LET Review

Social Science Majorship

Focus: Economics
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Part I: Content Update
ECONOMICS
 A social Science dealing with how societies and individuals allocate scarce resources
to satisfy their unlimited needs and wants
 A social science dealing with how societies and individuals make their choices

Tools of Economics
 Factual Tools – It includes statistics (Data and Methods), economic history, and study of
relationships of institutions (Organization, Customs, Pattern of Behavior)
 Theoretical Tools
o Economic Concepts – Words or phrase that convey a specific meaning in
economics
o Economic models – Simplified representation of the real world like words,
Mathematical equations and graphs.

Basic Economic Questions

 What to produce – The economic system must decide what goods and services to
produce with its land labor and capital
 How to produce - The economic system must decide how to produce each good or
service – determining what mix of land, labor, and capital to use in production
methods to employ
 For whom to produce – The economic system must decide which members of
society will receive how much of the goods and services produced – the process of
allocating income.

Divisions of Economics
 Microeconomics - The branch of economics that examines the functioning of
individual industries and the behavior of individual decision-making units, that is,
business forms and households.
 Macroeconomics - The branch of economics that examines the economic behavior
of aggregates – income, employment, output, and so on – in a national scale.

Economic Measures of Development

 Gross National Product (GNP) – is the total market value of all final goods and
services produced by citizens in one year.
 Gross Domestic Product (GDP) - The sum of the money values of all final goods
and services produced in the domestic economy along a specified period of time,
usually one year.
 Stock Exchange - A measure of the performance of an economy based from the
portfolio investment, that is, indirect form of investment.
 Foreign Exchange Rates - State the value of one currency in terms of another and
this reference the patterns of world trade in important ways.

Economic Systems
a. Capitalist System – an economy in which people and firms pursue their own self-
interest without any central direction or regulations. This is also known as laissez-faire
economy, free enterprise, price mechanism, or free market economy.
b. Command Economy – an economy in which a central authority or agency draws up a
plan that establishes what will be produced and when, and makes rules for distribution.
c. Mixed Economy – it is a regulated market economy. In reality, all economies are, to
some extent, mixed. It is just a matter of degree of intervention.

ECONOMIC ISSUES AND CONCERNS

1. Poverty and Income Distribution

 Poverty line – an amount of income below which a family is considered
“poor”
 Income Poverty – based from the United Nations, are those individuals living
on an income of $1 a day or less than $1/day.
 Human Development Index – measure of human development looking at
the following indexes: longevity, income and educational attainment
 Human Poverty Index – a measure of poverty looking at the income of
individuals

2. Globalization - The movement of money, goods, information and people across

nations made possible by the rapid advances in travel and communication.
 Globalization of Goods – through importation and exportation
 Globalization of Money – through official development assistance (ODA),
investments, grants, donations, etc.
 Globalization of Information – via internet, cable TV, education, etc.
 Globalization of People – through travel, scholarships, fellowships, job, etc.

3. Development
a. Sustainable Development

Development that meets the needs of the present generation without

compromising the ability of the future generations to meet that own needs.
United Nations declared 2005-2014 as the Decade on Education for Sustainable
Development. It pursues the following global vision:

The vision of education for sustainable development is a world where everyone

has the opportunity to benefit from quality education and learn the values,
behavior and lifestyles required for a sustainable future and for positive
societal transformation.

Dimensions of Sustainable Development

 Economic Dimension
 Social Dimension
 Institutional Dimension
 Environmental Dimension
 Cultural and Spiritual Dimension

b. The 8 Millennium Development Goals

1. Eradicate extreme poverty and hunger

 Reduce by half the production of people living on less than a dollar a
day
 Reduce by half the proportion of people who suffer from hunger

2. Achieve universal primary education

 Ensure that all boys and girls complete a full course of primary
schooling

3. Promote gender equality

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  Eliminate gender disparity in primary and secondary education
preferably by 2005, and at all levels by 2015

