Professional Documents
Culture Documents
Macro 1
Macro 1
Price stability
Economic growth
External balance
Measures of Economic Performance
Farmer/Producer --- 17 17
Trader 17 18 1
Grain Miller 18 25 7
Wholesaler 25 27 2
Retailer 27 32 5
Total 119 32
Ways to compute GNP
INCOME /ALLOCATIONS APPROACH
- earnings derived from the different sectors and owners of
the factors of production are added
Income charges:
COE-Compensation of Employees (Wages and salaries)
R-Rents
I-Interest
Profits
Pr I-Proprietors’ Income (income from sole
proprietorship, partnerships and cooperatives)
CP-Corporate Profits (Dividends, Corporate Income
Taxes, Undistributed Corporate Profits)
Ways to compute GNP
Non-income charges:
GNP = C + G + Ig + Xn
Ways to compute GNP
Ig = CCA
C
Stock of Capital
Stock of Capital
G
Jan 1 Year’s GNP Dec 31
The Three Kinds of Economy
Declining Economy
- when Gross Private Domestic Investment is less
than depreciation
CCA
Ig
C
Stock of Capital
Stock of Capital
G
Jan 1 Year’s GNP Dec 31
Other Social Accounts
GROSS NATIONAL PRODUCT
Less: Capital consumption allowance
Equals: NET NATIONAL PRODUCT
Less: Indirect business taxes
Equals: NATIONAL INCOME
Less: Social Security Contributions Incomes earned but not received
Undistributed Corporate Profits
Corporate Income Taxes
Plus: Transfer payments Income received but not earned
Equals: PERSONAL INCOME
Less: Personal taxes
Equals: DISPOSABLE INCOME
Less: Personal Consumption Expenditure
Equals: PERSONAL SAVINGS
Consumption, Saving &
Investment
Personal Income and Consumption
Personal income - the sum of compensation
for employees, incomes of unincorporated
enterprises, dividends received from corporations
and net earnings and rents of persons, and all net
current transfers.
Disposable income - income that persons can
freely use either for consumption/expenditure or
for saving.
Flow of Disposable Income
Consumption Income-
*Food
Consumption
*Clothing
*Education - Investment
*Medical Care Chain
Disposable
Income
Bank
Deposits
Income
Saving Earning
Activity
Cash
Hoarding
Adjusting the GNP for Price Changes
2 7 20 140
3 8 25 200
4 10 30 300
5 11 28 308
Adjusting the GNP for Price
Changes
Year Quantity Price GNP
(1) (2) (3) (2) x (3)
1 100 P15 P1,500
2 100 30 P3,000
3 100 45 P4,500
4 100 60 P6,000
5 100 75 P7,500
Year Nominal GNP Price Real GNP
Index
1 1,500 50 1500/50 x 100 = 3000
2 3,000 100 3000/100 x 100 = 3000
3 4,500 150 4500/150 x 100 = 3000
4 6,000 200 6000/200 x 100 = 3000
5 7,500 250 7500/250 x 100 = 3000
COMPARING GNPs
ea k
Level of P
Growth
Business a k
ery
Pe Trend
Activity Re
v
a k
o
e ce
Recovery
P
c
ss
e
io
R
n
Re
c
ess
gh
io n
o u
Tr
ug h
Tro
Time
Phases of the Business Cycle
Frictional Unemployment
Cyclical Unemployment
Structural Unemployment
Measurement of Unemployment
Three Groups of Population
Minor
Labor Force
Unemployment Rate
Unemployed X 100
Labor Force
Inflation & Deflation
Causes of Inflation
Demand Pull Inflation
Cost Push
Wage Push
Profit Push
Commodity
Structural Inflation
Redistributive effects of inflation
1. Fixed money income groups
Inflation redistributes real income away from fixed
income receivers
2. Among Savers
As prices rise, the real value or purchasing power
of consumers decline, so that saving deteriorate.
3. Debtors and Creditors
Inflation tends to benefit borrowers (debtors)
but tends to penalize the creditors (lenders)
Determination of National Income
45° line
Consumption
Consumption = Consumption
Disposable Income
Consumption at
0 income
Disposable Income
Saving
The Savings Schedule
Saving=0
+ Saving
- Saving
Disposable Income
The Consumption Schedule
45° line
Consumption
Consumption, Saving
Saving
Disposable Income
Simple Income Determination
C = a + bY
where:
C= level of consumption
a = level of consumption when income (Y) is
zero
b = marginal propensity to consume (MPC)
b = change in the level of consumption/ change in
the level of income
= slope of the consumption function
1 > b >0
Y = level of income
If there is no Tax: Y = Yd
Y = Personal Income
Yd = Personal Disposable Income
Then: Y = C +S
Where : Y = Personal Income (Personal Disposable Income)
C = Personal Consumption
S = Personal Savings
C+I
C
C= a +bY
S= -a + (1-b) Y
I
Y
Y Y
Y* Y*
Simple Income Determination
( Consumption, Savings & Income Determination)
If a = 100 Y = a + bY
b = 0.75 Y = 100 + 0.75Y
Y = 400
S = -a + 1-b)Y
= -100 + (1-.075)Y
= -100 + 0.25Y
= -100 – 0.25(400) = 0
Given a two sector model: Y = C + I
Where : C = 100 + 0.75Y
I = 150