Global

Economy
CON T E MPORARY WOR LD
R E N ATO A L L E N A . CA SA S
JR .
Economics
Economics is derived from two
Greek words – oikos (οἶκος) and
nomos (νέμω) which literally
means home management.

Economics revolves around the

management of limited and finite
resources over a group people in
need.
Economics
Economics is generally divided into two categories: macroeconomics
and microeconomics

Microeconomics revolves around the study of individuals and the firms

in the decision of allocating finite resources between these two actors

Macroeconomics revolves around the discussions of large-scale or

general economic factors within a country or internationally
Macroeconomics
GDP – Gross Domestic Product
refers to all the monetary value of
finished goods and services
rendered within a country. It is
used to estimate size of economy
and growth rate.
GNP – Gross National Product
refers to the total domestic and
foreign outputs produced by all
the residents of the country.
Purchasing Power
Purchasing power is the value of a currency expressed
in terms of the amount of goods or services that one
unit of money can buy. Purchasing power is important
because, all else being equal, inflation decreases the
amount of goods or services you would be able to
purchase.

Central banks try to keep prices stable through

maintaining the purchasing power of the currency by
setting interest rates and other mechanisms.
Inflation
Measure of how the
average level of price
of goods and services
in an economy rises
over a period of time.
Inflation marks a
decrease in the
purchasing power of a
nation’s currency.
Causes of
Inflation
Unemployment
Happens when a person actively
looking for work cannot find a
work.
Serves as a measure of a healthy
economy. More unemployed
workers mean less total economic
production will take place than
might have otherwise.
 A low unemployment rate means that the economy
is more likely to be producing near its full capacity,
maximizing output, and driving wage growth and
rising living standards over time.

An extremely low unemployment can also be a

cautionary sign of an overheating economy,
Unemployment inflationary pressures, and tight conditions for
businesses in need of additional workers.

Economy with high unemployment has lower output

without a proportional decline in the need for basic
consumption. High, persistent unemployment can
signal serious distress in an economy and even lead
to social and political upheaval.
Pertains to the total of employed and
unemployed people in a country

Affected by the mandated working

age in a country (PH = 18) Labor Force

Excludes people outside the

mandated working age and those in
prison or in hospitals
Government Spending
Money spent by the public sector on the acquisition
of goods and provision of services such as education,
healthcare, social protection, and defense.
Funds for government spending is taken from two
sources:
1. Taxes
2. Debts
Public spending enables governments to produce
goods and services or purchase goods and services
that are needed to fulfill the government’s economic
objectives.
Taxes
Refers to when a taxing authority, usually a government,
levies or imposes tax. Taxes are usually justified as the fund
for government expenditure. Later on, taxes gained
utilitarian, economic and moral justifications.

Taxation is different from extortion because the imposing

institution is the government.
Types of Tax
◦1. Income tax
◦2. Corporate tax
◦3. Capital gains
◦4. Property tax
◦5. Inheritance tax
◦6. Sales tax
Deficit Spending
Deficit spending happens when a
government's expenditures are
higher than the revenues it
collects during a fiscal period and
thus causes or worsens a
government debt balance. Usually,
government deficits are financed
by the sale of public securities,
especially government bonds.
Deficit spending
On the short term, deficit
spending could be used to counter
recession and unemployment.
However, many economists are
reprehensive of the long term
effect of deficit spending as too
much debt could cripple the
economy.
 A loan is a debt—essentially a promise,
often contractual, and a credit rating
determines the likelihood that the
borrower will be able and willing to pay
back a loan within the confines of the
loan agreement, without defaulting. A
Credit Rating high credit rating indicates a high
possibility of paying back the loan in its
entirety without any issues; a poor credit
rating suggests that the borrower has had
trouble paying back loans in the past and
might follow the same pattern in the
future.
Government
Policy
Divided into two parts:
Fiscal policy –
manipulation of the level
of spending and tax rates

Monetary Policy –
managing the size and
growth rate of money in a
country
Global Economy
Protectionism vs Free Trade
Protectionism believes that there
should be a priority on domestic
trade. In lieu of this, protectionists
place specific restrictions on
international trade for the benefit of
a domestic economy. This is done
through tariffs, import quotas,
product standards, and subsidies.
Free trade, in contrast, believes on
removing these restrictions to speed
up trade, promote comparative
advantage, increase world output,
increase competition and lower
prices, and higher quality products.
Tariffs and Trade Barrier
Tariffs are form of trade barriers that can
come in several forms. In general, a tariff is
a tax paid to the customs authority of the
receiving country. The taxes owed on
imports are shouldered by domestic
consumers and not on the foreign country
exporter. The point is to make the
imported product more expensive than
domestic ones.
Trade Barriers
Trade barriers are imposed to
serve the following functions:
◦ Protecting domestic
employment
◦ Protecting consumers
◦ Infant industries
◦ National Security
◦ Retaliation
Trade War
A trade war happens when one country raises tariffs on another
country's imports in response to increased tariffs from the first
country.
Trade wars are a side effect of protectionist policies.
Trade wars are controversial.
Advocates say trade wars protect national interests and provide
advantages to domestic businesses.
Critics of trade wars claim they ultimately hurt local companies,
consumers, and the economy.
World Trade Organization
WTO aims to promote free and fair trade. It was
established in 1995 when it replaces the
General Agreement on Tariffs and Trade (GATT).
It is situated in Geneva, Switzerland and has
about 164 member countries. (China was last to
join in 2016)

WTO promotes free and fair trade through

multilateral talks and negotiations, as well as, to
arbitrate between countries that are in dispute.
IMF and World Bank
The IMF oversees the world's monetary
system's stability, while the World Bank aims
to reduce poverty by offering assistance to
middle-income and low-income countries.
To maintain its mission, the IMF monitors
economic activity, offers members
policymaking tools and analysis, and also
provides loans to member countries.
The World Bank accomplishes its goals
through technical and financial support
available to countries.