Business Cycles, Unemployment, and Inflation

Business Cycle

 Alternative increases and decreases in economic activity over time

 Business Cycle will show you the current situation of one country base on it’s
business cycle.
 Phases of business cycle
- Peak = Businesses has reached a temporary maximum.
- Recession = For the first time since after 3 decades, after the martial law sa
panahon ni Duterte Philippines already declared recession since the covid19
pandemic happened.
Recession can be defined as a period of temporary economic decline during
which trade and industrial activity are reduced, generally identified by a fall in
GDP in two successive quarters:
"The country is in the depths of a recession" ·
Example: The prices of goods increased as well as many businesses temporarily
shut their business down which result to decrease in business opportunities.
Declined in employment
- Expansion – Real GDP, Income, and Employment rise.
= There is no price level stability.
- Trought – (Depression) Output and employment are at lowest.
= Means our GDP increases twice as much inflation
= A low number of people were employed.

Unemployment:

- The condition of not being able to find work, it covers those who are willing to
work but not able to find work.
- Formula: for unemployment Rate
= Number of unemployed over the number of people can find work.
Labor forces:

- All those employed and unemployed

- 18 and above until 59 years old.

Not in labor force:

- Minority people under 16

- Senior citizens 60 years old
- PWD that cannot work

Types of Unemployment:

Avoidable Unemployment

- Types of unemployment we can avoid

- Example: You are a fresh grad and you are seeking a job that pays high.
Kakahanap mo nagging unemployed ka.

Unavoidable Unemployment

- It is associated with insufficient demand for workers caused by many factors.

- Inevitable or unavoidable
 - Example: Covid19 forces business and other sectors to temporarily shut down
their business operations to avoid further bankruptcy or losses. And thus, part of
shutting down business is laying of employees.
- Another example if a business is liquidated means bankrupt.

Frictional Unemployment (one type of avoidable employment)

- Individuals searching for jobs or waiting to take jobs soon.

- Caused by the people itself
- For example: people from BPO they are jumpers meaning they jumper from BPO
to another. Because they are searching for a work that will give them more
benefit.
- Voluntarily resigning from their work for a greener pasture.

Structural Unemployment

- Occurs due to changes in the structure of the demand for labor.

- For example: NU since there is already an advent of artificial intelligence so they
have already acquired the services of SAP
- SAP is an accounting process or system wherein it minimizes the number of
people employed in accounting. (Lay off employees because of AI).
- This occurs due to a mismatch of skills in the labor market it can be caused by:
- Occupational immobilities. This refers to the difficulties in learning new skills
applicable to a new industry, and technological change, e.g. an unemployed
farmer may struggle to find work in high tech industries.
- Geographical immobilities. This refers to the difficulty in moving regions to get
a job, e.g. there may be jobs in London, but it could be difficult to find suitable
accommodation or schooling for their children.
- Technological change. If there is the development of labor saving technology in
some industries, then there will be a fall in demand for some types of labor which
have been replaced by machines.
 - Structural change in the economy. The decline of the coal mines due to a lack
of competitiveness meant that many coal miners were unemployed. However,
they found it difficult to get jobs in new industries such as computers.

Cyclical Unemployment

- Caused by the recession of phase of the business cycle.

- Because of what happened because of business cycle recession and depression
caused by unemployment.

-  It is a direct result of fall in demand from consumers leading at a slump in

demand for labor. 

- If cyclical unemployment is rising, it also means that the economy is showing

signs of slowdown which is not good.

Seasonal Unemployment

- For example: harvest time na ng manga so lahat ng tao sa probinsya sumasali

para mag karoon ng trabaho.

- Seasonal unemployment is when people who work in seasonal jobs become

unemployed when demand for labor decreases. This typically occurs when a
specific time of year ends or a new season begins, such as for a holiday or due to
weather changes. For example, someone who works at a resort during the
summer might experience unemployment once the fall arrives and summer
facilities have to close.
- Therefore, based on the season it causes employment
- Seasonal unemployment works by ensuring that the number of jobs available
corresponds to an organization's need for employees, depending on the time of
year. 
- Many seasonal positions take place during holidays, as themed attractions and
events open and need staff.
 - You can also find seasonal work that relates to a certain season of weather, such
as in agriculture or tourism.
- These jobs can involve duties like customer service, sales, performing and
manual labor.
- While many seasonal jobs offer part-time employment, you can also find seasonal
jobs with full-time hours. Here are a few examples of seasonal jobs:

Underemployment.

- A person is employed in a job that is not in line with their skills and education.
- People are being hired not alight with their educational attainment.

Reasons of unemployment: Unequal Burdens

Occupation
- Lack of education because of the difference between education gap and the
business gap.
- Kulang yung number of occupations sa kaylangan. In the Philippines we have
many occupations na ayaw ng mga Pilipino.
Age
- When you are 40 and above manhirap na mag hanap ng trabaho.
Race and ethnicity
- There are companies that doesn’t hire employees that are not from Bicol.
Gender
- There are people or transgender not actually hired because of their gender
preference.
Education
- Not all of the student graduated in High school or senior high can continue to
college.
Duration
- The duration in work
- Constractualization for example 6 months.
 Inflation:
- General rise in the price level
- Inflation reduces the purchasing power of money
- Consumer Price Index (CPI)
Price of the most recent Market Basket in the particular Year
CPI= X100
Price Estimate of the Market Basket in base year.

