GROUP 3

ECONOMIC
ISSUES
ECON 124 MWF 8:30 - 9:30
 BUSINESS CYCLE
a type of fluctuation found in the aggregate economic activity of
a nation -- a cycle that consists of expansions occurring at about
the same time in many economic activities, followed by similarly
general contractions (recessions).
 PHASES OF BUSINESS CYCLE
1. Expansion
This is the first phase of the
business cycle, and it’s
generally marked by an
increase in economic activity.
GDP (Gross Domestic Product)
rises, unemployment falls, and
prices increase.
 PHASES OF BUSINESS CYCLE
2. Peak
The peak is the point at which an expansion
turns into contraction. Expansion has
reached its maximum growth, and now
businesses are maxed out. They no longer
have room to grow or invest, so they stop
doing both—which affects supply
(production), demand (usage of goods and
services), employment, investment, prices,
etc.
 PHASES OF BUSINESS CYCLE
3. Recession
During this period most
types of economic activity
come to a halt. The
unemployment rate rises as
businesses lay off workers,
and prices for goods and
services drop.
 PHASES OF BUSINESS CYCLE
4. Depression
This is the lowest point of the business cycle, which may also be referred
to as the recession’s trough. At this point, GDP (Gross Domestic Product),
employment, production, consumption, investment, personal income,
and business profits are all low.
 PHASES OF BUSINESS CYCLE
5. Trough
The trough is the bottom of the recession. This is where the
economy hits its lowest point. In terms of GDP, employment,
investment, prices, etc., it’s generally a very bleak time.

6. Recovery
The recovery phase starts when economic activity begins to rise again.
 CAUSES OF BUSINESS CYCLE
External Causes:
Internal Causes:
-Wars
-Fluctuations in effective demand
-Technology shocks
-Fluctuations in investment
-Natural Factors
-Supply of money
-Population growth
 Why is it important to know the
business cycle?
First, it can help you understand how the economy works.

Second, it can help you make informed investment decisions.

Third, it can help you time your business decisions accordingly.

 INFLATION
the rate of increase in prices over a given period of
time. It is typically a broad measure, such as the
overall increase in prices or the increase in the
cost of living in a country.
 Galunggong

Time of President Fidel V. Ramos "poor man's fish"

This day No longer available

for the poor
 TYPES OF INFLATION
1. Demand Pull Inflation

occurs when there is an increased demand for

products and services, and the existing production
capacity could not cop up with the rising demand

demand > supply, price will rise.)

 TYPES OF INFLATION
2. Cost Push
Inflation

occurs when the supply is restricted, or there is an

increase in production cost, and demand remains
the same

demand > supply, price will rise.)

 TYPES OF INFLATION
3. Built In
Inflation

Price rise expectations of the working class,

seeking an increase in the current wages. This
increases production cost and hence leads to
inflation.
PRICE
INDEX
LICARDO
 WHAT IS
PRICE INDEX?
Price Index is a comparison of the
change in a family’s cost of living from
one year with the current
year. The year with which the current
year is compared to is what we call
base year.

LICARDO
CONSUMER
PRICE INDEX Of the price indexes available for analysis by
economists, the Consumer Price Index is the one used to
determine the movement of prices for different
commodities in the different industries in different
territories. It is also the overall change in the prices
levels and basket of goods in that economy

COST OF B.O.G IN THE CURRENT YEAR

CPI=
COST OF B.O.G IN THE BASE YEAR
LICARDO
 BASKET
OF GOODS
People would normally buy the
products in the list as basic
necessities and composes the goods
that they purchase, these goods are
what we call basket of goods.

LICARDO
ILLUSTRATION:
2016 BASKET OF GOODS 2021 BASKET OF GOODS

PRICE QUANTITY PRICE QUANTITY

NOODLES P 10.00 2 NOODLES P 20.00 2

ONE ONE
BEDROOM P 1,950 1 BEDROOM P 2,325 1
APPARTMENT APPARTMENT

BREAD P 40.00 5 BREAD P 55.00 5

LICARDO
ILLUSTRATION:
COST OF B.O.G IN THE CURRENT YEAR
CPI=
COST OF B.O.G IN THE BASE YEAR

TOTAL COST IN 2016 = 10 + 1950 + 40

2,400 = 2,000

CPI= TOTAL COST IN 2021 = 20 + 2,325 + 55

2,000
= 2,400

CPI= 1.20
THEREFORE, OUR COMPUTED CPI IS
1.20. THIS MEANS THAT THERE WAS
A 20% INCREASE IN THE PRICES OF
THE COMMODITIES FROM YEAR 2016
TO YEAR 2021.
LICARDO
CONSUMER
PRICE INDEX
Factors that affects CPI analysis:

