Republic of the Philippines

President Ramon Magsaysay State University

(Formerly Ramon Magsaysay Technological University)
Iba, Zambales, Philippines
Tel/Fax No.: (047) 811-1683

Submitted By: Gemluck S. Melendez

Submitted To: Rizza A. Lee, MBA

Economic Analysis

Macroeconomic Perspective
What is Macroeconomics
Macroeconomics is a branch of the economics that studies how the aggregate
economy behaves. In macroeconomics, a variety of economy-wide phenomena is
thoroughly examined such as inflation, price levels, rate of growth, national
income, gross domestic product (GDP) and changes in unemployment.

Macroeconomics focuses on the economy as a whole (or on whole economies as

they interact). Macroeconomics involves adding up the economic activity of all
households and all businesses in all markets to get the overall demand and supply in
the economy.

Studying Macroeconomic in 3 Different Perspective

● Goals

Economic growth ultimately determines the prevailing standard of living in a

country. Economic growth is measured by the percentage change in real (inflation-
adjusted) gross domestic product. A growth rate of more than 3% is considered good.

Low Unemployment. Unemployment, as measured by the unemployment rate,

is the percentage of people in the labor force who do not have a job. When people lack
jobs, the economy is wasting a precious resource-labor, and the result is lower goods
and services produced. Unemployment, however, is more than a statistic—it represents
people’s livelihoods. While measured unemployment is unlikely to ever be zero, a
measured unemployment rate of 5% or less is considered low (good).

Low Inflation. Inflation is a sustained increase in the overall level of prices, and
is measured by the consumer price index. If many people face a situation where the
prices that they pay for food, shelter, and healthcare are rising much faster than the
wages they receive for their labor, there will be widespread unhappiness as their
standard of living declines. For that reason, low inflation—an inflation rate of 1–2%—is a
major goal.

● Framework

Keynessian Model.

Keynes' Law states that “Demand creates its own supply.” John Maynard Keynes never
wrote down Keynes’ Law. But, the law is a useful simplification that conveys a certain
point of view. When Keynes wrote his great work The General Theory of Employment,
Interest, and Money during the Great Depression of the 1930s, he pointed out that
during the Great Depression, the capacity of the economy to supply goods and services
had not changed significantly. Thus, Keynes argued that the Great Depression—and
many ordinary recessions as well—were not caused by a drop in the ability of the
economy to supply goods as measured by labor, physical capital, or technology. He
argued the economy often produced less than its full potential not because it was
technically impossible to produce more with the existing workers and machines but
because a lack of demand in the economy as a whole led to inadequate incentives for
firms to produce. Keynes’ Law seems to apply fairly well in the short run. However,
demand cannot tell the whole macroeconomic story. After all, if demand were all that
mattered at the macroeconomic level, then the government could make the economy as
large as it wanted just by pumping up total demand through a large increase in
government spending or by legislating large tax cuts to push up consumption.

Neoclassical Model

Say’s law states that supply creates its own demand. Economists who emphasize the
role of supply in the macro economy often refer to the work of a famous French
economist of the early 19th century named Jean-Baptiste Say. The intuition behind
Say’s Law is that each time a good or service is produced and sold, it generates income
that is earned by someone—a worker, a manager, an owner, or those who are workers,
managers, and owners at firms that supply inputs along the chain of production. The
forces of supply and demand in individual markets will cause prices to rise and fall. The
bottom line remains, however, that every sale represents income to someone, and so,
Say’s Law argues, a given value of supply must create an equivalent value of demand
somewhere else in the economy.

● Policy Tools

Monetary Policy. National governments have two tools for influencing the
macroeconomy. The first is monetary policy, which involves managing the money
supply and interest rates.

Fiscal Policy. National governments have two tools for influencing the
macroeconomy. The second is fiscal policy, which involves changes in government
spending/purchases and taxes.
 Republic of the Philippines
President Ramon Magsaysay State University
(Formerly Ramon Magsaysay Technological University)
Iba, Zambales, Philippines
Tel/Fax No.: (047) 811-1683

Submitted By: Gemluck S. Melendez

Submitted To: Rizza A. Lee, MBA

A Reaction Paper for Macroeconomic Perspective

The study of macroeconomic is very broad as its definition implies that

macroeconomics focuses on the economy as a whole. Those working in the field of
macroeconomics study aggregated indicators such as unemployment rate, GDP and
price indices, and then analyze how different sectors of the economy relate to one
another to understand how the economy functions.

Macroeconomics, is started by John Maynard Keynes and the publication of his

book "The General Theory of Employment, Interest and Money" in 1936. Keynes
offered an explanation for fallout from the Great Depression, when goods remained
unsold and workers unemployed, a feat that left classical economists stumped. Keynes'
theory explained why markets may not clear. This theory evolved throughout the 20th
century, diverting into several macroeconomic schools of thought known as Keynesian
economics, often referred to as Keynesian theory or Keynesianism. Macroeconomics, in
its most basic sense, is the branch of economics that deals with the structure,
performance, behavior and decision-making of the whole, or aggregate, economy,
instead of focusing on individual markets.

In studying macroeconomics, I understand that the first step towards

understanding is to measure the economy. The size of a nation’s overall economy is
typically measured by its gross domestic product (GDP), which is the value of all final
goods and services produced within a country in a given year. The measurement of GDP
involves counting up the production of millions of different goods and services—smart
phones, cars, music downloads, computers, steel, bananas, college educations, and all
other new goods and services produced in the current year—and summing them into a
total dollar value.

In the discussion, it also emphasizes the 3 important goals of macro economy,

such as employment growth, low unemployment rate and low inflation. These 3 goals
have an overall impact to our gross domestic product. The economic growth which is
measured by the percentage change in real gross domestic product. The low
unemployment rate which increases the gross domestic product, because if we have a
strong labor force we can produce more product to satisfy demands. And the low
inflation rate which increases the purchasing power of money in the economy. Those
goals can achieve through the policy tools of the government. The two policy tools
commonly use are the monetary policy and the fiscal policy. When we say monetary
policy it involves the managing of money and interest rates by the Central Bank, while
the fiscal policy involves managing by the government of their spending/purchasing and
taxes. Both policy tools can be used in times of recession or the down turn of the
economy. For example, during recession, monetary policy can be use by lowering
interest rates so that business owners will have capital to put up again their businesses.
It is also use to supply money in the economy. Fiscal policy can also be use by the
government during recession by lowering taxes imposed on goods or services so that
the purchasing power of money will increase. Government can also increase their
spending to supply money in the economy.