ECONOMICS Monetary Policy- government/ central bank policy for the control of amount of currency available and rate

at which people can borrow money Money Devaluation- loss in the value of money BSPs Monetary Policy- to promote a loan and stable inflation conducive to a balance and sustainable economic growth Goal of Monetary Policy- to assist the economy on achieving full employment non- inflationary level of total output Money Supply - Coins and bills in circulation - Demand deposits in bank - Saving deposits and time deposits - Deposit substitute Types of Monetary Policy 1. Inflation Targeting- to keep inflation under a particular definition such as CPI (consumer price index); Philippines, Australia, Brazil and Canada 2. Price Level Targeting- similar to inflation targeting except that CPI growth in one year over or under the long price term level target; achieve through long period of time 3. Monetary Aggregates- based on total quantity of money reserved in country 4. Fixed Exchange Rate- fixed rate on the conversion of currency; Singapore 5. Gold Standard- based on total quantity of gold reserved in country for the basis of economic status Fiscal Policy- focus on use of government expenditure and revenue collection (taxes) in influencing the economy Two Policies involve in Fiscal Policy

1. Contractionary Fiscal Policyreducing government expenditure and raising taxes 2. Expansionary Fiscal Policy- increase in government expenditure and cut taxes Drawbacks of Fiscal Policy 1. Delay a. Recognition Log- takes some time that there is a need to change in fiscal policy b. Decision Log- they already have recognition but it takes time to think about what revision will they use c. Impact Log- they have made the decision and revision but it takes time to feel the effect 2. Political Visibility- voters are likely to respond more favorably to increase in government purchases and cut in taxes Impact of Fiscal Policy 1. Balance Budget- situation where the government expenditure and revenues are equal 2. Budget Surplus- revenues exceed government expenditure 3. Budget deficit- government expenditure exceed revenues INCOME DISTRIBUTION AND POVERTY Personal Income (PI) the flow of annual income received by households before payment of personal income taxes. Personal income includes wages and salaries, corporate dividends, rent, interest, Social Security benefits, welfare payments, and any other form of money income. In-kind Income non-money income. These are services provided by the government such as food stamps, education, medical aid, housing assistance, or any good service that can be consumed. Wealth- market value of assets people own Size of distribution of income- tells how large a share of total personal income is received by various households, grouped by income class. Distribution by Income Category- households are grouped by income class lined up in order of income, with lowest-income recipients on top and highest-income recipients at the bottom.

Distribution by Quintiles (Fifths)- divide the total number of individuals, households, or families (two or more persons related by birth, marriage or adoption) into five numerically equal groups, or quintiles, and examine the percentage of total personal (before-tax) income received by each quintile. Lorenz curve- displays the quintile distribution of personal income. It is a graphical illustration of the size distribution. Gini Coefficient- numerical measure of the overall dispersion of income; the higher the Gini coefficient is, the greater the degree of inequality

Poverty Gap- shortfall between actual income and the poverty threshold GLOBALIZATION Globalization- process of global integration of the economies of nations by allowing the unrestricted flow of goods, services, investments and currencies between countries Three Major Policies 1. Liberalization- the reduction and eventual removal of barriers to the flow of goods, services and capital from one country to another. 2. Privatization- the total or partial sale of government-owned or controlled corporations or institutions to the private sector 3. Deregulation- the removal of government intervention in settling or regulating the prices of goods and services regardless of whether this benefits the consumers or not Characteristics of Globalization 1. Denationalization- national boundaries becoming less relevant. 2. Internationalization- entities cooperating across national borders. Two Forces of Globalization 1. Falling Barriers to Trade/ Investment - GATT - WTO 2. Technological Innovation - Internet - Communication - Transportation World Trade Organization (WTO)- only international organization dealing with the rules of trade between nations; goal is to help producers of goods and services, exporters, and importers conduct their business; main objective is to open up trade among its member countries by reducing tariffs and quotas on traded products Two Components 1. The globalization of markets - that the expansion and access of businesses to all over the world to reach the needs of the customers internationally 2. The globalization of production - refers to the sourcing of goods and services from locations around the globe to take advantage of national

