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Module 2 B

APPLIED ECON

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12 views

Module 2 B

APPLIED ECON

Uploaded by

alma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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MODULE 2:

UTILITY AND
APPLICATION
OF APPLIED
ECONOMICS
Objectives
•Explain the significance of economics in daily life,
decision-making, and policy formulation.
•Differentiate between positive and normative
economics.
•Understand key economic indicators such as GDP and
GNP.
•Identify and analyze basic economic problems in the
Philippines.
◦"How do economic issues affect our daily
lives?"
Philippines Inflation Picks Up to 9-Month High
The annual inflation rate in the Philippines rose to 4.4% in July
2024, up from June’s three-month low of 3.7% and beating
market forecasts of 4%. This was the highest inflation rate since
October 2023, driven by increases in prices for housing &
utilities (2.3% vs 0.1% in June), food & non-alcoholic beverages
(6.4% vs 6.1%), transport (3.6% vs 3.1%), and education (5.8%
vs 3.8%). On the other hand, inflation edged down for alcoholic
beverages & tobacco (3.4% vs 3.8%), clothing & footwear (3.1%
vs 3.2%), health (2.8% vs 2.9%), recreation, sport & culture
(3.4% vs 3.5%), and restaurants & accommodation services
(4.9% vs 5.1%). The core inflation, which excludes selected food
and energy items, eased to 2.9% in July from 3.1% in the
previous two months, marking the lowest reading since May
2022. On a monthly basis, consumer prices advanced 0.7% in
July, after a flat reading in June.
◦Inflation measures how much more
expensive a set of goods and services has
become over a certain period, usually a year.
WHY IS ECONOMICS
IMPORTANT?
◦Economics will help you understand why there is a
need for everybody, including the government, to
budget and properly allocate the use of whatever
resources are available. It will help one understand
how to make more rational decisions in spending
money, saving part of it, and even investing it.
◦On the national level, economics will enable you to
look on how the economy operate, and if leaders
are effective in trying to shape up the economy.
SCIENTIFIC APPROACH IN THE EMPIRICAL
TESTING OF ECONOMIC THEORY
◦Economics is a study that attempts to explain
how an economy operates and how the
consumer attempts to maximize his/her wants
within limited means. Using tools such as logic,
math, and statistics, you need to approach the
empirical testing of an economic theory in a
scientific manner.
This scientific approach involves the ff. steps:
◦1. State the propositions or condition that are taken as
given and do not need further investigation, as the
basic starting point of investigation.
◦2. Observe facts in connection with the activity that
you want to theorize.
◦3. Apply the rules of logic to the observed facts to
determine causal relationships between observed
factors and to eliminate facts that are unnecessary
and irrelevant.
◦4. Establish a set of principles such that formulated
hypotheses may be tested as to whether they are
POSITIVE ECONOMICS VERSUS
NORMATIVE ECONOMICS
◦Positive economics deals with “what is” - things that are
happening such as the current inflation rate, the number of
employed laborers, and the level of the Gross
◦National Product (GNP). Positive economics is an overview of
what is happening in the economy that is possibly far from
what is ideal.
◦Normative economics refers to “what should be” – that which
embodies the ideal rate of population growth or the most
effective tax system. In other words, it focuses on policy
formulation that will help to attain the ideal situation.
MEASURING THE ECONOMY
◦Shaping the economy’s future is changing past and
present perspectives extended to the future. Looking
ahead is grounded on past and present performance
and the health of the economy. The heart of the
economy is a production whose value measures both
resource input and output of people. The interplay of
resources and outputs tells how well the economy
has performed.
MEASURING THE ECONOMY
◦Gross Domestic Product (GDP) is the total
monetary or market value of all the finished
products produced with a country’s borders within
a period. As broad measure of overall domestic
production, it functions as a comprehensive
scorecard of a given country’s economic health.
◦(https://www.investopedia.com/terms/g/gdp.asp)
MEASURING THE ECONOMY
◦Gross National Product (GNP) is an estimate of total
value of all the final products and services turned out in
each period by means of production owned by a
country’s residents. It is commonly calculated by taking
the sum of personal consumption expenditures, private
domestic investment, government expenditure, net
exports, and any income earned by residents from
overseas investments, minus income earned within the
domestic economy by foreign residents. Net exports
represent the difference between what a country exports
minus imports of goods and services.
(https://www.investopedia.com/terms/g/gnp.asp)
GNP vs. GDP
GDP GNP

 the total value of  the total value of income


production realized by earned by a country’s
resident producers in an residents regardless of
economic territory. where the income came
from.

