CHAPTER 7 MONEY: is an item used by buyers to purchase goods and

GROSS DOMESTIC PRODUCT (GDP): the total market services.

value of final goods and services within a country during a FUNCTION OF MONEY
given period. 1. A medium of exchange
MARKET VALUE: amount for which something can be sold. 2. Unit of account
FINAL GOODS AND SERVICES: the end product of a 3. Store of value
process. BANK: is an institution that serve as intermediary between
INTERMEDIATE GOODS: This is the other goods used in savers and borrowers
the production process (inputs). DEPOSITORS SAVE IN BANKS FOR THE PURPOSE OF
CAPITAL GOODS: is usually bought by an organization for 1. Earning Interest
the purpose of producing goods and services. 2. Security from lost
FOUR CATEGORIES OF ECONOMIC PLAYERS 3. Storage
1. Household FINANCIAL INTERMEDIATION PROCESS: The function of
2. Firms deposit-taking and credit/lending that is facilitated by the
3. Government bank.
4. Foreign Sector OTHER FUNCTION OF BANKS
TWO METHODS IN COMPUTING GDP 1. Treasury Operations
1. By adding the total market value of final goods and 2. Borrowing
services produce in a country; 3. Trust Operations
2. By adding the total value of money spent by 4. Private Banking
households, firms, government, and foreign sectors 5. FCDU Operations
on final goods and services, and subtracting the 6. International Banking
money spent to purchase imported goods and 7. Brokerage
services. 8. Investment Banking or Underwriting
FOUR COMPONENTS OF EXPENDITURE TYPES OF BANKING
1. Consumption Expenditure: simply consumption, 1. Universal Banks
the spending by households on goods and services. 2. Commercial Banks
2. Investment: The spending by firms on goods and 3. Thrift Banks
services, primarily capital goods. The sum of 4. Rural Banks
expenditure on equipment, structure, and 5. Cooperative Banks
inventories. 6. Islamic Banks
3. Government Purchases: is the final goods and 7. Digital Banks
services bought by the national and local 8. Foreign Banks
government units. The sum of expenditure incurred BANGKO SENTRAL NG PILIPINAS (BSP): have given
by the government to provide different social independence and power to govern all banks and nonbanks
services for the people. (not included in the GDP financial institutions to maintain monetary stability in the
but is a government purchase: Transfer payment: country.
are payments made by the government for which no FUNCTION OF BSP
current goods and services are produced or 1. Supervisor of all banks
received. Example: benefits such as social security 2. Banks of banks
benefits ) 3. Issuer of money
4. Net Exports (Exports: domestically produced final 4. Monetary Authority
goods and services that are sold abroad and 5. Custodian of the country’s official reserves
Imports: purchases by domestic buyers of final 6. Lender of last resort
goods and services that are produced abroad.) MONETARY POLICY: Is a set of tools used by a nation’s
FORMULA FOR GDP: Y = C + I + G + NX central bank to control the overall money supply and promote
LABOR INCOME: is the total salaries, wages, and income of economic growth and employ strategies.
the employed and self-employed of the most economies, it DIFFERENT TOOLS OF MONETARY POLICY
compromise the two-third of the total GDP 1. Open Market Operations (OMO)
CAPITAL LABOR: the total payment made to owners of - RP or Repo Rate or Repurchase Rate
physical capital, is equal to the one-third of the total GDP - RRP or Reverse Repo Rate or Reverse
NOMINAL GDP: use the current year Repurchase Rate
REAL GDP: use a base year 2. Reserve Requirements
GROSS NATIONAL PRODUCT: is the total market value of 3. Interest Rate
all final goods and services. MONEY CREATION/CONCEPT OF MONEY CREATION:
believes that when money is placed in the banks and
CHAPTER 8 financial institutions, it multiples.
COMMODITY MONEY: is an item that has an intrinsic value
and used as a form of money CHAPTER 9
FIAT MONEY: all kinds of money but cannot stand alone SIMPLE INTEREST : i = Prt
because it is tender legal by the government. INTEREST: is the amount of money that your principal
BARTER: is the exchange of two different commodities should have earned given the rate of return in a given period.
between two different parties. PRINCIPAL: is the money you invested.
RATE OF RETURN: is the prevailing market interest rate NATURE OF TAX
offered by the investment product you have chosen. 1. Impose by law
COMPOUND INTEREST: is earning on interest on interest 2. The power of government to tax is unlimited
i = P (1 + r)^t 3. Taxation has the power to destroy
Money invested in the compound interest will be higher than TWO THINGS GOVERNMENT SHOULD CONSIDER IN
those invested on simple interest. TAXATION:
INVESTING/ INVESTMENT: putting untouched income in 1. Efficiency in collecting taxes
another form of assets. 2. Equity
SAVING: involves not touching one's disposable income TAX INCIDENCE: refers to the distribution of tax burden.
INVESTMENT PORTFOLIO: collection of all investment FLYPAPER THEORY: According to this theory, the people
assets. whom tax is imposed on are the ones who really bear the
DIVERSIFICATION: not putting all your eggs in one basket tax.
or spreading your income in different types of investment. BENEFITS PRINCIPLE: the people who receive most
RISK-RETURN TRADE-OFF: the higher the risk, the higher benefits from the government should pay more taxes.