207.3 – 201.6
CPI= X100 = 2.8%
201.6

% Change in Index current year minus Previous Year

Inflation = X100
Index in Last year

Types of Inflation
Demand-Pull Inflation
- Excess spending relative to output
- Central bank issues too much money
- Mataas ang resyo ng bilihin kasi masyadong mataas ang diposable income ng
mga tao at marami silang pang bili.
- Because of high demand in case of disposable income of the people the prices
increased.
Cost-Push Inflation
- The cost of our price commodities increases because the cost of producing
goods is high or the cost of manufacturing increases.
- No choice other than to increase the price because the price of manufacturing or
producing increases.
- Due to a rise in per-unit input costs
- Supply Side Cost shocks
- Wage Spice Spiral: kapag tumataas yung sweldo mas maraming demand.
Therefore, the prices of goods increased kasi nadagdagan yung sweldo.
- Profit Push Inflation
 - The manufacturer where not able to absorb the increasing cost they have no
other choice but to increase the prices of the products in order for their profit not
to be greatly affected.
Nominal Income
- Dollars received as wages, rent, interest or profit.
- Nominal income is income that is not adjusted for changes in purchasing
power, the amount of goods or services that one can afford with the income,
owing to inflation. Adjusting nominal income for inflation is important because
inflation decreases the amount of goods or services that one can afford with a
given amount of nominal income.
Real income
- A measure of amount of goods and services nominal income can buy.
- Nominal income adjusted for inflation
- Real income is an economic measure that provides an estimation of an
individual’s actual purchasing power in the open market after accounting
for inflation. It subtracts an economic inflation rate per dollar from an
individual’s income, typically resulting in a lower value and decreased spending
power.

Percentage change Percentage change Percentage change

In real income In nominal income In price level
Anticipated vs. unanticipated inflation
Affected by inflation: anticipated
Fixed-income receivers
- Real income falls
Savers
- Value of accumulated savings deteriorates
Creditors
- Lenders get paid back in “cheaper dollars”
Unaffected by inflation: unanticipated
Flexible-income receivers
- Flexible-Income Receivers-People who have flexible incomes may escape inflation’s
harm or even benefit from it. For example, individuals who derive their incomes solely
from Social Security are largely unaffected by inflation because Social Security
payments are indexed to the CPI. Benefits automatically increase when the CPI
increases, preventing erosion of benefits from inflation. Some union workers also get
automatic cost-of-living adjustments (COLAs) An automatic increase in the
incomes (wages) of workers when inflation occurs; often included in collective
bargaining agreements between firms and unions. Cost-of-living adjustments are also
guaranteed by law for Social Security benefits and certain other government transfer
payments) in their pay when the CPI rises, although such increases rarely equal the full
percentage rise in inflation.
- Flexible income receivers are based on output
- COLAs
- Social Security recipients
- Union members
Debtors
- Pay back the loan with a “cheaper dollars”
- Unanticipated inflation benefits debtors (borrowers). Debtor borrows dollars but,
because of inflation, pays back the principal and interest with “cheap” dollars whose
purchasing power has been eroded by inflation. Real income is redistributed away from
the lender toward borrowers
Does Inflation Affect Output?
Cost-push inflation
- Reduces real output
- Redistribute a decreased level of real income.
- If the price increased the demand will decrease. Why? Because cost-push
inflation if the price of commodities increased it decreases the purchasing power.
- Definition: Cost push inflation is inflation caused by an increase in prices of
inputs like labor, raw material, etc.
- he increased price of the factors of production leads to a decreased supply of
these goods.

Demand-pull inflation
- One view is the zero inflation is best
- Another view is that mild inflation is best.
- The output will be affected why? Because sooner or later it will be
affected thus, demand will decrease.
- Is the increase in aggregate demand, categorized by the four sections of the
macroeconomy: households, business, governments, and foreign buyer.
- An increase in the costs of raw materials or labor can contribute to cost-pull.

Deflation
- Sudden decrease in inflation
- Deflation is the general decline in prices for goods and services occurring
when the inflation rate falls below 0%.
- Deflation is negative inflation. When it occurs, the value of currency

Hyperinflation
- Sudden increase in inflation.
- monetary inflation occurring at a very high rate.
- In economics, hyperinflation is used to describe situations where the prices of all
goods and services rise uncontrollably over a defined time period.
- hyperinflation is extremely rapid inflation.
- Generally, inflation is termed hyperinflation when the rate of inflation grows at
more than 50% a month.
Wages
- Wages refers to the payment or renumeration for the use of labor
services or the share of labor from the national income
Salaries vs. Wages
Salaries
- The income or compensation for higher forms of labor
- Desk jobs
- Involve critical thinking.
- Philippines is a diploma base country that is why MSE or medium,
small enterprise hire employees based on diploma.
Wages
- Represents the income or compensation for “manual workers”.
- Consist of skilled workers.
Real income
- Value of your salary or how much your salary can buy
- Refers to the total economic goods and services that can be purchased
with a given money income.
- Used in price index
Money income
- Personal income from rendering ng services less taxes (Disposable
income)
- Refers to the monetary units that one receives or earns over a given
period of time.
Philippine Financial System
Banking and financial Institution
- Helps the country drive the economy through lending the money
entrusted to them by customers who open a bank account and in
return banks give them sprint or interest of 5% per annum.
- Banks gain profits through interest and investments
- Regulated by the Bangko Sentral ng Pilipinas
Money
- A legal tender used to buy commodities to satisfy our needs and wants.
Money as a medium of exchange.
Durable
- means you can used it for a longer period of time
High Value relation to its weight (portable)
- The value of our money depends on the gold resource that we have.
It is scarce
- Meaning money is limited
- You can earn money through conduct of business, work, and search for
easy money.
Acceptable
- Is Philippine currency acceptable? Yes, because we have partner
countries for the acceptance of Philippine peso.
- Meaning if you travel you can exchange your money Philippine peso to
Dollar or their currency.
- 10,000 USD is the maximum money one can bring when travelling.
Commodity Money
-Para san yung pera? for our daily lives.
-For us to function daily and buy our daily needs
- - Acceptable because our money is our legal tender used to buy goods etc.
 Fiat or token money
-Is like a token use to function a machine in a sense ganun rin
yung pera but regulated by the government specifically by
bangko sentral ng Pilipinas.