Income mobility- movement of individuals or households from one income quintile to another over time Reasons for Income Mobility 1. Education and Training 2. Gender Discrimination 3. Age 4. Market Power 5. Unequal Distribution of Wealth 6. Luck 7. Connections 8. Misfortune 9. Rapid Population Growth Poverty- condition in which a person or a family does not have the means to satisfy basic needs for food, clothing, shelter, and transportation Causes of Poverty 1. Poor Governance 2. Increased Population 3. Inequality in Income Distribution 4. Inflation 5. Corruption 6. Unemployment Poverty line or poverty threshold- estimated minimum level of income needed to secure the necessities of life.

differences in the cost and quality of factors of production to lower their overall cost structure and/or improve the quality or functionality of their product Multinational Corporations (MNCs)- companies that manufacture and market the products or services in several countries Types of Globalization 1. Globalization of consumption- the nation in which a product was made becomes independent of the nationality of the consumer 2. Globalization of production/ownership- the nationality of the owner and controller of productive assets is independent of the nation housing them Four Main of Economic Flows 1. Goods and services, e.g., exports plus imports as a proportion of national income or per capita of population 2. Labor/people, e.g., net migration rates; inward or outward migration flows, weighted by population 3. Capital, e.g., inward or outward direct investment as a proportion of national income or per head of population 4. Technology, e.g., international research & development flows; proportion of populations Effects of Globalization 1. Industrialization- emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies, particularly movement of material and goods between and within national boundaries 2. Financial- emergence of worldwide financial markets and better access to external financing for borrowers 3. Political- which particularly go along with the decrease of the importance of the state 4. Economic- realization of a global common market, based on the freedom of exchange of goods and capital 5. Cultural- growth of cross-cultural contacts; advent of new categories of consciousness and identities which embodies cultural diffusion, the desire to increase one's standard of living and enjoy foreign products and ideas, adopt new technology and practices, and participate in a "world culture" 6. Technical- central aspect of globalization has been the development of a Global Information System, and greater trans border data flow, using such

technologies which increased the number of standards applied globally Negative Effects 1. Developed nations have outsourced manufacturing and white collar jobs. 2. Globalization has led to exploitation of labor. 3. Job insecurity. 4. Terrorists have access to sophisticated weapons enhancing their ability to inflict damage. 5. Companies have set up industries causing pollution in countries with poor regulation of pollution. 6. Fast food chains are spreading in the developing world. People are consuming more junk food from these joints which has an adverse impact on their health. 7. The benefits of globalization is not universal. The rich are getting richer and the poor are becoming poorer. 8. Bad aspects of foreign cultures are affecting the local cultures through TV and the Internet. 9. Enemy nations can spread propaganda through the Internet. 10. Deadly diseases like HIV/AIDS are being spread by travellers to the remotest corners of the globe. 11. Local industries are being taken over by foreign multinationals. 12. The increase in prices has reduced the government ability to sustain social welfare schemes in developed countries. 13. There is increase in human trafficking. 14. Multinatonal Companies and corporations which were previously restricted to commercial activities are increasingly influencing political decisions. Positive Effects 1. Globalization has created the concept of outsourcing. 2. Increased competition forces companies to lower prices. 3. Increased media coverage draws the attention of the world to human right violations. Drivers of Globalization 1. Individual and social needs and aspirations 2. Technological innovation 3. Reduced technological and economic barriers to trade Globalization Encompasses 1. Internationalization (trade & investment)

2. 3. 4. 5.