1. Change in the composition of the

goods in our basket
2. Price of each commodity
3. Assumed quantity per good
4. Base year that is used
LICARDO
CONSUMER PRICE INDEX
We should determine the rate at which
this price level changes. To determine
this is to identify its rate of change or
its inflation rate.

CPI OF CPI OF
-
INFLATION YEAR 2 YEAR 1
=
RATE CPI OF
YEAR 1
LICARDO
ILLUSTRATION:
Calculate the CPI and Inflation Rate in each year using 2020 as the base year.

YEAR COST OF BASKET

OF GOODS CPI INFLATION RATE

2020 18,000

2021 21,500

2022 22,600

2023 26,150

LICARDO
ILLUSTRATION:
Calculate the CPI and Inflation Rate in each year using 2020 as the base year.

YEAR COST OF BASKET

OF GOODS CPI INFLATION RATE

2020 18,000 100 ---

2021 21,500 119.4 19.4

2022 22,600 125.6 5.2

2023 26,150 145.3 15.7

LICARDO
PURCHASING
POWER OF
PESO
 INFLATION CAUSES THE VALUE
OF CURRENCY TO FALL.
WHY IS THAT SO?

"When inflation happens, you need

more money to buy a commodity."
 PURCHASING POWER OF
PESO (PPP)

The value of the currency at a

given time.
"Inflation does not directly affect
the real purchasing power of the
people."
NOMINAL VALUE The product's value
expressed in physical
terms (e.g., the qunatity
of goods or services that
The product's value can be exchanged for that
in terms of its product
present currency
value
REAL VALUE

COMMODITIES 'NOMINAL VALUE

VS. REAL VALUE
 Inflation
Government
Policies
Interest
Rates
FACTORS OF Supply and
Exchange Demand
PURCHASING Rates
POWER OF Employment
Economic
Growth
PESO and Wages
 EXAMPLE

An example is comparing the cost of goods and services from one

year to another. Suppose in 2000, a basket of goods and services
that cost $100 would include a gallon of gas for $1.50, a loaf of
bread for $1.00, and a new car for $15,000.

In 2020, the same basket of goods and services would cost $300.
For example, a gallon of gas would cost $2.50, a loaf of bread
would cost $3.00, and a new car would cost $30,000.
INFLATION
connotes an
increase in the
price levels of
goods and
services.
illustration
DEFLATING
THE PROCESS OF DIVIDING THE
NOMINAL VALUE WITH A PRICE INDEX.

THE PROCESS OF FINDING OUT THE REAL VALUE

OF A COMMODITY NOW AFTER DETERMINING
THE YEAR THAT WILL BE CONSIDERED ITS BASE.
 is the decrease in the price
of goods and services

DEFLATION happens when price levels

decrease in given economy.
 KEY DIFFERENCES OF
DEFLATING AND DEFLATION

DEFLATING DEFLATION

the tool used to the decrease in the

determine the real price level of goods
value of a product. and services over a
period of time.
A TOOL
A SITUATION
 HYPERINFLATION
IT OCCURS WHEN THE RATE OF PRICE INFLATION EXCEEDS 50%
PER MONTH.

REFERS TO A PERIOD OF EXTREMELY HIGH INFLATION.