Is a store of value
- In the monetary economy, money is considered a store of value, where
it can be used as a means of saving and allocating capital,
- Moneys property as a store of value facilitates a transfer of purchasing
power over time.
- However, the most common store of value is money. Money is
considered one of the best stores of value. It is incredibly liquid and
durable.
Acts as a unit of account.
- Acts as a unit of account of the Philippines.
- A unit of account is something that can be used to value goods and
services, record debts, and make calculation.

History of Banking in the Philippines

 - The first organized credit institutions were established in the Philippines
during the 16th century Spanish colonial era. There were the OBRAS PIAS.
OBRAS PIAS
- Means Pious works was a charitable foundation/institution in the Philippines
during the Spanish period.
- The word itself means work of piety in Spanish.
- The church directed a share of personal fortunes to it’s charities such as Obras
Pias. Donors had a specified that the funds are to be used for charitable,
religious and educational purposes. However, some of the funds were
managed by confraternities that invested capital in secular activities like
underwriting cargoes for the galleon trade.
- Trade provided most of the funds which were used for public benefits.
Galleon Trade
- In the past if you want to conduct a business outside the country mag gagalleon
trade ka which is like an insurance company wherein you will list your assets just
in case something happened to you sila yung custodian or care taker of your
money.
1869
- International Banks
- The opening of the Suez Canal facilitated trade between the Philippines and
Europe.
- The Philippines then attracted British capital, and in years that followed, the
Chartered Bank of India, Australia, and China (now known as the Standard
Chartered Bank) Hong Kong and Shanghai Banking Corporation (HSBC), both
British-owned banks, opened their branches in Manila.

Intramuroz in Binondo
- The first central business district in the Philippines.

1960’s
 - Naging masikip na sa Binondo so Ayala told their colleagues ne merong
property sa Makati gawin nating business district from 1950’s-1960’s.
SUEZ CANAL
- Passage way between Europe and Asia.
- Last year or last last year naging issue dahil may isang barko na na stack up
sa gitna ng SUEZ CANAL. Which created a delay of goods.

1854
- By the end of the Spanish regime, the banks in existence were: El Banco
Espanol Filipino de Isabel II (Now the Bank of the Philippine Islands or BPI).
Which was given by the sole mandate under a Spanish Royal Decree of 1854
to issue banknotes called Pesos Fuertes; the chartered Bank of India, a branch
of HSBC; the Monte de Piedad; and the Banco Peninsular Ultamarino de Madrid.
- Locally we had our very own bank on 1854 but it was actually created 1851.
1854 through BPI.
Pesos Fuertes (The strong Peso)

World War I
 - During the American colonial period, banks from the USA started to established
local branches that would cater to growing American economic interests and
capital inflows into the country.
- The American Bank was first to open a branch in 1901. However, it was
placed under receivership by the Insular Treasurer for making doubtful loans
after only 4 years of operations.
1916
- The Philippine National Bank (PNB) was established with the Philippine
Government as the majority stockholder. This is to break the foreign
banking monopoly and remedy the lack of credit facilities.
- This is the First Philippine Government Bank or First central bank.
- The PNB was meant to function as a government enterprise that would widen
the variety of banking services. “beyond trade finance in exportation and
importation, money exchanging of foreign currency, and transfers, all of which,
while useful in the short term, failed to mobilize capital in the development of
natural resources”
- It’s charter at that time empowered PNB to issue bank notes and act as a
depository of government funds.
BPI & PNB Notes
- Cheque and Bank Notes are negotiable instruments.
- Can be in-cash

20th Century
 - The Americans established the Guaranty Trust Corporation (GTC) and
International Banking Corporation (IBC).
- The existence of GTC was short-lived, while IBC was eventually taken over by the
National City Bank of New York (now known as Citibank).
1918
- The Manila branch of the Yokohama Specie Bank was given license to do
business in the Philippines.
1935 to 1946
- More foreign bank branches were established in the Philippines. These
include the Bank of Taiwan, and the Nederlandsche Indische Handelsbanks.
1939
- The government created the Agricultural and industrial bank to absorb the
Functions of the National Loan and Investment Board and to harness government
resources.
Philippine Bank of Communications
- Is the first bank with genuine Filipino private capital. However, it was
temporarily closed at the outbreak of WWII.
- Only Filipino-owned and Japanese banks were allowed to operate during
WWII; The Chartered Banks of India, Australia, and China, HSBC, and the
National City Bank of New York were all the treated as enemy properties and
placed under liquidation by the Japanese Military Government.
China Bank
- Was created in 1920 and is owned now by the Sy family specifically Han Sy.
Nampo kaihatsu Kinko (Southern Development Bank)
- Opened a Manila branch in 1942 and acted as the Japanese government’s
fiscal agent in the Philippines.
- After the liberation, all domestic banks that operated during the Japanese
occupation were unable to reopen because the greater part of their assets
consisted of worthless Japanese war notes, bonds, and obligations of the
Japanese-sponsored republic, and balance with Japanese banks.