4. Reduce child mortality

 Reduce by two thirds the mortality rate among children under five

5. Improve women’s reproductive health

 Reduce by three quarters the maternal mortality ratio

6. Combat HIV/AIDS, Malaria and other diseases

 Halt and begin to reverse the spread of HIV/AIDS
 Halt and begin to reverse the incidence of malaria and other major
diseases

7. Ensure environmental sustainability

 Integrate the principles of sustainable development into country
policies and programmes; reverse loss of environmental resources
 Reduce by half the proportion of people without sustainable access to
safe drinking water
 Achieve significant improvement in lives of at least 100 million slum-
dwellers by 2020

8. Develop a global partnership for development

 Develop further an open trading and financial system, that is rule-
based, predictable and non-discriminatory. Includes a commitment to
good governance, development and poverty reduction – nationally and
internationally
 Address the least developed countries’ special needs. This includes
tariff-and quota-free access for their exports; enhanced debt relief for
heavily indebted poor countries; cancellation of official bilateral debt;
and more generous official development assistance for countries
committed to poverty reduction
 Address the special needs of landlocked and small island developing
States

c. Philippine Initiatives on Sustainable Development

1. Philippine Agenda 21 in 1996
2. Philippine Council for Sustainable Development in 1997
3. Major legislations on Sustainable Development
3.1 Clean Air Act of 1999
3.2 Ecological Solid Waste Management Act of 2001

TAXATION

 It is an inherent power of the state to impose and collect revenues to defray the
necessary expenses of the government.
 It is compulsory contribution imposed by a public authority irrespective of the
amount of services rendered to the payer in return.
 It is compulsory level on private individuals and organization by the government to
raise revenue to finance expenditure on public goods and services.
Purpose of Taxation

 To collect revenue for the government

 To redistribute income
 To combat inflation

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  To correct an adverse balance of payment
 To check consumption of goods which are considered undesirable
 To protect local infant industries
 To influence population trend
 To improve unfavorable terms of trade
 To reallocate resources to create a sense of identity

Sources and Origin of Taxation

 The Constitution
 Statutes or Presidential Degrees
 Bureau of Internal Revenue regulations
 Judicial Decision
 Provincial, Municipal and Barrio Ordinances
 Observance of International Agreement
 Administrative Ruling and Opinions

Classification of Tax System

 Progressive Income Tax – the Higher the income the higher the tax rate.
 Proportional Tax – The tax rate is constant and unaffected by the level of income.
 Regressive Tax – The higher the income the lower the tax rate.

Classification of Taxes

 As to the subject matter – Personal Property, Capitation and Poll Tax; Property Tax;
Excise Tax
 As to who bears the burden – Direct Tax and Indirect Tax
 As to determination of the amount – Specific and Ad valorem
 As to purpose – General and Specific
 As to Scope – National and Local

Types of Taxes

 Direct Taxes
 The burden cannot be shifted to the third party
 Direct taxes are based on income and wealth
 In most cases, direct taxes are progressive in nature
 Direct taxes are compulsory in nature
 Examples: income tax, residence tax, real state, immigration tax,
estate/gift/inheritance tax.

 Indirect Taxes
 The tax burden can be shifted to the third party
 Indirect taxes are based on expenditure and consumption
 All indirect taxes are regressive in nature
 Indirect taxes are optional in the sense that they can be avoided
 Examples: sales tax, import tax, VAT/EVAT

Characteristics of a Sound Tax System

 Efficiency – must generated revenue greater than the amount of money the
government must spend to collect taxes.
 Equity – individual and groups belonging to the same income bracket must be taxed
equally while belonging to different income groups must be taxed differently.
 Convenience – to set up measures and procedures that will make it more
convenient for taxpayers to pay.