Liberalization (freeing markets) Universalization (cultural interchange) Westernization (Western cultural dominance) Deterritorialization (compression of time and space)

due to the necessity of the product they are importing. Arguments for the Imposition of Tariff Protection 1. Infant Industry Argument- this arguments asserts that a temporary imposition of tariff will cut down imports while local industries learn how to produce at lw enough costs to compete without the help of a tariff 2. Higher Standard of Living Argument- a tariff will promote high wages because local industries cannot provide competition with foreign competitors and pay high wages at the same time. 3. Increased Employment Argument- it is also contended that tariff creates employment opportunities for labor. 4. Self-sufficiency Argument- this argument is advocated to secure economic independence or national self-sufficiency. Foreign Exchange Foreign Exchange Market- organizational framework wherein individuals, businesses, and banks buy and sell foreign exchange. Foreign Exchange Rate- price of the Philippine peso versus other currencies. The exchange rate is made the same in all markets by arbitrage. Foreign Exchange Arbitrage- buying of a currency when its price is low and selling it when it is high Currency Depreciation- when the value of a currency declines because of market forces Currency devaluation- when the value of the currency declines due to legislation Floating Exchange Rate- if the government, particularly the Central Bank, does not intervene in the market to defend the currency against its depreciation.

International Economics- concerned with the effects upon economic activity of international differences in productive resources and consumer preferences and the institutions that affect them International tradeexchange of capital, goods, and services across international borders or territories Theory of International Trade 1. Mercantilism (Thomas Munn)- for a nation to be rich and powerful, it needs to export more and import less; the more gold a nation had, the richer and powerful it was 2. Theory of Absolute Advantages (Adam Smith)- in free trade, each nation could specialize in the production of those commodities in which it had an absolute advantage, and import those commodities in which it had absolute disadvantage 3. Theory of Comparative Advantages (David Ricardo)- even if a nation had a absolute disadvantage in the production of both commodities with respect to other nations, mutually advantageous trade could still take place 4. Heckscher- Ohlin (HO) Theory- each nation will export the commodity intensive in its relative abundance and cheap factor, and import the commodity intensive in its relatively scarcity and expensive factor Types of Trade Protection 1. Tariff- tax on import products. It raises the costs to foreign suppliers and reduces their revenues thereby reducing the import spending of the country. 2. Quota- fixed limit placed on the quantity of imports allowed into a country. 3. Government Regulations- forms of protection arising from health and safety standards and preservation of the environment 4. Exchange Controls- the Bangko Sentral ng Pilipinas restricts the sale dollars (and other forms of currency) to importers. Only those importers who have permits are allowed to obtain dollars

Two types of Flexible Exchange Rates Manage Float- the BSP will intervene in the market to smooth out short- run fluctuations in the foreign exchange market without affecting the long- run movement of the exchange rate.

Dirty Float- a country will artificially keep their currency low to induce their exports.

Fixed Exchange Rate System the CB allows the exchange rate to move within a range of values, and permits that rate to fluctuate in that range. Two Types of Fixed Exchange rate Adjustable Peg System the CB will setup a maximum and minimum value of currency. Crawling Peg System the pegged exchange rate is changed often according to discretion of the CB or some economic indicators.

Balance of Payment- summary of information about the countrys exports, imports, earnings by domestic residents on properties located abroad or outside the country, earnings on domestic assets owned by foreign residents, international capital movements between countries, and official transaction by Bangko Sentral ng Pilipinas and governments. The balance payment is listed in four sections: 1. The Current- Account Balance- summarizes the difference between total exports of goods and services and the total imports. Current account deficit- export of goods and services fall short of imports of goods and services plus net unilateral transfer. 2. The Capital Account- records all transaction pertaining to private foreign investments, grants and loans, such as capital movements. 3. Statistical Discrepancy- net sum of all unrecorded transactions. 4. Official Monetary Reserve or Cash Accountassets of Central Bank in the form of gold reserves, currency reserves and international paper gold or SDRs. Exports- sales of goods and services to people and firms of other countries Imports- purchases of goods and services from people and firms of other countries. Net Exports- the balance of international trade, equals export minus imports.