Mickey Mouse Money

 - Pera ng Hapon
1947
- A branch of the Bank of America was allowed to establish a branch in Manila
and in the following year, it absorbed the assets and liabilities of the local branch
of the Nederlansche Indische Handelsbanks.

Andaming pumasok na banks sa Pilipinas. But was it regulated? No

1952
- The Rural Bank Act was enacted and two years later, the Agricultural and
Industrial Bank merged with the Reconstruction and Rehabilitation Fund to
form the Development Bank of the Philippines.
BANGKO SENTRAL NG PILIPINAS
- June 14, 1993 Pres Ramos RA7653 the NEW CENTRAL BANK ACT.
- Change in composition of Monetary Board: 2 from Govt; 5 full time members
from private sector.
- Primary objective (created to make sure): Price stability conductive to
economic growth and monetary stability and convertibility of the Ph peso.
- BSP is the governing body for Strengthening of regulation and supervision
framework for banks and quasi banks.
Functions of BSP
Liquidity Management
- To ensure that there is enough money in circulation.
- The BSP formulates and implements monetary and policy aimed at influencing
money supply consist with its primary objective to maintain price stability.
Currency issue. The BSP has the exclusive power to issue the national
currency. All notes and coins issued by the BSP are fully guaranteed by the
Government and are considered legal tender for all private and public debts.
Lender of last resort
- The BSP extends discounts, loans, and advances to banking institutions for
liquidity purposes.
- All of the banks in the Philippines are reporting in the Bangko Sentral ng
Pilipinas.
 Financial Supervision
- The BSP supervises banks and exercises regulatory powers over international
reserves to meet any forseeable net demands for foreign currencies in order to
preserve the international stability and convertibility of the Philippine peso.
- All banks are regulated by BSP and they have maintaining balance.
Management of foreign currency reserves
- The BSP seeks to maintain sufficient international reserves to meet any foseeable
net demands for foreign currencies in order to preserve the international
stability and convertibility of the Philippine peso.
Determination of exchange rate policy.
- The BSP determines the exchange rate policy of the Philippines. Currently, the BSP
adheres to market-oriented foreign exchange rate policy such that the role of
Bangko Sentral is principally to ensure orderly conditions in the market.
Other activities
- The BSP functions as the banker, financial advisor and office depository of the
Government, it’s political subdivisions and instrumentalities and government-
owned and controlled corporations.

Banks
 - An entity duly authorized by the monetary board of the central bank that
may engage in the lending of funds obtained from the public through the
receipts of deposits of any kind and all entities regularly conducting such
operations. But the most common in the Philippines in Universal and commercial
Banks.
5 C’s of Credit
- Character
- Collateral
- Capital
- Capacity to Pay
- Conditions

Classification of banks
- Universal and commercial banks represent the largest single group,
resource-wise of financial institutions in the country. They offer the widest
variety of banking services among financial institutions. In addition to the
function of an ordinary commercial bank, universal banks are also authorized
to engage in underwriting and other functions of investment houses, and to
invest in equities of non-allied undertakings.
- The thrift banking system is composed of savings and mortgage banks, private
development banks are engaged in accumulating savings of depositors and
investing them. They also provide short-term working capital and medium-
and long-term financing to businesses engaged in agriculture, services,
industry, and housing, and diversified financial and allied services, and to
their chosen markets, and constituencies, especially small- and medium-
enterprises and individuals.
Universal Banks
- Means it is one stop Banks that is they offer insurance, investments, safety
deposit box, save, loan, and etc.
Commercial Banks
- Lending banks for example rural bank which helps the agriculture sector of the
Philippines.

Thrift Bank
 - The thrift banking system is composed of savings and mortgage banks, private
development banks are engaged in accumulating savings of depositors and
investing them.
Rural and Cooperative Banks
- More popular type of banks in the rural communities. Their role is to promote and
expand the rural economy in an orderly and effective manner by providing the people
in the rural communities with basic financial services.
- Rural and cooperative banks helps farmers through the stage of production, from buying
seedlings to marketing of their produce.
- Rural Banks and cooperatives are different from each other by ownership.
- Rural Banks are privately owned and managed
- Cooperative Banks are organized/owned by cooperatives or federal of cooperatives.
- The BSP likewise releases selected statistics on non-banks with quasi-banking functions.
This group consist of institutions engaged in the borrowing of funds from 20 or more
lenders for the borrower’s own account through issuances, endorsement or assignment
with the resource or acceptance of deposit substitutes for purposes of lending or
purchasing receivables and other obligations.
FISCAL POLICY

 The government’s spending and taxation policy to influence the economy

MONETARY POLICY
  Primary concerned with the management of interest rates and total supply of money circulation
 Objective: to assist the economy in achieving a full employment, non-inflationary level of total output.

Two Types of Monetary Policy:

 Contractionary – to lessen the money in the circulation. They will increase the average daily/monthly balance
(deposit requirements) of the banks. (iniipit yung pera sa loob ng banko kaya nababawasan yung pera sa
circulation)
- Helps slow down the economy, or slow economic growth.
 Expansionary – lessen the minimum (deposit) requirements or daily/monthly balance.
- Helps speed up the economy or increase economic growth.