IT ALSO OCCURS WHEN THERE ARE TOO MANY MONEY IN

CIRCULATION.
HYPERINFLATION

IN
HISTORY
Bouts of hyperinflation are mostly
accompanied by rapidly increasing
money supply needed to finance
large fiscal deficits arising from
war, revolution, the end of
empires, and the establishment of
new states.
WHY DON’T WE
JUST PRINT
MORE MONEY?
Money in Circulation Total Value of Goods Amount of Goods
₱80 ₱80 4

₱20 ₱20 ₱20 ₱20

Money in Circulation Total Value of Goods Amount of Goods
₱80 ₱160 ₱80 4

₱40 ₱40 ₱40 ₱40

Money in Circulation Total Value of Goods Amount of Goods
₱80 ₱160 ₱80 4

₱40 ₱40 ₱40 ₱40

Money in Circulation Total Value of Goods Amount of Goods
₱80 ₱160 ₱80 4

₱40 ₱40 ₱40 ₱40

Money in Circulation Total Value of Goods Amount of Goods
₱80 ₱160 ₱80 4

₱40 ₱40 ₱40 ₱40

Money in Circulation Total Value of Goods Amount of Goods
₱80 ₱160 ₱80 ₱160 4

₱40 ₱40 ₱40 ₱40

Money in Circulation Total Value of Goods Amount of Goods
₱160 ₱400 ₱80 ₱160 4

₱100 ₱100 ₱100 ₱100

Money in Circulation Total Value of Goods Amount of Goods
₱160 ₱400 ₱160 ₱400 4

₱100 ₱100 ₱100 ₱100

WHY DON’T WE
JUST PRINT
MORE MONEY?
WHY WE DON’T JUST PRINT MORE MONEY:

Money in Circulation Total Value of Goods Amount of Goods

₱80 ₱80 4
₱80 ₱160 ₱80 4
₱80 ₱160 ₱80 ₱160 4
₱160 ₱400 ₱80 ₱160 4
₱160 ₱400 ₱80 ₱400 4

Prices rise because more money is chasing the same amount of goods,
reducing the purchasing power of money.
QUANTITY THEORY
OF MONEY

The general price level of goods and services is

proportional to the money supply in an economy. If
the amount of money in an economy doubles, all else
equal, price levels will also double.

- Originally formulated by Polish mathematician Nicolaus Copernicus in

1517, popularized later by economists Milton Friedman and Anna
Schwartz
 HYPERINFLATION
Hyperinflation is a term that describes
and measures rapid, excessive, and out-
of-control general price increases that
result in extreme inflation.

Causes of Hyperinflation

Excessive Money Printing Loss of Confidence Supply Shocks

ZIMBABWE’S
HYPER-
INFLATION
Why We Can’t
Just Print More
Money
WHAT WENT WRONG?

Zimbabwe is the only country

that issued the highest record
denomination of bill in history —
famous for their $100 trillion
Zimbabwean.

The official exchange rate between U.S. dollar and Zimbabwean on

2008 was US $1 = Z$ 4 million.
 HYPERINFLATION
Hyperinflation is a term that describes
and measures rapid, excessive, and out-
of-control general price increases that
result in extreme inflation.

Causes of Hyperinflation

Excessive Money Printing Loss of Confidence Supply Shocks

 CONVERSION OF AGRICULTURAL
MOTHER NATURE LANDS

fiscal
CAUSES OF
MONETARY
policy HYPERINFLATION IN policy
ZIMBABWE

FOREIGN DEBT CORRUPTION

The Role of the Zimbabwe Government and Its Central Bank

In 1980, the external debt of

Zimbabwe was only 11% of its
GDP. However, its government
didn’t stop borrowing money
until its borrowing reached up to
119% of its GDP in 2009.
 Zimbabwe’s government
allocated those billions of
borrowings mainly on ghost
How did it happen?
projects plus uncontrollable
borrowings are never a good
recipe for the economy.

Ghost Projects
These are projects that are used
to be for development but is not
finished through or is never
completed.
These are some of
the examples of
Ghost Projects
 Effects of Hyperinflation in Zimbabwe:
Billionaires Who Cannot Buy Anything

When you use a toilet, use the

Zimbabwean dollar rather than a
tissue paper because only the
latter actually has worth that
would be wasted if you use it
instead.
Price increase in
thousands each
and every month
WAGES & EMPLOYMENT
WAGES
DEMAND SUPPLY

The higher the level of

employment a country has, the EQUILIBRIUM

higher the expected level of

its out is, “Ceteris Paribus.”

NO. OF WORKERS
 IF WAGE IS LOW:
WAGES
DEMAND SUPPLY DEMAND INCREASES WHILE THE
NO. OF WORKERS DECREASES

IF THE WAGE IS HIGH:

EQUILIBRIUM
DEMAND DECREASES WHILE THE
NO. OF WORKERS INCREASES

NO. OF WORKERS
 LABOR FORCE & UNEMPLOYMENT
When the unemployment rate is low, jobs are secure and are relatively easy to find.
Low unemployment is often associated with improving wages and working conditions
as well, as employers compete to attract and retain workers.

