National income measures the total value of goods and services produced in an economy over a period of time. It is important for economists to measure national income to assess economic growth, changes in living standards, and income inequality. National income can be measured using the expenditure approach, income approach, and value-added approach. The expenditure approach defines GDP as the total final expenditures by consumers, investors, the government, and net exports. The income approach defines GDP as the sum of all incomes received by producing factors. The value-added approach defines GDP as the sum of the value added from all sectors of the economy.

1. By-
Lic. Agri. Angelo H. Espinosa, MPA

2. What is National Income?
• National income measures the total value
of goods and services produced within the
economy over a period of time.

3. Why is national income important?
• Measuring the level and rate of growth of national
income is important to economists when they are
considering:
– Economic growth and where a country is in the business
cycle
– Changes to average living standards of the population
– Looking at the distribution of national income (i.e.
measuring income and wealth inequalities)

4. • Personal Income (PI)
Personal Income i s the total money
income received by individuals and
households of a country from all possible
sources before direct taxes.
• Per Capita Income (PCI)
Per Capita Income of a country is
derived by dividing the national income
of the country by the total population of a
country.

5. National Income:
Concept and Measurement
• Production of goods and service generates income and income give
rise to demand for goods and service, demand give rise to
expenditure, and expenditure give further rise to production of
goods and service. there is a circular flow of production, income and
expenditure.
• On the basis of these flows, national income can be analysed at
1. as a flow of goods and services
2. as a flow of incomes
3. as a flow of expenditure on goods and services.

6. Figure: Measuring National Product and National Income

7. A. Assumption
The economy is composed of households,
which own the factors of production and
consume the goods and services, and of firms,
which employ the factors of production and
produce the goods and services

8. B. Upper loop
The transfer of goods and services from
firms to households

9. C. Lower loop
The transfer of factor services from
households to firms

10. D. Accounting for government and
the rest of the world
i. Government purchases goods and services
ii. Government pays for factors of production
iii. Transfer payments such as donations, unemployment
benefits, etc.
iv. Households and firms pay government taxes
v. Transactions with the foreign sector such as exports (sales of
domestically produced goods to other countries; reflected as
payment from the rest of the world to the firms) and
imports (goods bought from other countries; reflected as
payment by the purchasing domestic agent to the rest of the
world)

11. Indicators of Aggregate Output
• Gross domestic product (GDP) is defined as
"an aggregate measure of production equal to
the sum of the gross values added of all
resident institutional units engaged in
production
• Gross national product (GNP) is the market
value of all the productsand services
produced in one year by labor and property
supplied by the citizens of a country.

12. Product Method
Final product approach
• The final product approach involves estimation of
the market value of final goods and services
produced in the economy in a given period.
• GDP= GNP – (NFIRW)
Net Factor Income from the Rest of the World (NFIRW)
- The difference between the earnings of Filipinos from
activities overseas and the earnings of foreigners in the
Philippines

13. Steps in Final Product Approach:
(i) The market value of all final goods and service produced within the
country gives the estimate of Gross Domestic Product at Market
Price (GDP at MP)
(ii)The addition of net factor income from abroad in GDP at
MP gives Gross National Product at Market Price
(GNP at MP).
(iii)The deduction of depreciation from Gross National
Product at market price (GNP at MP) MP provides
Net National Product at market Price (NNP at MP).
(iv) The deduction of net indirect taxes from NNP at MP give
Net National Product at Factor Cost (NNP at FC)

14. Problem of Double Counting
The calculation of national income through final product approach
considers the market value of final goods and services.
The value of intermediate goods is not included. If the value of
intermediate goods are considered, it will involve the problem of double
counting.
• Double counting means, consideration of certain item more than
once which leads to over estimation of national income.