Two Faces of Monetary Policy

 Loose Money Policy (Expansionary)

- Subject to Inflation
- Borrowing is easy
- Consumers buy more
- Businesses expand
- More people are employed
- People spend more
 Tight Money Policy (Contractionary)
- Borrowing is difficult
- Consumers buy less
- Demand for inferior and substitute goods increases
- Businesses postpone expansion
- Unemployment increases
- Lesser GDP
- Production is reduced
- Subject to Recession

Monetary Policy Tools

 Policy Interest Rates – interest rates with the banks

 Reserve Requirement – every bank has a reserve requirement (minimum deposit requirements). (ex. Dollar and
gold reserves)
 Special Deposits Account Facility –Bangko Sentral will let you have deposit account with them.
 Open Market Operations – allowing other investors or monetary-related business such as pawnshops, money
changer, gcash, etc.

POVERTY AND INCOME INEQUALITY

Poverty

 A condition in which a person or a family does not have the means to satisfy basic needs for food, clothing,
shelter, and transportation.
 Poverty Threshold the minimum income / threshold required for a family / individual to meet the basic food and
non-food requirement.
 19.99 million Filipinos live below poverty line – earning less than P12,082 in a month.
 Rich – at least P190,000 to P241,000 (now) income per month.

Income Inequality
  A condition wherein the income to the members in the society is not fair.
 The rich getting richer; the poor getting poorer

Causes of Income Inequality:

- Ability (what is your skill set?)

- Education and Training
- Discrimination (gender, age, etc.)
- Preferences and Risks
- Unequal Distribution of Wealth
- Market Power
- Luck, Connections, and Misfortune

3 Branches of the Government:

 Legislative – make laws

 Executive – carries out laws
 Judiciary – evaluates laws

3 Powers of the State:

 Police Power – for public welfare and safety

 Power of Eminent Domain – the power to take private property for public use with just compensation.
 Power of Taxation – power to collect taxes (for revenue)

TAXATION

 The process or means by which the sovereign, through its law-making body, raises income to defray the
necessary expense of the government

TAXES

 Are the enforced proportional contributions generally payable in money, levied by law making body of the state
by virtue of its sovereignty upon the persons or property within its jurisdiction for the support of the
government and all public needs.

Characteristics of Taxes:

- It is an enforced contribution
- It is payable in the form of money
- It is laid by some rule of apportionment
- It is levied on persons, property, acts, privileges, or transactions
- It is levied by the state who has jurisdiction or control
- It is levied by the law-making body
- It is levied for public purpose

Nature of the Power of Taxation

 The power of taxation is inherent in sovereignty being essential to the existence of every government
 It is essentially a legislative function
 It is subject to constitutional and inherent limitations

Aspects of Taxation

 It is regarded as supreme, unlimited, and comprehensive

 Levying or imposition of the tax which is a legislative act
  Collection of tax levied which is essentially administrative in character
 Taxation system
 Collecting agency: Bureau of Internal Revenue (BIR)

Basic Principles of a Sound Tax System

 Fiscal Adequacy – defraying the expenses of the government or for the day-to-day operations of the government
 Equality or theoretical justice – the more you earn, the higher the tax to be paid
 Administrative Feasibility – to fund the government’s projects in order to help its citizens

Classification of Taxes

As subject to matter or object:

 Personal, poll, or capitation – tax of a fixed amount imposed on individuals residing within a specified territory.
Ex. Community tax (sedula)
 Property – real estate tax (amilyar)
 Excise – tax imposed upon the performance of an act or enjoyment of privilege. Ex. VAT, percentage taxes

As to who bears the burden:

 Direct – is a tax which is demanded from the person who is intended to pay it.
 Indirect – is a tax which is demanded from one person in the expectation and intention that he shall indemnify
himself in expense of another.

As to determination of amount:

 Specific – standard weight of measurement. (Specified amount of excise tax) Ex. Excise tax on cigarettes and
alcohol
 Ad Valorem – tax of a fixed proportion of the amount of value. Ex. Income tax, real estate tax
- Mag iiba yung tax depending on the income you are earning

As to purpose:

 General, fiscal or revenue – tax imposed for the general purposes of government
- Taxation is the revenue generation arm of the government
 Special or regulatory – tax imposed for special purpose. Ex. Tariffs on imported goods
- mas mataas dapat value ng imported (by adding tax) due to local in order to protect the local industries in
the Philippines

As to authority imposing tax:

 National government
 Municipal or Local – local government units (LGU)

As to graduation or rates:

 Proportional – tax based on a fixed percentage of the amount of property or income

 Progressive or graduated – the rate of tax increases as the tax base increases
- The higher the income is, the higher the tax
 Regressive – the rate of tax which decreases as the tax base increases
- If you are earning less, the higher tax you pay
- Motivation to find ways in order to earn more

INCOME TAX
  Tax on all yearly profits arising from the property, professions, trades or offices, or as a tax on person’s income,
emoluments, profits, and the like
- Active income
- Passive income – income you earn without exerting effort. Ex. Investments, rents, patents, copy rights,
royalties

Functions of Income Tax

- Revenue
- Regulations
- Promotion of general welfare
- Reduction of Social Inequality
- Encourage economic growth

Classification of Taxpayers:

 Individuals
 Estates and Trusts (Ex. Donor’s tax, etc.)
 Corporations

INDIVIDUAL TAXPAYERS

 Citizens of the Philippines

- Residents of the Philippines
- Non-residents of the Philippines
 Aliens
- Resident of the Philippines
- Non-resident of the Philippines
- Engaged in trade or business
- Not engaged in trade or business

CORPORATE TAXPAYERS

 Domestic Corporations
 Foreign Corporations (resident and non-resident)
 Special Classes of Corporations
- Non-profit and cooperatives

TAX EVASION

 The taxpayer uses illegal or fraudulent means to defeat or lessen the payment of tax

TAX AVOIDANCE

 The exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable
property or income

TAX EXEMPTION

 The grant of immunity to a particular persons or corporations.

