies to all the economies
• GDP Gap and Okun’s Law:

How it works/Example:
Formula : GDP Gap = Actual GDP – Potential GDP

Named after economist Arthur Okun, Okun's law states that for every 1%
increase in the employment rate, gross domestic product increases 3%.
Let's say the unemployment rate decreases by 2% (that is, employment
increases by 2%). According to Okun's law, GDP will increase by 6%. If the actual
GDP increases by just 5%, then Okun's Gap equals 1% (6% - 5%). Because the
actual change is less than the predicted change, we call this gap a recessionary gap.
If the actual change were higher than the predicted change, we call this an
inflationary gap.
• Unequal Burden:

Part of the burden of unemployment is that its costs is unequally

distributed.
Occupation
Age
Race and Ethnicity
Gender
Education
Duration
• Unequal Burden:

Part of the burden of unemployment is that its costs is unequally

distributed.
Occupation
Age
Race and Ethnicity
Gender
Education
Duration
•Inflation:
Increases your cost of living and reduces the purchasing
power of each unit of currency.
is the increase in the prices of goods and services over
time.
•Types of Inflation:
• Demand Pull Inflation - increase in aggregate demand,
categorized by the four sections of the macroeconomy:
households, business, governments, and foreign buyers.

• Cost – Push Inflation - decrease in the aggregate supply of

goods and services stemming from an increase in the cost
of production.
•Redistribution Effects of Inflation:
Nominal Income - part of your salary that is paid out in
cash. It is your income in actual currency terms unadjusted
for what is termed as inflation.
Real Income – is the buying power of your nominal
income.
•Who is Hurt by Inflation:
Fixed – Income Receiver
Savers
Creditors
•Who is Unaffected or Helped by
Inflation:
Flexible – Income Receiver
Debtor
•Cost Effect of Inflation on Output:
Cost-Push Inflation and Real Output
Demand-Pull Inflation And Real Output
Hyper inflation and breakdown
•The Stock Market and the Economy:
It reveals that the stock market liquidity do help to improve
the future economy. More precisely, the causality runs from stock
market proxies to economic growth shows a significant relation
between market capitalization, total trade value and turnover ratio
on the GDP and FDI ( foreign direct investment ).