15. • The production, or value added, approach consists
of calculating an industry or sector's output and
subtracting its intermediate consumption (the goods and
services used to produce the output) to derive its value
added.
A. Value- Added Approach

16. • GDP= sum of value added of all productive activities
• Value Added= Sales – Purchases from other firms
A. Value- Added Approach

17. • It is the sum of all income derived from providing the factors of
production.
• It includes wages and salaries, rent, interest and profits within a
country in a given year.
B. Income Method

18. 1. Obtain Net Domestic Product at Factor cost (NDP at FC) by summing
up factors payment paid in form of wages & salary, rent, interest
and profit by all production units of all sectors in the country.
2. Add Net factor income from abroad in Net Domestic Product at
Factor Cost to obtain Net National Product at Factor Cost (NNP at
FC) or national income.
Steps in Income Method:
• GDP= sum of payments for the different factors of
production= wages + rent + interest + profits

19. Expenditure method measures national income as aggregate of all
the final expenditure on gross domestic product in an economy
during a year.
This is the sum of expenditure made for final consumer goods and
investment demand, and for net export.
Therefore, the sum of total income (Y) equals to the sum of final
expenditure incurred on consumption goods (C) and the sum of
investment goods (I). Symbolically, Y = C + I.
C. Expenditure Method

20. 1. GDP at MP = Gross National Expenditure at Market Price (GNE at
MP) which the sum of Final private consumption expenditure (C),
Government final consumption expenditure (G), Gross domestic
private investment (I) which includes gross fixed capital formation
plus changes in stocks, and Net export or export minus import (X- M)
2.An addition of net factor income from abroad (NFIA) to
GDP at MP provides Gross National Product at market price
(GNP at MP).
Steps in Expenditure Method:

21. Factors to be taken care:
1. Expenditure on second hand goods should be excluded It is because
such expenditure on the goods is not considered to be expenditure on
currently produced goods.
2. Expenditure on the purchase of new or old shares and bonds should
be excluded because they are not payments for goods and services.
3. Government expenditure in the form of transfer payments should be
excluded because these payments do not make any contribution to
the flow of goods and services.
4. Expenditure on intermediate goods and services should be excluded,
otherwise this will lead to the problem of double counting.

22. Equivalence
• Expenditure Approach – a transaction is an
expenditure on one side while an income
from another side.
• Income and Value Added Approaches – Value
Added= Sales – Purchases form other firms =
wages + rent + interest + profits

23. What is National Income Accounts?
• Adjustments to GDP are introduced to
account for the realities of modern
economies

24. What is Expenditure Approach?
• The expenditure approach is a method
used to measure the GDP of a country by
taking into account the final value of goods
and services.

25. What is Expenditure Approach?
The Formula for Expenditure GDP is:
GDP=C+I+G+(X−M)
where:
C=Consumer spending on goods and services
I=Investor spending on business capital goods
G=Government spending on public goods and
services
X=exports
M=imports​

26. Expenditure Approach
Personal consumption expenditure (C)
refers to the spending by individuals on
final goods and services, including those
produced in other countries.

27. Expenditure Approach
Gross private domestic investment (Ig)
Investment involves the purchase of new
capital goods (also known as a fixed investment) and
the expansion of a company's inventory (also known
as inventory investment).

28. Expenditure Approach
Categories that fall under this component include:
> Final purchases of machinery, equipment, and
tools
> Construction
> Research and development (R&D)
> Inventory changes.
Investing also involves buying foreign-made
items that fall under any of the above-mentioned
categories.

29. Expenditure Approach
For example:
Pfizer spending billions of money on R&D to
develop the COVID-19 vaccine is considered by the
expenditure approach when measuring GDP.

30. Expenditure Approach
Government Purchases (G)
The government's purchase of goods
and services is the third most significant
component of spending. This category
includes any expenditure made by the
government for a currently produced item or
service, regardless of whether it was created
domestically or internationally.