➢made in the Philippines ➢ made by Filipinos


◦GNP/GDP: Expenditure Approach To account GNP and
classify its components, one way is by end-use expenditure.
Products are final when they have reached the highest levels of
processing in the economy for different uses in the given
period. They are household and individual consumption (C), and
government expenditure on goods and services including labor
(G) and exports (X). Products, regardless of production stages,
are also considered final when basically stocked (unused) as
capital goods and inventories of raw materials and intermediate
products. Classified as investments (I), they are stock of values
for future use and therefore, have reached the highest possible
production stages for the given period. On the other hand, their
import components (M) are excluded since import products are
produced in other economies. To restate the GNP equation:
GNP=C+I+G+(X-M)
◦GNP/GDP: Income Approach Another way to
account GNP and classify components is by
resource uses and contributions that make up
the production stages. As basic factors (e.g.,
leather) as processed into higher forms (e.g.,
shoes). If all payments for resource
contributions (rent, wage, interest, and profit)
went to resource owners, GNP would simple
(simply) be the sum of all factor payments from
the raw material to the final product stag
ECONOMICS AS AN APPLIED
SCIENCE
◦Applied Economics is the application of economic
theory and econometrics in specific setting with the
goal of analyzing potential outcomes. We should be
able to improve human welfare among Filipinos by the
investigation and analysis of economic problems in
the real world. Applying economic theory in our lives
means trying to address actual economic issues and
do something about it. The concept of scarcity and
choices should encourage us as individuals to help in
our little way to provide solutions to the country’s
economic problems.
THE PHILIPPINES' BASIC ECONOMIC
PROBLEMS
◦The Philippine economy has grown significantly during
President Benigno Simeon Aquino’s administration. With a
growth rate of the country’s GDP of 6.8% in 2012, improving
to 7.2% in 2013, and slowing down to 6.1% in 2014, these
rates are improved past rates preceding President Aquino’s
term. It is also higher than its Asian neighbors such as
Malaysia, Thailand, south Korea, Hongkong, India, and
Indonesia (CIA World Factbook 2013) Despite this admirable
growth, people have been complaining of non-inclusive
growth. Millions of Filipinos are claiming they still live below
the poverty level.
THE PHILIPPINES' BASIC
ECONOMIC PROBLEMS
◦Unemployment is still a main problem of the
Philippine economy despite improvements
reported by the National Statistic office. In July
2015, the Labor Force Survey (LFS) released by
the Philippine Statistic Authority (PSA) showed
the country’s unemployment rate at 6.4% or an
estimated 2.68 million individuals.
THE PHILIPPINES' BASIC
ECONOMIC PROBLEMS
◦Poverty is another significant socio-economic
problem in the country. As reported by the
National Statistics Coordination Board, in 2006,
poverty incidence of the population registered at
26.4%, 26.5% in 2009, 25.2% in 2012, and
28.8% in the first semester of 2014.
THE PHILIPPINES' BASIC
ECONOMIC PROBLEMS
◦Booming population growth in the Philippines is undeniably
another basic economic problem that can be connected to the
issue of scarcity. When population becomes too big, economic
resources may no longer be enough to support the growing
population. According to the 2010 census, the Philippine
population stood at 92.3 million. As of 2014 it has reached
more than 100 million-growing by 2% from the previous year
and one of the highest in Asia. The population of the
Philippines represents 1.3% of the world’s total population.
PERFORMANCE TASK
◦Observe Table 1.1 then read and understand
the interpretation below it. Using the GNP
equation: GNP=C+I+G+(X-M), compute the
GNP for 2011 and 2012. The GNP for 2010 is
given as an example and as your guide.

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