How to measure unemployment rate?

It is based from the labor force in a country. Unemployment
How to know the labor force in a country? rate
In the Philippines, labor force is the total Unemployed people
number of people with the age of 15 to 64 years = × 100
Total Labor Force
old, employed or unemployed, and those who
are looking for a job.
ADDITIONAL FORMULAS:
Unemployment Unemployed people
=
= × 100
rate Total Labor Force

LF Participation Labor Force

= × 100
Rate Population

Employment Employed people

= × 100
rate Population
 EMPLOYMENT DATA:

2023 2024

UNEMPLOYMENT RATE 4.5% 3.7%

UNEMPLOYED PERSON 2.6 MILLION 1.89 MILLION

EMPLOYMENT RATE 47.67% 49.87%

POPULATION (AGE 15+) 117,337,368

ECONOMIC,
PSYCHOLOGICAL, and
social costs of
unemployment
 UNEMPLOYMENT
RATE
Unemployment Rate is the percentage of the total number of people in the labor force
that is not engaged in any economic activity. These are the people who belong to the
working age bracket of 15-64 years old and are willing to work but could not secure a job.
It is important to analyze the costs of unemployment, which is a little different from the
effect of unemployment. The costs of unemployment are simply what we lose in terms of
economic, psychological, and social, both in individual and in the collective levels.
 ECONOMIC
COSTS
The economic cost of unemployment in the
individual level is the loss of income that is
used in his/her individual consumption and
savings, if there is any left. In a
macroeconomic perspective, the economic
cost of unemployment is the value of goods
and services that is not produced because the
labor force is not maximized or fully utilized.
PSYCHOLOGICAL
COSTS
Unemployment can cause significant psychological stress,
as people often feel a loss of purpose and self-worth when
they are not working. It can lead to anxiety, depression,
and a sense of isolation, especially if the unemployment is
long-term. The financial strain adds to mental health
challenges, creating a cycle of stress and worry. Overall,
unemployment impacts not just finances but emotional
well-being and stability.
 SOCIAL COSTS
Unemployment can strain social systems, as higher
joblessness often leads to increased reliance on
government support, such as welfare and unemployment
benefits. Communities may experience higher crime rates
and social unrest, as financial insecurity can lead to
desperation. Long-term unemployment weakens social
networks, as individuals may withdraw from social
activities due to shame or financial constraints.
 Types
of
Unemployment
 Frictional
Unemployment
Frictional unemployment is a type of
unemployment that occurs when people are
temporarily unemployed while transitioning
between jobs.
 Structural
Unemployment
Structural unemployment occurs when
there's a mismatch between the skills
possessed by the workforce and the skills
demanded by employers
 Cyclical
Unemployment
is a type of unemployment that arises due to
fluctuations in the overall economic cycle
THE CONNECTION OF AGRARIAN
REFORM IN THE ECONOMY
WHAT IS AGRARIAN REFORM?
The Comprehensive Agrarian Reform Program
(CARP) is the current agrarian reform law in
the Philippines.

a government program that changes how land

is owned and used.

redistributing agricultural lands to help

farmers become independent.
 Agrarian Reform in the
Philippine Context
In the midst of rapid industrialization, the Philippines is
still considered an agricultural
country.One major evidence of this is that
geographically speaking, of the 298,170 square kiometer
total land area (or 29,817,000 hectares), 32.43% or
9,671,000 hectares is
categorized as agricultural land.Furthermore, this is
divided among its different types (see
Figure 11.2), namely, arable land, permanent cropland,
permanent meadows/pastures,
forest land, and other lands (CountrySTAT Philippines,
2013).
RICE IS THE MOST WIDELY CONSUMED STAPLE FOOD AS COMNPARED TO OTHER
EDIBLE COMMODITIES AROUND THE GLOBE, AND IS CONSUMED BY THE LARGEST
PROPORTION OF THE WORLD'S POPULATION.
ARE WE EARNING OR LOSING FROM OUR
AGRICULTURE INDUSTRY?
THANK YOU
TO ALL THE PARTICIPANTS HERE