31. Expenditure Approach
There are three parts that constitute government purchases:
1. Spending on goods and services that the government
needs to provide public services.
2. Spending on long-lasting public assets like schools and
highways.
3. Expenditure on research and development and other
activities that add to the economy's stock of knowledge.
Government transfer payments are not included when
measuring GDP using an expenditure approach. That's
because government transfer payments do not generate
production in the economy.

32. Expenditure Approach
An example of government purchases that would be included
in the GDP calculation by the expenditure approach is the
government buying new software technologies for national
defense.

33. Expenditure Approach
Net exports (Nx)
Net exports are exports minus imports.
Exports are defined as the goods and services created within
a nation that are sold to buyers outside of that country.
Imports are defined as the goods and services produced
outside of a country that are sold to buyers from inside that
country.

34. Expenditure Approach
Statistical Discrepancy
Accounting and reporting errors inserted to ensure
that the three approaches generate the same GDP

35. What is Income Approach?
• GDP is measured by the sum of the total
income generated by all households,
businesses, and the government that
circulates within an economy for a certain
amount of time.

36. Income Approach
GDP= COE + NOS + Depreciation + IBTS
a. Compensation od Employees (COE) – wages
b. Net Operating Surplus (NOS) – rent, profit, and interest
c. Depreciation – wear and tear physical capital
d. Indirect Business Taxes less Subsidies (IBTS) – taxes on the
use, purchase or production of goods and services and
grants from governments to firms;
Example: VAT

37. What is Value-Added Approach?
• GDP = Agriculture, Fishery, and Forestry +
Industry +Services

38. Value-Added Approach
• A. Nominal GDP = GDP at current prices; prices for
the year are used
• B. Real GDP = GDP at constant prices; prices of a
pre-selected/base year are used, eliminates
impact of changing prices
• C. Real GDP = (Nominal GDP/GDP Deflator) * 100
• D. GDP Deflator = a price index that allow
conversion of nominal GDP into real GDP

39. Value-Added Approach
• E. GDP per capita = GDP/Population
• F. PPP adjusted GDP = adjusts for the fact that one
dollar spent in one country does not buy the same
quantity of goods as in another country
• G. Personal Disposable Income = income that
households are free to spend or save

40. Other terms to remember…
• GDP does not consider income distribution, costs
of achieving high output levels such as pollution
and leisure time, informal transactions, and illegal
activities
• Price Index – indicates the change in the cost of
purchasing a given bundle of goods in one year
relative to another (base year)

41. Other terms to remember…
• Consumer Price Index (CPI) – indicates the
change in the cost of purchasing a given bundle of
goods that are bought by the average household.
• Inflation Rate – measures the rate of change in
the genera price level; a lower inflation rate does
not mean low prices.

42. Other terms to remember…
• Consumer Price Index (CPI) – indicates the
change in the cost of purchasing a given bundle of
goods that are bought by the average household.
• Inflation Rate – measures the rate of change in
the genera price level; a lower inflation rate does
not mean low prices.

43. Consumption, Savings,
and Investments

44. The Consumption Function
• The Marginal Propensity to Consume (MPC) is the
amount by which consumption increases when
disposable income increases by one unit.
• The MPC is between 0-1
• Example: If the MPC is 0.8, then households
spend 80 cents of each additional peso of
disposable income on consumer goods and
services and save 20 cents.

45. What is Unemployment?
• The term unemployment refers to a situation
where a person actively searches for
employment but is unable to find work.
Unemployment is considered to be a key measure
of the health of the economy.

46. Labor Force
• Refers to the population 15 years old to 64 who
contributed to the production of goods and
services in the country.

47. Employed
• Consists of persons in the labor force who were
reported either as at work or with a job or
business although not at work. Persons at work
are those who did some work, even for an hour,
during the reference period.

48. Unemployed
• Include all persons 15 years old to 64 as of their last birthday and are
reported as:
1. Without work or had no job/business during the basic survey
reference period.
2. Currently available for work, i.e., were available and willing to take
up work in paid employment or self-employment during the basic
survey reference period, and/or would be available and willing to
take up work in paid employment or self-employment within two
weeks after the interview date.
3. Seeking work, i.e. had taken specific steps to look for a job or
establish business during the basic survey reference period.