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  Stability – tax system must not be too often or it will encourage tax payers to
withhold tax payment until a more preferred system is put in place

AGRARIAN REFORM

Republic Act No. 6657 – The Comprehensive Agrarian Reform Law of 1988 which was
signed into law by Pres. Corazon Aquino

Meaning - The redistribution of lands, regardless of crops or fruits produced to farmers

and regular farm workers who are landless, irrespective of tenurial arrangement to include
the totality of factors and support services designed to lift their economic status of the
beneficiaries and all other arrangements alternative to physical redistribution of lands,
such as production, profit sharing, labor administration and the distribution of shares of
stocks, which will allow beneficiaries to receive a just share of the fruits of the land they
work.

Principles of Agrarian Reform

The policy of the state to pursue a comprehensive Agrarian Reform Program (CARP) to:
 To promote social justice
 To move the nation toward sound rural development and industrialization
 To establish owner-cultivatorship of economic sized farms as basis of Philippine
agriculture.

Coverage of CARP
 All alienable and disposable lands of the public domain devoted to or suitable for
agriculture
 All lands of the public domain in excess of the specific limits as determined by the
Congress
 All other lands owned by the governments devoted to or suitable for agriculture
 All public lands devoted to or suitable for agriculture regardless of the agricultural
products raised or can be raised.

Retention Limits
 Five hectares for land owners
 Three hectares to be awarded to each child of the landowner subject to the following
qualification:
o At least 15 years old
o Actually tilling the soil or directly managing the farm

Beneficiaries
 Agricultural lessees and share tenants
 Regular farm workers
 Seasonal farm workers
 Other farm workers
 Actual tillers or occupants of public lands
 Collectives or cooperatives
 Other directly working on the land
Salient Features of CARP
 CARP covers all agricultural lands and not only devoted to rice and corn
 CARP covers not only those privately owned tenanted lands but also that of
agricultural land owned by Multinational Corporations and commercial farms.
 Lower retention limits of three hectares
 Rights of indigenous communities, to their ancestral lands are protected to ensure
their economic, social and cultural well being

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  In determining just compensation, the cost of acquisition of the land, the current
value of like properties, its nature, actual use and income, the sworn valuation of the
owner, the tax declarations and the assessment made by the government assessors
shall be considered.
 Lands awarded to beneficiaries shall be paid to the Land Bank of the Philippines in
30 annual amortization at six percent interest per annum.

COOPERATIVES

New Cooperative Laws – Cooperative Code of the Philippines (RA 6938), Cooperative
Development Authority (RA 6939) and Executive Order 95 and 96 issued by President Fidel
Valdes Ramos.

Definition - A cooperative is:

 A free association of persons voluntarily joined together
 With common bond of interest
 Legally constituted
 Purpose of conducting an economic enterprise
 Owned, controlled and administered democratically
 Making equitable contributions to the capital required
 Accepting a fair share of the risks and benefits
 Organized in accordance with generally accepted principles

Universal Principles of Cooperativism

 Open and Voluntary Membership - No artificial discrimination against individuals

because of their race, creed or political affiliation, freedom of entry and exit of any
member of the cooperative
 Democratic Control – In order for members to gain entry to the cooperatives, they
must purchase shares of the cooperative, obtain the right to govern the organization,
voting rights of the owner are on the basis of one person, one vote.
 Limited Interest on Capital – Capital in a cooperative is like a loan because the
owners of the capital can expect to received a rate of return not exceeding that of the
prevailing market interest rates on investing.
 Division on Net Surplus – Net surplus should be distributed as follows:
Item % allocation
General Reserve Fund At least 10%
Education/Training Fund At Least 10%
Optional Fund At Least 10%
Dividend/Patronage Refund Remaining Balance of Savings

 General Reserve Funds – cover losses in operation

 Education/Training Funds – for members and Management trainings
 Optional Funds – discretion of cooperatives for purposes of acquiring
land construction of a building or community development
 Dividends/Patronage Refunds – the volume of transaction that
members have with the cooperative

 Continuing Membership
 Pre-membership education seminar as required for entry to the cooperative
 Special trainings for the cooperative leadership and members

