FINANCIAL

MANAGEMENT

SAMUEL BARBO, JR.

 Applications of
Macroeconomics Theory as
a Basis for Understanding
the Key Variables
Affecting the Business
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
Is the study of national economy and the
determination of national income.
It involves the major sectors of national
economy, that is household, business firms,
government and foreign sectors
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
A straightforward model of the flow of resources
and money movement across the sectors of the
national economy is a major tool for the analysis
of the economy’s performance.
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
A straightforward model of the flow of resources
and money movement across the sectors of the
national economy is a major tool for the analysis
of the economy’s performance.
 INTODUCTION TO
MACROECONOMICS
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
Sectors of National Economy
1. Households
2. Business firms
3. Government
4. Foreign sector
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
1. Households
Households provide their labor, land, capital, and
other human skills to the resource market and in
return, they get money income (rent, wage, interest,
profit, etc) from the resource market.
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
2. Business Firms
Businesses incur costs to collect resources from the factor
market (resource markets). So resource markets get money
from the businesses and in return resource market supply
required resources to the business. These resources are used
to produce goods and services to deliver to the economy.
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
2. Business Firms

On the other hand, a business sells its goods and

services to the product market, in return businesses
generate revenue from the product market.
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
1. Households
Households provide their labor, land, capital, and
other human skills to the resource market and in
return, they get money income (rent, wage, interest,
profit, etc) from the resource market.
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
3. Government
 Government sector stay middle in the circular flow of goods
and service process, here government collect net taxes
(sells and income) from both business and households. As a
responsible government provides required goods and
services to the business and households.
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
3. Government
The government also collects resources from the
resource market and goods and services from the product
markets for this government have to incur expenditures
that are got by the resource market participants.
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
4. Foreign Sector
This application for an open economy where export and import
of goods and services are involved. Through export, product
markets will supply products and services for profit, and for the
import of goods and services for the product market we have to
incur expenditures. With export foreign expenditures are
involved and with import domestic expenditures are involved.
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
4. Foreign Sector

These all participants exchange their required resources

with each other to ensure proper utilization of resources
and a fluent flow of goods and services.
 INTODUCTION TO
MACROECONOMICS
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
 A business uses inputs from its suppliers to produce outputs
to sell to its buyers.
 The output of a business are the goods and services it sells
to customers.
 The inputs are the goods and services the business uses to
produce the out put.
 INTODUCTION TO
MACROECONOMICS
MACROECONOMICS
In return, it receives revenue from the buyers, and it pays
its suppliers. Any money that remains is profit.
Profit is the difference between revenues and costs.
For better or worse, the main objective of any business in
a market economy is profit maximization.
 INTODUCTION TO
MACROECONOMICS
SIGNIFICANCE OF MACROECONOMICS
Macroeconomics looks at the economy as a whole.
It focuses on measures of economic output, employment,
inflation and trade surplus or deficits.
Also it examines the spending of the three major segments
of the economy, consumers, business and the government.
 INTODUCTION TO
MACROECONOMICS
SIGNIFICANCE OF MACROECONOMICS
National Growth Domestic Product (GDP)
The price of all goods and services produced by a
domestic economy for a year at current market prices.
 INTODUCTION TO
MACROECONOMICS
SIGNIFICANCE OF MACROECONOMICS
Real Growth Domestic Product (GDP)
The price of all goods and services produced by the
economy at price level adjusted (constant) prices.
Price level adjustment eliminates the effect of inflation
on the measure.
 INTODUCTION TO
MACROECONOMICS
SIGNIFICANCE OF MACROECONOMICS
 Potential Growth Domestic Product (GDP)
 The maximum amount of production that could take place
in an economy without putting pressure on the general
level of prices.
 The difference between potential GDP and real GDP is
called GDP gap.
 INTODUCTION TO
MACROECONOMICS
SIGNIFICANCE OF MACROECONOMICS
Potential Growth Domestic Product (GDP)
GDP gap when it is positive, it indicates that there are
unemployed resources in the economy and we would
expect unemployment.
 INTODUCTION TO
MACROECONOMICS
SIGNIFICANCE OF MACROECONOMICS
Potential Growth Domestic Product (GDP)
GDP gap, alternatively, when it is negative, it indicates
that the economy is running above normal capacity and
prices should begin to rise.
 INTODUCTION TO
MACROECONOMICS
SIGNIFICANCE OF MACROECONOMICS
 Net Domestic Product (NDP)
 GDP minus depreciation.

 Gross National Product (GNP)

 The price of all goods and service produced by labor and
property supplied by nation’s residents.
 INTODUCTION TO
MACROECONOMICS
 INTODUCTION TO
MACROECONOMICS
CALCULATION OF GDP
Two way to Compute the GDP
1. The Income (output) approach
2. The Expenditure (input) approach
 INTODUCTION TO
MACROECONOMICS
CALCULATION OF GDP
1. The Income (output) approach
Adds up all the incomes earned in the production of
final goods and services such as wages, interests,
rents, dividends, and so forth.
INTODUCTION TO MACROECONOMICS
The Income Side of the GDP
Compensation to employees xxx
Corporate profits xxx
Net interest xxx
Proprietor's income xxx
Rental incom of persons xxx
National Income xxx
Add : Indirect Taxes xxx
Less: Others, statutory discrepancy (xxx)
Net National Product xxx
Add : Consumption of fixes capital xxx
Gross National Product xxx
Add : Payment of factor income - foreign xxx
Less: Receipt of labor income - foreign (xxx)
 INTODUCTION TO
MACROECONOMICS
CALCULATION OF GDP
2. The Expense (input) approach
Adds up all expenditures to purchase the final goods
and services by households, businesses, and the
government. Specifically, it includes personal
consumption expenditures, gross private investment
in capital goods and also the country’s net exports.
INTODUCTION TO MACROECONOMICS
The Product Side of GDP
Personal Consumption expenditures xxx
Gross privat domestic fixed investment
Business xxx
Households/Residentials xxx
Government Purchase
National xxx
Local xxx
Net Exports (xxx)
Change in business invetories (xxx)
Gross Doemstic Product (GDP) xxx
THANK YOU AND
GOD BLESS.