49. Underemployed
• Refers to all employed persons who expressed the
desire to have additional hours of work in their
present job or an additional job, or have a new
job with longer working hours.

50. Visibly Underemployed
• Refers to all employed persons who worked less
than 40 hours during the reference week and
wanted additional hours of work.

51. Invisible Underemployed
• is defined as the number of people working 40
hours or more per week but still wanting
additional work.

52. Experienced Unemployed
• Refers to all unemployed persons who ever
worked at any time since the age of 15 for at least
one hour either for pay, for profit or without pay
on own family farm or business.

53. Not in the Labor Force
• Refers to persons 15 years old and over who are
neither employed nor unemployed.

54. Discouraged Workers
• Refers to all persons without jobs and are not
actively seeking/looking work because they
believe that there are no available jobs.

55. Labor Force Participation Rate (LFPR)
• Ratio of total labor force or economically active 15
years old and over to the total population 15
years old and over.

56. Employment Rate
• Proportion of employed persons to the total labor
force.

57. Underemployment
• Proportion of employed persons wanting more
hours of work to total employed persons.
2 types of Underemployment:
1. Visible: who work less than 40 hours a week.
2. Invisible: although working for 40 hours a week
or more, a worker still looks for additional job.

58. Unemployment Rate
• Proportion of unemployed persons to the total labor force.
5 types of Unemployment:
1. Frictional Unemployment
2. Structural Unemployment
3. Cyclical Unemployment
4. Disguised Unemployment
5. Seasonal Unemployment

59. Frictional Unemployment
This type of unemployment is usually short-lived. It is also the
least problematic from an economic standpoint. It occurs
when people voluntarily change jobs. After a person leaves a
company, it naturally takes time to find another job. Similarly,
graduates just starting to look for jobs to enter the workforce
add to frictional unemployment.
Frictional unemployment is a natural result of the fact that
market processes take time and information can be costly.
Searching for a new job, recruiting new workers, and
matching the right workers to the right jobs all take time and
effort. This results in frictional unemployment.

60. Structural Unemployment
Structural unemployment comes about through a
technological change in the structure of the economy in
which labor markets operate. Technological changes can lead
to unemployment among workers displaced from jobs that
are no longer needed. Examples of such changes include the
replacement of horse-drawn transport with automobiles and
the automation of manufacturing.
Retraining these workers can be difficult, costly, and time-
consuming. Displaced workers often end up either
unemployed for extended periods or leaving the labor force
entirely

61. Cyclical Unemployment
Cyclical unemployment is the variation in the number of
unemployed workers over the course of economic upturns
and downturns, such as those related to changes in oil prices.
Unemployment rises during recessionary periods and
declines during periods of economic growth.
Preventing and alleviating cyclical unemployment during
recessions is one of the key reasons for the study of
economics and the various policy tools that governments
employ to stimulate the economy on the downside of
business cycles.

62. Disguised Unemployment
Disguised unemployment exists when part of the labor
force is either left without work or is working in a redundant
manner such that worker productivity is essentially zero. It is
unemployment that does not affect aggregate output. An
economy demonstrates disguised unemployment when
productivity is low and too many workers are filling too few
jobs.
Disguised unemployment exists frequently in developing
countries whose large populations create a surplus in the labor
force. It can be characterized by low productivity and frequently
accompanies informal labor markets and agricultural labor
markets, which can absorb substantial quantities of labor.

63. Seasonal Unemployment
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.

64. Seasonal Unemployment
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. This means that in
certain seasons, a company might need a higher number of
employees than in other seasons, which can result in
seasonal unemployment when the more lucrative season
ends. When seasonal unemployment occurs, employees who
work in positions that relate directly to a specific time of year
or event are released from their jobs and need to find new
opportunities for employment.