TAXATION
- Taxation is one of the powers of the state;
- The state has three powers; Police power, eminent domain and power
of taxation.
- We have three branches of the government; Legislative which consist
of congress the upper(senate) and the lower house(congress). Judiciary
is concerned with law implementations. Executive is the president and
his cabinet members.
- The process or means by which the sovereign, through its lawmaking
body, raises income to defray the necessary expense of the government
- Taxes – are the enforced proportional contributions generally payable
in money, levied by law making body of the state by virtue of its
sovereignty upon the person (Individuals, businesses, and
corporations) or property (Real estate tax or amilliar paid yearly for
your property) within its jurisdiction for the support of the
government and all public needs.
- Who gave this burden? Income tax law were created in the congress by
the upper and lower house. Which is the law-making body of the state.
Characteristic of Taxes
- It is an enforced contribution (Whether the income is from legal or
illegal the moment you earn money you have to pay taxes)
- It is payable in the form of money
- It is laid by some rule of apportionment (The higher your income is,
the higher your taxes is.
- It is levied on persons, property, acts(Is you watch a movie in cinema
you pay amusement tax), privileges(Excise tax), or
transactions(Import and export duties).
- It is levied by the state who has jurisdiction or control
- It is levied by the law-making body
- It is levied for the public purposes
Nature of Taxation
The state has three powers;
Police power
The power of the state wherein they inforce- law in order to have
security and to promote law in order. Police are there to ensure our
safety and security.
Eminent domain
- The power of the state wherein they can get your properties such as real
estate properties and they will pay you with just compensation for the
betterment of the society. (Ex. The government will construct new highway and your
house will be affected the government will therefore pay
you with just compensation.)
Power of taxation.
- The power of taxation is inherent in sovereignty being essential to the
existence of every government.
- It is essentially a legislative function
- It is subject to constitutional and inherent limitations.
Aspect of Taxation
- It is regarded as supreme, unlimited, and comprehensive.
- Levying or imposition of the tax which is a legislative act.
- Collection of tax levied which is essentially administrative in character.
Basic Principles of a Sound Tax System
- Fiscal Adequacy
- Equality or theoretical system
- Administrative feasibility
Classification of Taxes
as to subject matter or subject:
- Personal, poll or capitation – tax of a fixed amount imposed on
individuals residing which a specified territory. (ex. Community tax)
- Property – real estate tax
- Excise – tax imposed upon the performance of an act or enjoyment of
privilege. (ex. VAT, percentage tax)
As to who bears the burden:
- Direct – tax which is demanded from the person who is intended to pay
it.
- Indirect – tax which is demanded from one person in the expectation
and intention that he shall indemnify himself in expense of another.
As determination of amount:
- Specific – standard weight of measurement. (ex. Excise tax on alcohol
and cigarettes)
- Ad Valorem – tax of a fixed proportion of the amount of value. (ex.
Income tax, real estate tax)
As to purpose:
- General, fiscal or revenue – tax imposed for the general purposes of
government.
- Special or regulatory – tax imposed for special purpose. (ex. Tariffs on
imported goods)
As to authority imposing tax:
- National
- Municipal or Local (LGU)
As to graduation or rate:
Proportional
- tax based on a fixed percentage of the amount of property or income.
Progressive or graduated
– the rate of tax increases as the tax base increases.
– The higher your income the higher your taxes.
Regressive
- the rate of tax which decreases as the tax base increases.
- If you’re earning less you are paying more tax
Income Tax
- tax on all yearly profits arising from the property, professions, trades, or
offices, or as a tax on person’s income, emoluments, profits, and the like.
Function of Income Tax
- Revenue (of government)
- Regulations
- Promotion of General Welfare
- Reduction of Social Inequality
- Encourage Economic Growth
CLASSIFICATION OF TAX PAYERS
ESTATE AND TRUST:
INDIVIDUALS
Citizens of the Philippines
- Residents of the Philippines
- Non-residents of the Philippines
Aliens (foreigners)
- Residents of the Philippines
- Non-residents of the Philippines
▪Engaged in trade or business
▪Not engaged in trade or business
- Includes businesses such as sole proprietorship and partnership.
ESTATES AND TRUSTS
- Pag namatay ka may taxes pa bago ma transfer or makuha nung
beneficiary.
- Another is the Donors Tax = Pag nag donate ka whether stranger or not
may 6% na donors tax. Estate Tax is 6%.
CORPORATIONS
- Domestic Corporations
- Foreign Corporations
▪ Resident and Non-resident
- Special Classes of Corporations
CORPORATE TAXPAYERS
Domestic corporations
Foreign corporations
▪ Resident (Palmolive, unilever, etc.) and non-resident.
Special classes of corporations = Not for profit and cooperative.
Tax Evasion
- The taxpayer uses illegal or fraudulent means to defeat or lessen the
payment of tax.
Tax Avoidance
– The exploitation by the taxpayer of legally permissible alternative tax
rates or methods of assessing taxable property or income.