 Cooperation Among Cooperative – interlending and pooling of funds

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Typologies of Cooperative

1. According to Level of Cooperatives

 Primary – members of which are natural

 Secondary – members of which are primaries
 Tertiary – members of which are secondary upward to one or more apex
organization

2. According to Services Rendered

 Credits – is one, which promotes thrift among its members, and creates funds in
order to grant loans for productive and provident purposes.
 Consumer – is one wherein the primary purpose is to procure and distribute
commodities to members and non-members.
 Producers – is one which undertakes joint production whether agricultural or
industrial;
 Marketing Cooperative – is one which engages in the supply of production inputs to
members and in turn market their products.
 Service – is one engages in medical and dental care, hospitalization, transportation,
insurance, housing, labor, electricity, communications and other services.
 Multipurpose – is one which combines two or more activities o these different types
of cooperatives

3. According to Scope of Membership

 Institutional – Members are employees of a specific institution or corporation

 Associational – Members are those who have their own enterprise and belong to
specific sector or organization.
 Community-Level – Members are based on a defined geographical area.

PART II. ANALYZING TEST ITEMS

1. It is the branch of economics which analyzes issues and processes on development,

international trade, globalization and national income.
a. Microeconomics c. sustainable development
b. Macroeconomics d. Production

Answer: B

The statement is asking for mastery of a concept in economics particularly a branch

of economics. Option A is one of the branches of Economics however, it focuses on
individual behavior of a firm and/or individual persons. Option C is a relatively new
concept but certainly not a branch of economics. Option D is likewise an economic
concept that focuses on the process of producing goods and/or services. Option B is
a branch of economics referring to the description stated in the statement, hence, it
is the correct answer.
2. Which of the following may be considered as measures of the Philippine Economic
Performance?
a. Gross Domestic Product c. Foreign Exchange Rates
b. Philippine Stock Exchange d. All of the above

Answer: D

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 The question is asking for a concept implying a form of measurement of the
economic performance in the country. Options A, B, C are all measures of economic
performances. Option A refers to the total aggregate value of the goods and services
produced by the economy in a given year. Option B is a measure of local and foreign
investments in the country. Option C is a measure of the value of the local currency.
Therefore, the answer is option D, all of the above.

3. It is an economic system characterized by free enterprise and private ownership of

the means of production.
a. Command Economy c. Socialist Economy
b. Mixed Economy d. Market Economy

Answer: D

It can be inferred that the question is asking for a comprehension of the various
economic systems. Option A is an economic system that is characterized by state
control and/or government ownership of the means of production. Option B on the
other hand is a combination of the various elements of different economic systems.
Option C is just another name for command economy. Option D is the right answer.

4. In 1997, some countries in Asia were hit by the so-called Asian Financial Crisis. The
Philippine Peso fell from US$1:P25 to US$1:P47 by the end of 1998. As of March
2005, it was US$1:P54. This is a manifestation of an economic concept called
.
a. fiscal crisis c. exchange rate
b. deflation d. economic crisis

Answer: C

The statements are clearly pointing to one important concept in economics, that is,
exchange rate. Hence, the correct answer is option C. Option A, B and D are
economic phenomena which focus on some other economic realities.

5. Based from the United Nations Development Program (UNDP) Report 2004, how
many people around the world are living on an income of US$1/day or less than
US$1/day?
a. approximately 2 Billion c. 3 Billion
b. approximately 1.3 Billion d. 2.5 Billion

Answer B
The question is factual which requires mastery of recent information relevant to a
particular topic. Option A, C and D are beyond any existing study or survey on
people’s income around the world. Option B has always been an important and
recognized data showing the number of world population living in income poverty.

MULTIPLE CHOICE. Choose the best answer. Write the letter only on another sheet of
paper.