65. Inflation Rate (IR)

66. What is Inflation Rate?
Is the annual rate of change or year-on-year change in CPI.
The inflation rate in March 2023 further eased to 7.6
percent from 8.6 percent in February 2023. This is within the
inflation forecast of the Bangko Sentral ng Pilipinas (BSP) at
7.4 to 8.2 percent and is lower than the median estimate of
private analysts of 8.1 percent.

67. Inflation Rate
Two Types of Inflation:
1. Demand-pull inflation - Inflation is a general rise in the
price of goods in an economy. Demand-pull inflation
causes upward pressure on prices due to shortages
in supply, a condition that economists describe as "too
many dollars chasing too few goods." An increase in
aggregate demand can also lead to this type of inflation.

68. Inflation Rate
Causes of Demand-Pull Inflation
There are five primary causes of demand-pull inflation:
1. A growing economy: When consumers feel confident, they spend more
and take on more debt. This leads to a steady increase in demand, which
means higher prices.
2. Increasing export demand: A sudden rise in exports forces an
undervaluation of the currencies involved.
3. Government spending: When the government spends more freely,
prices go up.
4. Inflation expectations: Companies may increase their prices in
expectation of inflation in the near future.
5. More money in the system: An expansion of the money supply with
too few goods to buy makes prices increase.

69. Inflation Rate
Two Types of Inflation:
2. Cost-push inflation - (also known as wage-push inflation)
occurs when overall prices increase (inflation) due to
increases in the cost of wages and raw materials. Higher costs
of production can decrease the aggregate supply (the
amount of total production) in the economy. Since the
demand for goods hasn't changed, the price increases from
production are passed onto consumers creating cost-push
inflation.

70. Inflation Rate
Causes of Cost-Push Inflation
1. As stated earlier, an increase in the cost of input goods used in
manufacturing, such as raw materials. For example, if
companies use copper in the manufacturing process and the
price of the metal suddenly rises, companies might pass those
increased costs on to their customers.
2. Increased labor costs can create cost-push inflation such as
when mandatory wage increases for production employees
due to an increase in the minimum wage per worker. A worker
strike due to stalled contract negotiations might also lead to a
decline in production; and as a result, lead to higher prices.

71. Inflation Rate

72. Deflation
- Occurs when prices are
observably declining over time.
- Opposite of inflation
- A decrease in the general price
level a rise in the purchasing
power of money

73. Disinflation
- Refers to decreasing rate of
inflation the general level of prices
are increasing at a decreasing rate

74. Types of Inflation
Creeping Inflation
Creeping, or mild, inflation occurs when prices
rise slowly. According to the Federal Reserve, when
prices increase by 2% or less, it benefits economic
growth. This kind of mild inflation makes consumers
expect that prices will keep going up, which boosts
demand. Consumers buy now in order to beat
higher future prices, and so mild inflation drives
economic expansion. For that reason, the Fed sets
2% as its target inflation rate.

75. Types of Inflation
Walking Inflation
This type of inflation is faster than creeping
inflation, but not as fast as galloping or hyperinflation. It is
harmful to the economy because it heats up economic
growth too quickly. People start to buy more than they
need in order to avoid tomorrow's much higher prices. This
increased buying drives demand even further, and
suppliers often can't keep up. More importantly, neither
can most people’s wages. As a result, you can be priced out
of common goods and services.

76. Types of Inflation
Galloping Inflation
When inflation rises to 10% or more, it can be
very damaging to the economy. Money loses value
so quickly that business and employee income can't
keep up with costs and prices. Foreign investors, in
turn, avoid the country where this occurs, depriving
it of needed capital. The economy becomes
unstable, and government leaders lose credibility.
For this reason, avoiding galloping inflation is a key
objective of many central banks.