the return. THE ABILITY-TO-PAY PRINCIPLE: the people who are
FINANCIAL MARKETS: plays a central role in allocating in more able to pay taxes should pay more.
economy’s resources PROPORTIONAL AND PROGRESSIVE TAX SYSTEM
PASSIVE MANAGEMENT: involves not spending effort on BENEFITS OF FISCAL POLICY/GOVERNMENT
improving one’s highly diversified investment portfolio. PURPOSES AND AIMS:
ACTIVE MANAGEMENT: involves continuous attempt to 1. Provide public/social services
improve the investment portfolio of a firm 2. Create employment
INSIDER TRADING: illegally obtaining information about a 3. Encourage competition
company's status, operations, and dealings. PRIVATIZATION: selling government assets to private
REAL ASSETS: are those resources deployed to produce entities/firms.
goods and services. Tangible and concrete, generate profit PUBLIC-PRIVATE PARTNERSHIP (PPP): government
for the firm and economy. retains its ownership as well as defines the extent of private
FINANCIAL ASSETS: means by which members of the sector’s participation.
society hold their claims on real assets. Also known as Paper
Assets, evidence supporting claims on real assets by its CHAPTER 11
holder. BUSINESS CYCLE: also known as boom-bust or economic
THREE CLASSIFICATION OF FINANCIAL ASSETS: cycle, movement in economic activities that refer to
1. Fixed Income Securities expansion and contractions in the economy.
2. Equity FOUR BUSINESS CYCLES:
3. Derivatives Securities/ Derivatives 1. Expansion
KEY CONSIDERATION IN INVESTMENT 2. Boom Cycle (Prosperity Cycle)
1. Investment objectives 3. Recession
2. Available Funds 4. Depression (trough or crisis)
3. Level of risk tolerance INFLATION:
4. Investment horizon PRICE INDEX: the comparison of the change in family’s cost
5. Accessibility of funds of living from one year with the current year.
6. Taxation Treatment BASE YEAR: The year which the current year is compared
7. Performance of the investment to.
8. Diversification BASKET OF GOODS: basic necessities and composes of
FINANCIAL INTERMEDIARIES: are distinguished by goods that they purchase.
looking at their assets, which are mainly composed of CONSUMER PRICE INDEX (CPI): determine the movement
financial assets. Engage mostly on investments and deposit of prices of different commodities in different industries in
taking and credit. different territories.
FORMULA:
CHAPTER 10 CPI = COST OF BASKET OF GOODS IN THE CURRENT YEAR
JOHN MAYNARD KEYNES: influential British economists of COST OF BASKET OF GOODS IN THE BASE YEAR
the 21st century. SOME FACTORS THAT MAY AFFECT CPI ANALYSIS:
KEYNESIAN THEORY OF MACROECONOMICS: a 1. Change in the composition of the goods in our
government can control the overall consumption of the basket
households as well as the production level of the firms to 2. Price of each commodity
stabilize the economy. 3. Assumed quantity per good
FISCAL POLICY: refers to the decision of how much the 4. Base year that is used
government spends and how much the tax revenue it INFLATION RATE: is a tool that can be used to determine
collects. price changes.
OUTPUT GAP: occur when the production level of goods CORE INFLATION RATE: is the increase of prices levels of
and services is higher than the demand, and vice versa. goods excluding foods and fuel.
DIVISION OF FISCAL POLICY OUTLIERS: are abnormal points in group data.
1. Taxes PURCHASING POWER OF PESO (PPP): is the value of the
2. Transfer Payments currency at the given time.
3. Government purchase of goods and services NOMINAL VALUE: value in terms of its present currency
value.
REAL VALUE: is expressed in physical terms
DEFLATING: The process of dividing the nominal value with
the price index.
DEFLATION: the decrease in price levels of goods and
services.
HYPERINFLATION: occurs when the rate of price inflation
exceeds 50% per month. Occurs when many money in the
circulation
LABOR FORCE: the total number of people who are either
employed or actively looking for work within a given
population. It includes people who are 15 to 64 years old and
older.
UNEMPLOYMENT: when someone is able to work but is
unable to find a job.
UNEMPLOYMENT RATE: is the percentage of the total
number of people in the labor force that is not engaged in
any economic activity.
COST OF UNEMPLOYMENT: LOSE IN TERMS OF
1. Economic
2. Psychological
3. Social
TYPE OF UNEMPLOYMENT
1. Frictional Unemployment
2. Structural Unemployment
3. Cyclical Unemployment
AGRARIAN REFORM

CHAPTER 12
TRADE POLICIES: Each country has its own measures that
regulate the conduct of trade.
TARIFFS: tax imposed on imported goods.
IMPORT QUOTA: is the limit imposed on the quantity of
goods imported.
EXPORT DEVELOPMENTS: internal measures being
implemented by the government to improve exports.
Different means that the government implements to
capitalize on their export products.
GREGORY MANKIW: “TRADE CAN MAKE EVERYONE
BETTER OFF”
ABSOLUTE ADVANTAGE: when comparing the productivity
of one person, firm, or nation to that of another.
GLOBALIZATION: is a major in the information age, where
one is not just confined within the four corners of his/her
shop.
TRADE LIBERALIZATION ORGANIZATIONS
1. World Trade Organization (WTO)
2. General Agreement on Tariffs and Trade (GATT)
3. North American Free Trade Agreement (NAFTA)
4. Asia Pacific Economic Cooperation