Macroeconomics

deals with the performance, structure, behavior , and decision-making of the economy as a whole.

Macroeconomics

4 sections of Macroeconomics

1. Economy’s Total Output or GNP Sector

2. Money3. Problems on Unemployment and

Inflation4. Public Finance

is the total final output produced with labor or capital owned by a country’s citizen, regardless of where the output is produced.

Gross National Product (GNP)

the output produced with labor and capital located within a country.

Gross Domestic Product

Unemployment and

Inflation

joblessness occurs when people do not have their jobs

Unemployment

Major types of

Unemployment

results from the continuous movement of individuals from one job to another.

1. Frictional Unemployment

happens when the aggregate demand for labor is low.

2. Cyclical Unemployment

results from the seasonal pattern of work in specific industries.

3. Seasonal Unemployment

caused by a mismatch between the available jobs and the unemployed.

4. Structural Unemployment

results from the displacement of workers by machines.

5. Technological Unemployment

a rise in the general level of prices of goods and services over a period of time in a certain place.

Inflation

• Banks raise nominal interest rates to reflect anticipated inflation.

• Workers are protected through the cost of living allowances which are automatic wage increases to offset price increases.

Protection against Inflation

Savings and

Investment

is the amount purchased per unit time of goods which are not consumed but are to be used for future production.

Investments

may be considered as any activity that uses resources in such a way that they allow for greater production in the future and hence, greater consumption.

Two Components of Investment

Fixed Investment

Inventory Investment

it is used to make other goods and services.

Examples: * Machines*Equipments

Fixed Investment

A corporation’s stock of goods, such as raw materials, that are used to produce final products.

A company’s goods that have been produced and are waiting to be sold.

Inventory Investment

the excess income over current disposable income or the amount of income that is not spent or consumed.

Savings

MONEY

is any object or record that is generally accepted as payment for goods and services and repayment of debts.

Money

Kinds of Money

uses metals such as gold, silver, nickel, copper and aluminum.

this can be further classified according to its metal content or intrinsic value.

1. Metallic Money

the intrinsic value or metallic content of this money is equal to its face value.

a. Standard Money or Full-Bodied Money

the intrinsic value of this money is less than its face value.

b. Token or Credit Money

is the most preferred and widely circulated currency for it is more convenient and easier to store than metallic money.

2. Paper Money

is circulated for transaction-related purposes and is issued by the Central Bank or the government.

The paper money in circulation is composed of the following:

a. Treasury certificates or representative money

b. Fiduciary or Bank Notes

Examples of Bank notes

Characteristics of Money

it must be durable enough to stand continuous use.

must not wear out easily.

1. Durability

must have uniform quality and must be the same in all respects.

2. Homogeneity

it must be easily converted into coins.

3. Malleability

it must be easily divided into smaller denominations without lessening its value.

4. Divisibility

must have a stable value.

5. Stability

it must be easily recognized by anybody.

6. Cognizability

It must be light and easy to carry or store.

7. Portability

Its supply must be flexible enough to meet the demand of the people and their businesses.

8. Elasticity of Supply

It must be easily transferred from one person to another.

can be used by anyone who possesses it.

9. Transferability

1. Medium of Exchange2. Standard of Value3. Store of Value4. Standard of Deferred Payment or Basis for Credit5. Guarantee of Solvency

Functions of Money

refers to the amount of currency and demand deposits in circulation.

Money Supply

Is composed of papers and coins.

Currency

referred to as “small change” in the money supply.

Coins

1. Transaction motive arises from people’s desire for more money to carry for future exchange of goods and services.

Demand for money

2. Precautionary motive money balances are

held because of uncertainty or worsening economic expectations.

3. Speculative Motive money is held when

people think that the price level will increase in the future.

The International Monetary Fund

is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Governing Bodies: Board of Governors, Interim Committee, Executive Board

Managing Director: Christine Lagarde from France on July 2011

Surveillance The IMF's regular

monitoring of economies and associated provision of policy advice is intended to identify weaknesses that are causing or could lead to financial or economic instability.

Areas of Activity

includes credits and loans extended by the IMF to member countries with balance of payment problems to support policies of adjustment and reform.

Financial Assistance

The IMF shares its expertise with member countries by providing technical assistance and training in a wide range of areas, such as central banking, monetary and exchange rate policy, tax policy and administration, and official statistics.

Technical Assistance

World Bank

is a vital source of financial and technical assistance to developing countries around the world.

comparable to a global cooperative, which is owned by member countries.

World Bank

A partner in strengthening economies and expanding markets to improve the quality of life of people everywhere.

is to help developing countries and their people reach the goals by working with our partners to alleviate poverty.

The World Bank’s role

The International Bank for Reconstruction and Development (IBRD) --187

 The International Development Association (IDA) --171

The International Finance Corporation (IFC) --183

Total Member Countries in each institution  

The Multilateral Investment Guarantee Agency (MIGA) --175

The International Centre for Settlement of Investment Disputes (ICSID)--147

Central Bank of the Philippines

The Central Bank of the Philippines was established through RA 265 on January 3, 1949.

1. To maintain monetary stability in the Philippines.

2. To preserve the international value of peso and its convertibility into other freely convertible currencies.

3. To foster monetary and credit exchange conditions conducive to a balanced economic growth.

Objectives:

Bangko Sentral ng Pilipinas

created through RA 7653 also known as the New Central Bank Act.

replaced the Central Bank of the Philippines.

Bangko Sentral ng Pilipinas

1. To maintain price stability conducive to a balanced and sustainable economic growth

2. To promote and preserve monetary stability and the convertibility of the national currency.

Objectives

1. Provides policy directions with regard to money, banking, and credit.

2. Supervises operations of banks and exercises regulatory powers over non-bank financial institutions with quasi-banking functions.

The Role of BSP

1. Liquidity Management

formulation and implementation of monetary policy aimed at influencing money supply consistent with its primary objective.

Functions:

BSP has the exclusive power to issue national currency.

2. Currency issue

Extends discounts, loans and advances to banking institutions for liquidity purposes.

3. Lender of last resort

Supervision of other banks.

Financial Supervision

BSP seeks to maintain sufficient international reserves to meet any foreseeable net demands for foreign currencies.

5. Management of Foreign Currency Reserves

The BSP determines the exchange rate policy of the Philippines.

6. Determination of Exchange Rate policy

BSP also Functions as a banker, financial advisor and official depository of the government, its political subdivisions and instrumentalities and government owned and controlled corporations.

7. Other Activities