6. The following are basic economic questions except

a. What to produce c. For whom to produce
b. How to produce d. Why do we produce

7. The sum of the money values of all final goods are services produced in the domestic
economy along a specified period of time, usually one year is

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 a. Gross Domestic Product c. Foreign Exchange Rates
b. Philippine Stock Exchange d. All of the above

8. It is an economic system characterized by free enterprise and private ownership of

the means of production.
a. Command Economy c. Socialist Economy
b. Mixed Economy d. Market Economy

9. The following are concerns of microeconomics EXCEPT

a. Supply c. Elasticity
b. Demand d. Gross National Product

10. It is an inherent power of the state to impose and collect revenues to defray the
necessary expenses of the government
a. Police Power c Power of eminent domain
b. Taxation d. None of the above

11. It is the restructuring or setting a new global economic order

a. privatization c. deregulation
b. globalization d. liberalization

12. It is concerned with issues and problems concerning the overall economy of a nation
or the world economy
a. Microeconomics c. Macroeconomics
b. Economics d. Political Economy

13. It is concerned with issues and problems facing the individual or the firm or specific
goods and services
a. Macroeconomics c. Economics
b. Microeconomics d. Political Economy

14. Scarcity exists because

a. Humans have unlimited requirements for survival
b. Human wants are enormous relative to the means available to satisfy them
c. Technology limits the level of production
d. Floods, fires and other natural disasters destroy available resources

15. Opportunity cost are

a. the nominal dollar cost of goods and services
b. the value of the next best alternative when a choice is made
c. the price people would be willing to pay for goods and services
d. the price you must pay (i.e. for gas) in order to get to the stire and have the
opportunity to purchase things.

16. As used in economics, scarcity refers to

a. The absolute amount of available physical resources
b. The absolute amount of both goods and services
c. The absolute amount of both goods and resources available relative to
desired consumption and production uses
d. The economic situation in developing countries such Ethiopia

17. The distribution of economic resources among existing alternatives.

a. Production c. allocation
b. Consumption d. conservation

18. The direct exchange of goods and services without the use of a medium.

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 a. banking c. barter
b. loans d. bank expansion

19. Which of the following is a productive resource of an economy?

a. a serving machine c. an unskilled 10-year old
b. an acre of rocky land d. all of the above

20. A kind of freedom wherein an individual is free to seek any opportunity of

employment for living.
a. political freedom c. academic freedom
b. cultural freedom d. economic freedom

21. A radical change in the methods of production from hand tools to state-of-the-art
machinery.
a. Industrial Revolution c. feudalism
b. agricultural development d. cultural development

22. Which of the following strategy can the government implement to attain total land
reform?
a. confiscation of private lands
b. distribution of lands in the public domains
c. financial assistance to the farmers
d. all of the above

23. A market economy in which decisions about production and employment are
decentralized and individuals own factories, farms, and machines is called
a. socialism c. communism
b. capitalism d. central planning

24. An economic system in which all the people of the country collectively own the
capital is called
a. socialism c. communism
b. capitalism d. a market economy

25. what does the assumption “ceteris paribus” mean?

A. all other variables are kept constant except the one being measured
B. some variables are not included in the study
C. we assume a perfectly competitive market
D. all variables are kept constant

PART III. ENHANCING TEST TAKING SKILLS

1. An economic system in which the government owns the capital and decisions
regarding the economy are made as part of a central plan is called
a. socialism c. communism
b. capitalism d. a market economy

2. Which of the following is the central theme in economics?

a. causation c. scarcity
b. abundance d. ceteris paribus

3. According to the law of demand, when the price of a good increase,

a. people will choose to purchase less of that good and more of other goods
b. people will provide more of that good
c. people will choose to purchase more of that good and less of other goods
d. people will provide less of that good

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4. Macroeconomics focuses on
a. the whole national economy
b. the behavior of individual firms
c. the behavior of the households
d. markets

5. Which of the following is most likely to be studied by a microeconomist?

a. inflation of the general price level
b. unemployment in the economy
c. employment of labor in furniture production
d. the growth rate of aggregate output

6. Because resources are limited, individual consumers face

a. opportunity cost c. production possibilities
b. budget constraints d. economic interactions