77. Types of Inflation
Hyperinflation
Hyperinflation occurs when prices skyrocket
by more than 50% per month. It is very rare. In fact,
most examples of hyperinflation occur when
governments print money to pay for wars. One of
the most extreme examples is Hungary, where in
1945, prices doubled every 15 hours. Venezuela has
been fighting a bout of hyperinflation since the early
2010s.

78. Types of Inflation
Wage Inflation
In other cases, a rise in wages might cause
prices to rise across an economy. In this case,
companies have to pay their workers more, and they
often pass on the increases to the consumer, which
causes inflation in the price of goods and services.
Wage inflation occurs when workers' pay rises more
rapidly than the cost of living. It can happen when
there is a shortage of workers, or in other situations
where wages are driven up quickly.

79. Types of Inflation
Stagflation
Stagflation occurs when economic growth is
stagnant but prices continue to rise.
This combination seems contradictory, but it happened in
the 1970s when the United States abandoned the gold
standard. Once the dollar's value was no longer tied to
gold, it plummeted. At the same time, the price of gold
skyrocketed. Stagflation didn't end until Federal Reserve
Chairman Paul Volcker raised the fed funds rate to double
digits.4 He kept it there long enough to dispel expectations
of further inflation.

80. Business Cycles

81. Business Cycle
Refers to economy – wide fluctuations in
production, trade, and general economic activity.
From a conceptual perspective, the business cycle is
the upward and downward movements of levels of
GDP (gross domestic product) and refers to the
period of expansions and contractions in the level of
economic activities (business fluctuations) around a
long-term growth trend.

82. Business Cycle

83. Phases of a Business cycle
Expansion – the line of cycle that moves
above the steady growth line represents the
expansion phase of business cycle. In the expansion
phase, there is an increase in various economic
factors, such as production, employment, output,
wages, profits, demand and supply of products, and
sales.

84. Phases of a Business cycle
Peak – at the peak of the business cycle, the
economy can be said to be “overheated.” The
growth in the expansion phase eventually slows
down and reaches to its peak. This phase is known
as peak phase. In other words, peak phase refers to
the phase in which the increase in growth rate of
business cycle achieves its maximum limit. There is a
gradual decrease in the demand of various products
due to increase in the prices of input.

85. Phases of a Business cycle
Recession/ contraction – all the economic
factors, such as production, prices, saving and
investment, starts decreasing. Generally, producers
are unaware of decrease in the demand of products
and they continue to produce goods and services. In
such a case, the supply of products exceeds the
demand.

86. Phases of a Business cycle
Trough – the economic activities of a country
decline below the normal level. In this phase, the
growth rate of an economy becomes negative. In
addition, in trough phase, there is a rapid decline in
national income and expenditure.
In this phase, it becomes difficult for debtors
to pay off their debts. As a result, the rate of interest
decreases; therefore, banks do not prefer to lend
money. Consequently, banks face the situation of
increase in their cash balances.

87. Phases of a Business cycle
Recovery – this leads to reversal of the
process of business cycle. As a result, individuals and
organizations start developing a positive attitude
toward the various economic factors, such as
investment, employment, and production. This
process of reversal starts from the labor market.
Consumers increase their rate of consumption, as
they assume that there would be no further
reduction in the prices of products. As a result, the
demand for consumer products increases.

88. Monetary and Fiscal
Policy

89. Monetary Policy
- The setting of the money supply by policymakers in
the central bank. It affects the economy first by
affecting the interest rate and then by affecting
aggregate demand. An increase in the money supply
reduces the interest rate, increase investment
spending and aggregate demand, and thus increases
equilibrium output.

90. MONEY
- The set of assets in an economy that people
regularly use to buy goods and services from
other people.
- The “ Greatest Invention of Human Being”

91. Functions of Money
1. Medium of exchange
- An item that buyers give to sellers when they
want to purchase goods and services.
2. Unit of account
- The yardstick people use to post prices and
record debts; money provides the terms in which
prices are quoted & debts are recorded.
3. Store of Value
- An item that people can use to transfer purchasig
power from the present to the future.

