CHAPTER 4: ECONOMIC STRATEGIES/ POLICIES

Rogelio wanted to save only all his income in a bank. Will this contribute to the inflow of the economy? Explain.

Rogelio wanted to completely spend all his income from his work. Will this contribute to the circular flow of the economy? Explain.

When taxes are spend on government projects, will this help balance the circular flow of the economy? Explain.

Teach Rogelio to resolve his economic situation using this illustration.

Where is inflation and deflation in this illustration. Explain.

Too much outflows of money in our economy will result to deflation.Producers

compete more sharply on the fewer pesos in the hands of the consumers

Thus, a drop in the price level and a rise in the value of pesos.

Too much inflows of money into our economy usually results to inflation. Inflation: a decline in the value

of money, with an upward movement of the price level.

When the amount of money in circulation increases, people have more money to spend.

There will be an increase in demand.

Therefore, consumers compete for available goods.

They pay more pesos for the goods they want and consequently, an increase in price.

Inflation then can be described as too much pesos going after a small number of goods.

MONETARY POLICIES BARTER SYSTEM

Products or services are exchanged for other products or services.

Is practiced provided that the cost of production is: equal and the participants are willing to trade.

CURRENCY IN CIRCULATION

DEMAND DEPOSITS :balances in bank

accounts that depositors can demand

Three forms:Transaction in

DemandPrecautionary

DemandSpeculative

Demand

MONEY SUPPLY: CURRENCY IN CIRCULATION & DEMAND DEPOSITS

The BSP uses monetary policies to: regulate money through credit and banking system

in order to attain monetary stability conducive to economic development.

Bangko Sentral ng Pilipinas

when the economy is at intense pace: what happens to credit? it tightens credit When money has been easy

for too long such that investment, production and income are exceeding resource limits, tight credit may have to be applied.

When it is at a dragging pace (when money has been tightened to long): it loosens credit.

The rule observed by the BSP in relation to credit and money supply

the government influences the economy through its revenue and spending

TAXES: Inflows for the government

which is referred to as revenue

Bureau of Internal Revenue (BIR) is the agency responsible for tax collection

TARIFFS: Taxes charged on either

imported or exported goodsCollection of tariffs is

undertaken by Bureau of Customs

FISCAL POLICY

TIGHT FISCAL POLICYgovernment levies more taxes and tariffscorrect inflationless likely the consumer would spendgovernment also lowers its spending, which then

leads to improvement in its budget deficit.

LOOSE FISCAL POLICYLowers taxes and tariffsrecession in businessgovernment increases spending.Consumers are also encouraged to spend.

TIGHT & LOOSE FISCAL POLICY

to impose and collect revenues for the purpose of supporting the government and its recognized objects.

In a period of inflation, taxation becomes an effective tool that can be used to siphon off excess money in circulation.

An increase in tax rates = decrease in demand

Unnecessary spending = eliminated = pull prices down.

During deflationary periods, gov’t can:SubsidizeDeduct the increase of tax

TAXATION: A TOOL OF FISCAL POLICY

Imports of goods and services from abroad draw funds away from the circular flow.

there is an income, which is not spent back into the circular flow.

FOREIGN TRADE POLICY

2 ADVANTAGES & WHY2 DISADVANTAGES & WHY

INTERNATIONAL TRADING

As countries develop, specialization:in production of goods and

services happens.If countries have comparative

advantage over other nations in the production of certain goods and services, they engage in: trade with other countries.

Trading has become a helpful means for countries to acquire things they do not have enough of in exchange of things they have in excess.

INTERNATIONAL TRADING

High level of competitionA nation exposed to a higher level of competition is more

likely to develop and improve for survivalEradication of opportunity costWhen that specific country ventures into the production of

good considered to be in its field of expertise, it is likely to be efficient in producing such good.

Certain opportunity costs are eliminated in production since resources have been diverted from producing services and other goods to producing that particular good for trade.

Expanded marketSince opportunity cost is eradicated, it opens the gate for

opportunity to look for other sources of potential demand

ECONOMIC GAINS OF INTERNATIONAL TRADE

Brain drain Result of deploying highly skilled workers

abroad.Their host countries are the ones

benefitting from their technical expertise.Environmental degradation The volume of rain that the country

experienced in the last few years has caused serious landslides and flooding due to forest degradation, mining and quarrying.

PROBLEMS OF INTERNATIONAL TRADE

Tariffs and Subsidies Tariffs:are taxes imposed on imports which

are based on either the value of the product (ad valorem) or on the physical unit of measure.

Subsidies:The government has to dole out in

equivalent pesos in order to achieve a foreign exchange balance or strength.