7. The type of cooperative which promotes thrift among members and create funds in
order to grant loans for productive and provident purpose is called;
a Credit cooperative c. Service cooperative
b Producers cooperative d. Consumer cooperative

8. Which of the following are not beneficiaries of the CARP?

a. Agricultural lessees and share tenants
b. Seasonal farm workers
c. Non-regular farm worker
d. Cooperatives

9. The retention limit to be awarded to each child of the land owner is

a. three hectares c. five hectares
b. four hectares d. six hectares

10. This is a form of taxation that is collected from a taxpayer based only on his/her
income or wealth.
a. Indirect taxes c. Direct tax
b. Sacrifice tax d. Value added tax

11. The policy of the state to pursue a Comprehensive Agrarian Reform Program is
clearly stated in its policy to:
a. Promote human rights
b. Establish owner-cultivator ship of economic size farms
c. Move the nation toward sound urban development and industrialization
d. Preserve the environment

12. One of the major functions of taxes is to finance real government expenditures this
can be simply stated as:
a. To raise revenues
b. To secure economic price stability
c. To promote economic development
d. To address housing problems

13. Which of the following are complementary goods?

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 A. coffee and tea C. pencil and ballpen
B. cellphone and simcard D. jeepneys and buses

14. What is a market?

a. a place where people buy and sell
b. a group of buyers and sellers of a particular good or service
c. a mechanism by which exchanges takes place
d. both B and C

15. Which is not a function of money?

a. unit of account c. medium of exchange
b. store of value d. tool against inflation

16. The term is used to describe duties payable on goods, whether imported or exported
a. subsidy c. tariff
b. revenue d. assessment

17. What government agency is tasked to manage the monetary policy of the country?
a. Department of Finance c. DBM
b. NEDA d. BSP

18. What is the like reason why the Philippine GNP is always bigger than that of GDP?
a. foreigners are producing more in the Philippines than OFWs are producing
b. OFWs are producing more abroad than foreigners are producing in the Philippines
c. salaries of workers abroad are bigger than in the Philippines
d. the government is not doing enough to achieve growth in the economy

19. When price rises at an extraordinary high rate, it is called

a. inflation c. hyperinflation
b. deflation d. disinflation

20. Which of the ff. factors would cause an increase (or shift to the right) in supply?
a. improved technology c. increased price of subsidies
b. lower labor productivity d. increase demand

21. In sustainable development the concept of 1 generation is equivalent to how many

years?
a. 20 years c. 30 years
b. 25 years d. 15 years

22. Globalization was formally used to popularize the neoliberal thought which
flourished during the Reagan – Thatcher administration in the United States and
Great Britain. It has 3 elements such as:
a equity, liberalization, stability
b deregulation, privatization, efficiency
c liberalization, privatization, efficiency
d liberalization, privatization, modernization

23. It is the sale of government owned and controlled institution to private sector
a. deregulation c. privatization
b. liberalization d. globalization

24. Which of the following is considered to be positive effects of globalization?

a. access to information c. piracy and smuggling
b. money laundering d. brain drain

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25. What is the relatively dominant type of economic system in the Philippines?
a. market economy c. mixed economy
b. command economy d. traditional economy

26. A kind of tax on the right of the deceased person to transmit his estate to his lawful
heirs or beneficiaries.
a. estate tax c. privilege tax
b. inheritance tax d. transfer tax

27. What is the relationship between price and quantity supplied?

a. proportional c. parallel
b. negative d. positive

28. What does the maxim, “there is no such thing as free lunch.” mean?
a. you have to pay every time you have lunch
b. all goods and services have a price
c. nobody can have a free lunch anywhere
d. every action and decision has a price that we need to pay

29. A new tax on imported milk was imposed by the government which resulted in the
decrease of the supply of milk products. What factor of supply is described in this
situation?
a. cost of production
b. expectation of future prices
c. seasonality
d. price of related products

30. What will happened if the government spends more than it earns from revenue
generating activities?
a. there is budget cut c. there is budget surplus
b. there is budget deficit d. none of the above

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