92. Kinds of Money
A. Commodity Money – takes the form of
commodity with intrinsic value (i.e. item would
have value even if it were not used as money).
Example is gold. Gold standard is the term used
to an economy that uses gold as money.
B. Flat Money – money without intrinsic value that
is used as money because of government decree.

93. Types or Forms of Money
A. Peso Note – composes our currency in
circulation
B. Check
C. Demand deposits or current accounts

94. The Demand for Money
Transaction Motive – refers to the
holding of money to enable people and firms
to pay off their daily transactions such as
paying for electricity and telephone bills,
house rent, education, food, clothing, etc.

95. The Demand for Money
Precautionary Motive – for contingency
purposes or unforeseen circumstances. This motive
may be related to the function of money as a store
of value.
Speculative or portfolio allocation motive –
It refers to the holding of money for the purpose of
taking advantage of market opportunities such as
buying shares of stocks in a company or investing in
bonds or treasury bills and other assets that yield
additional earnings for the households and firms.

96. The Supply of Money
M1 – refers to the narrow definition of money
which consists of currency (e.g., paper bills and
coins) in circulation plus demand or checking
deposits.
M2 – refers to M1 plus savings and small time
deposits
M3 – refers to money supply, peso savings,
time deposits, plus deposit substitutes of money
generating banks, and negotiable order of
withdrawal (NOW) accounts.

97. The Supply of Money
RM – is the reserve money which represents
liabilities of the BSP to the public sector in the form
of currency in circulation and to the banking sector
in the form of cash reserves.

98. Monetary Policy
Why is there a need to
control money supply?

99. Monetary Policy
If there is too much money held by
households and firms, then this can result in
overspending and if manufacturers of goods and
services cannot catch up with the increase in
consumption, inflation can occur since the only way
by which firms can allocate the remaining
inventories is to sell these at higher prices.

100. Monetary Policy
The following is a list of important instruments of
monetary control used by the Monetary Board of
the BSP:
1. Reserve Requirement – is the percentage of
deposits that the banks are mandated to keep in
their vaults for safekeeping by the BSP
2. Rediscount Rate – is the interest charged by BSP
to banks who wish to borrow from it
3. Open Market Operations – refer to the buying
and selling of government securities by the BSP

101. Fiscal Policy
Is the use of government spending and
taxation to influence the economy. Governments
typically use fiscal policy to promote strong and
sustainable growth and reduce poverty.

102. Taxation & Tax Burden
Types:
1. Direct tax – Income tax
2. Indirect tax – Excise tax

103. Taxation & Tax Burden
Tax burden – The ratio of the tax to a payer’s
income.
Progressive Tax – If the assessment on the rich is
greater than those on the poor.
Proportional Tax – all pay the same percentage of
their income in taxes
Regressive Tax – if the taxpayer receiving a lower
income shoulders the heavier tax burden

104. Taxation & Tax Burden
Specific Tax – refers to the excise tax imposed
which is based on weight or volume capacity or any
other physical unit of measurement.
Ad Valorem Tax – refers to the excise tax
which is based on selling price or other specified
value of the goods/articles.

105. Taxation & Tax Burden
A sin tax is an excise tax on specific goods and
services due to their ability, or perception, to be
harmful or costly to society. The tax comes at the
time of purchase. Some items that often have a sin
tax include tobacco products, alcohol, and gambling.
Sin taxes seek to deter people from engaging in
socially harmful activities and behaviors. They also
provide a source of revenue for governments.

106. Tarrif
A tariff is a tax imposed by one country on the
goods and services imported from another country.
The purpose is to encourage domestic purchases by
increasing the price of goods and services imported
from other countries.
There are two main types of tariffs: fixed fee
tariffs, which are levied as a fixed cost based on the
type of item, and ad valorem tariffs, which are
assessed as a percentage of the item’s value (like the
real estate tax in the previous section).

107. Thank you.