– Example: Yung babayaran mong 1m ginawa mong 800,000 that is tax
avoidance and it I not illegal. Pinapayagan because you are just doing
remidise in order to pay alternative taxes.
– Excerting measures to lower your taxes
Tax Exemption
- The grant of immunity to particular persons or corporations
- There is a percentage of income that is exempted from tax.
- We are not going to pay taxes at a certain amount but it is not fully
100% exemption. But there is a percentage of their salary that is not
subject for tax
Income
All wealth which flows into the taxpayer other than as a mere return on
capital. Whether it s from legal or illegal source
Sources:
▪ Labor
▪ Use of capital in which term is included, for convenience, land
and
▪ Profit derived from the sale or exchange of capital.
Gross Income
Means all income derived during a taxable year by a taxpayer from whatever
source, whether legal or illegal, including (but not limited to) the following
items:
▪ Compensation for services, in whatever from paid, including but limited
to fee, salaries, wages, commission, and similar items;
▪ Gross income derived from the conduct of trade or business, or exercise
of a profession.
▪ Gains derived from dealing in property;
▪ Interest; rents; royalties; dividends; annuities;
▪ Prizes and winnings; pensions; and
▪ Partner’s distributive share from net income of a general professional
partnership.
Tax Reform for Acceleration and inclusion (TRAIN) briefing
- 10 January 2018
- President Rodrigo Roa Duterte signed into law Republic Act No.
10963, otherwise known as the Tax Reform for Acceleration and
Inclusion (TRAIN) Act, the first package of the Comp89p[rehensive
Tax Reform Program (CTRP, on December 19, 2017 in Malacanang.
Train Law
- Current Tax System
- This is created to promote changes in the society and the lives of the
society of the Pilipino.
- Moody’s is a company wherein they give ratings or credit standing
ratings (maganda yung credit standing sa pag papautang)
- 2-4% target inflation rate (Safe)
- Because of the train law tumaas ang presyo ng excise tax ng krudo
which is our source of electricity. Kasi wala pa naman tayong
sustainable energy, hindi pa tayo gumagamit ng green energy for
electricity.
- We are heavily dependend on coal.
- The Vision of TRAIN and NEDA is a second world Philippines by 2040. Which means
poverty wil
eredecated ther will be no people living in poverty line.
- - From 3,000 USD multiplied by 60pesos (convertion of USD to Phil peso) = 180,000 / 12
=
15,000 a month (Yan yung swelduhan ngayon). So yung kumikita a month ng 15,000*60 =
they
will be earning 60,000 thousan pesos in a month yan yung goal to be a second world by
2040.
- This were the items that were change
- Reform packages.
- Tax reform for acceleration and inclusion ACT’s legal term is RA No.
10963 or Republic Act No, 10963.
- Before ka pag 250,000 yung income mo mag babayad ka ng tax.
- Ngayon with the TRAIN Law if you are earning 250,000 and below you
are not subjected to tax payments.
TAX RATE 2022
- Because of the changes in tax law we are now competitive with our
ASEAN neighboring countries.
- If you are earning 20,833 and below you are not subjected to tax but if
you’re earning 20,833 and above you will then be subjected to tax 20%
and etc.
- Example: single person have 50,000 tax exemption.
- Pero ngayon ang ginawa ng Government kahit anong status mo lahat
90,000 na yung tax exemption wala ng idadagdag. So gusto ng congress
was 82,000 lang pero pinush ng senate for 90,000.
- So lahat 90,000 ang tax exemption.
- Ka pag professional ka or you have your own business you have an
option (TAX Avoidance)
- If the gross sales is less than or equal to 3M you have option
- Kahit residence, foreign, and domestic corporations kasama na sila sa
15%.
- CGT or Capital Gains Tax
- Example: Binenta yung bahay kasi nag hiwalay the revenue earned is
subjected to 15% TAX.
-
- 60% of 1%
- The Tax you have to pay when a person passed away. Whatever the
asset he or she left it is subject to Estate Tax first before it can be
transferred to the beneficiary.
- Example: Nag iwan sya ng property worth 8M it is exempted from
Estate tax kasi 10M na yung bagong Subjected to Estate Tax.
- Dati kaylangan pang icertify ng CPA yun and it should be greater than 2M
para sa Estate Tax. Ngayon tinaas sa 5M.
- Dati bibigyan ka lang ng 6 months para asikasuhin yung death ng decendents
pero ngayon tinaas sa 1 year.
- Dati meron pang threshold pero ngayon wala na. Whether it comes from
stranger, relatives, or your parents 6% nalang yung tax.
- Dati pag nag benta ka ng GOLD sa BSP may VAT pa. Pero ngayon wala na
kasi makakatulong ka sa economy for additional Gold resources.
- Dati if you bought a preoperty for example 1,919,500 it is subjected to
VAT.
- Pero ngayon hindi na yan yung VAT 2018, 2020 onwards.
- Ka pag nag benta ka ng property which is less than or equal to
3,199,200 it is subjected to VAT. Pero ngayon subject ka ng VAT pag 2M
and above.
- Mag babayd ka pa rin ng CGT or Capitals Gains Tax tsaka VAT.
- Socialized housing na lang yung kasama sa VAT ngayon Lumous housing
na lang.
- Ka pag nag papaupa kayo dati basta 12,800 a month yung paupa subject
ka na sa VAT.
- Ngayon pag yung paupa 15,000 and above ito na yung subject for VAT.
- Tax free exchange is the balik bayan box tinanggalan na nila ng VAT.
- Tayo pa rin yung mag pinaka mataas na VAT.
- Every year nadadagdagan ng 4%
- Excise tax is also effective to lessen the cigarettes smokers
- This is what hurts us the most. Para ma push daw tayo na mag rely more
on green energy.

- - Na limit yung consumption natin ng sugar. It is also a way of the

government to protect the health of it’s citicens.
- Pag nag generate tayo ng kuryente may excise tax na subject pa sa VAT.
-
- Pag nag pa notary it is subjected to tax espicifically Documentary Stamp
Tax.

-
Economic Development Midterm Exam

Prepared by TheOneThatGotAway :<

A social science that deals with Production, Distribution, Consumption of scarce or limited resources to satisfy unlimited
human wants and needs

Asnwer: Economics

A division of economics that refers to the processing of producing or creating goods needed by households to satisfy
their needs

Answer: Production

The movement along the curve of the supply means

Answer: Price increases

This is the income received by the households. Ex. Salary

Answer: Personal income

In measuring the total value of final good and service produced by the economy, net factor income from abroad is
deducted

Answer: False, it should be added

The amount of other products that must be foregone or sacrificed to produce a unit of a product

Answer: Opportunity cost

A term used in economics that refers to the bookkeeping system that a national government uses to measures the level
of economic activity in a given time period

Asnwer: National Income Accounting

There is a movement along the supply curve if there is a change in?

Answer: Price of the product

The desire to own anything, the ability and willingness to pay for it during a specific period

Answer: Demand

These are the finished goods man made goods which can produce other goods

Answer: Capital

There is scarcity or resources because

Answer: Man’s wants are unlimited

A branch of economics that deals with the behavior of the whole economy or its aggregates such as governments,
business and households

Answer: Macroeconomics

If the people’s income increased, their purchasing power increased, the demand for the product will

Answer: Shift to the right

Which among the statement is false

Choices

If price decreases, demand increases

Income has no effect on demand – Answer 

If income increases, demand for normal goods increases

If price increases, demand decreases

He published The Great Theory of Employment, Interest and money, a landmark work that gives birth to new approach
to economics

Answer: John Maynard Keynes

In computing disposable income of households, taxes from the conduct of business is deducted

Answer: True

If the people’s income decreased, the demand for the product will

Answer: Shifted to left

The Law of Demand and Supply states that

Answer: When supply is greater than demand, price decreases, when demand is greater than supply, price increases

The amount the firm receives for the sale of output

Answer: Revenue

ABC Company sold 12,000 units of ballpen with a selling price of P70 each. They incurred a P420,000 for fixed costs and
recorded at a P30 variable each ballpen. What is their break even point sales?

Answer: Php 735,000

Solution

It is the number of units that seller want to sell over a specified period of time

Answer: Supply

ABC Company sold 12 units of ballpen with a selling price of P70 each. They incurred a P420,000 for fixed costs and
recorded at a P30 variable each ballpen. What is their break even point in units?

Answer: 10,500 units

Solution:
It comes at that price and quality where the forces of supply and demand are in balance

Answer: Market Equilibrium

It is a measure of how much buyers and sellers respond changes in market conditions

Answer: Elasticity

To get the break even point in Volume, we divide the Total fixed costs to

Answer: Revenue minus variable cost per unit

The following are non price determinants of demand except

Answer: Number of Sellers

Using income approach in computing Gross Domestic Product, the following are included except

Answer: Investments

Any structure that allows buyers and sellers of a particular good or service to meet, interact and trade with one another

Answer: Market

The amount that the firms to buy inputs

Answer: Cost

The total market value of all final goods and services produced in a country in a given year with a country’s boundaries

Answer: Gross Domestic Product

Which among the statement is true:

Choices

As the price increases, supply remains constant

As the price increases, supply decreases Answer <3

Price has no relevance with supply

A factor of production, which refers to all natural resources used in production process, it is regarded as Gifts of Nature

Answer: Land
The break-even point serves as threshold for companies to determine whether they are at loss or gaining profit

Answer: True

It measures how the quantity demanded changes as the consumer income changes

Answer: Income Elasticity

He is the father of Economics, authored Wealth of Nations and Theory of Invisible Hand

Answer: Adam Smith

A factor of production refers to all human efforts, abilities and skills, be it mental or physical

Answer: Labor

Using the Expenditure Approach in computing GDP, the following included except

Answer: Interests

An economic systems practiced by our forefathers, decisions are based on customs and traditions also known as
sustenance economy, people produce goods and services for their consumption

Answer: Traditional System

This is a system which is a mixture of the different types of economy, Philippines employ this kind of economic system

Answer: Mixed Economic System

These are the transactions wherein one party is not obliged to deliver a good or service in return for the payment

Answer: Stock and Market Payments

ABC Company sold 120,000 units of ballpens with a selling price of P70 each. They incurred a P420,000 for fixed costs
and recorded a P30 variable each ballpen. How much is their profit?

Asnwer: Php 60,000

Solution:

It measures how much the quantity demanded responds to a change in price

Answer: Price Elasticity

A situation where quantity supplied is greater than quantity demanded

Answer: Surplus

Laissez faire is a French word that means

Answer: Let do / Let alone

Microeconomics deals with the following except

Answer: Price of rice in your wet market

Demand curve is a graphical presentation that shows different quantities for sale at clients at various prices at a specific
period

Answer: True