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![ 1. What is the total cost of buying all the items in Year 2?
$580
2. What is the CPI for Year 2?
120.8 [(580 / 480) x 100]](https://image.slidesharecdn.com/econ1-171210134204/75/Overview-of-Applied-Economics-59-2048.jpg)
![ 1. What is the real GDP in Year 3?
$4,000 [(100 x $5,000) / 125]
2. What is the real GDP in Year 4?
$4,400 [(100 x $6,600) / 150]
3. What is the real GDP per capita in Year 3?
$364 ($4,000 / 11)
4. What is the real GDP per capita in Year 4?
$367 ($4,400 / 12)](https://image.slidesharecdn.com/econ1-171210134204/75/Overview-of-Applied-Economics-63-2048.jpg)
![ 5. What is the rate of real output growth between Years 3 and 4?
10% [(4,400 – 4,000) / 4,000] x 100
6. What is the rate of real output growth per capita between Years 3 and 4?
(Hint: Use per-capita data in the output growth rate formula.)
0.82% [(367 – 364) / 364] x 100](https://image.slidesharecdn.com/econ1-171210134204/75/Overview-of-Applied-Economics-64-2048.jpg)
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Overview of Applied Economics
- 1.
- 8. What? How? For Whom? Howshould we answer these questions?
- 9. APPLY IT INREAL LIFE You are an event coordinator and your sister asked you to organize your nephew’s upcoming 4th birthday party. You were given a budget of P10,000.00. At least 30 friends and family members are expected to attend the party. How are you going to use the money? What food do you plan to serve? What activities do you plan to include? List the activities and the budget allocation on the next page. You will present your plan to your sister for recommendation and approval.
- 10. ACTIVITIES BUDGET (P) ________________________________ _____________________ ___________ _____________________ ___________ _____________________ ___________ _____________________ ___________ _____________________ ___________ _____________________ ___________ Total ___________
- 11. “Consumption drives theeconomy.” Basic Circular Flow Diagram
- 12. Production Possibility Frontier(PPF) Also called production possibility curve, is an application of the concept of allocation of resources and factors of production
- 14. Methods in EconomicAnalysis QUALITATIVE vs QUANTITATIVE ANALYSIS Qualitative Approach e.g. “Money supply is positively correlated to price” Quantitative Approach Involves mathematical and statistical analysis
- 15. Determine the VARIABLESin the graph:
- 16. Functions (f) explainthe relationship between two or more economic variables Example: The expression below where D stands for demand and P stands for price. D = f (P)
- 17. Economic Equation isa mathematical expression of an economic thought or concept. Example: The expressions below, which pertains to the national income formula, (1) Y=C+I+G+Xn (2)Y=C+I+G+(X-M) (3)Y=f(C,I,G,X,M)
- 18. Graph provides avisual representation of the relationship between two or more economic variables
- 19. Economic Theories andModels Economic theories simplify economic phenomena. E.g. Marginal Utility Theory Economic models are the representations of economic and social phenomena using research, observations, and testing. E.g. Circular Flow Diagram In formulating models and theories, economists often use ASSUMPTIONS. E.g. ceteris paribus assumption “all else being the same
- 20. Agreement Read about: Time-series versusCross-sectional Data Normative versus Positive Economics
- 21. Assignment. Write ona ¼ sheet of paper What are the two main branches of the study of economics? Define. What are the scope of each branch?
- 22.
- 23. UTILITY refers tothe value of satisfaction derived from the consumption of a good. MARGINAL UTILITY is the additional utility or satisfaction from the consumption of an additional unit of good, keeping other things constant.
- 24.
- 25. Marginal Utility Asyou consume an additional unit of a good, the marginal utility declines.
- 26. Total Utility Asthe quantity consumed increases, the consumer.s total utility increases but at a decreasing rate.
- 27. Indifference Curve An indifferencecurve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.
- 28. Indifference Curve Aconsumer is indifferent to the combination of mangoes and orange along the indifference curve. Point A is seen as equally great as B, C, D, or E.
- 29. Indifference Map An indifference mapshows a group of indifferent curves. “more is preferred to less”
- 30. Why are indifferentcurves always sloping downwards? Why shouldn’t indifferent curves intersect?
- 31. Budget Line A budgetline represents the income constraint of consumers. (red line)
- 32. Equilibrium Position The equilibrium positionis the tangency point (point C) of the budget line and the highest indifference curve.
- 33. Disposable Income & DiscretionaryIncome Disposable income is the income after taxes. Discretionary income is the income left from disposable income after all necessary (nontax) expenses have been deducted. The amount that is either spent or saved corresponds to discretionary income.
- 34. Disposable Income & DiscretionaryIncome DISPOSABLE INCOME = GROSS INCOME - INCOME TAXES DISCRETIONARY INCOME = DISPOSABLE INCOME - NONTAX EXPENSES
- 35. Consider youhave a monthly income of P100,000.00 and tax liability of 32%. Additionally, you pay rent of P10,000.00 and spends P15,000.00 on food, transportation, gas and utilities. Given those expenses, your monthly disposable income is P68,000.00 and your discretionary income is P43,000.00. If you decide to save P20,000.00, then you have P23,000.00 left on your discretionary income. DISPOSABLE INCOME = GROSS INCOME - INCOME TAXES DISCRETIONARY INCOME = DISPOSABLE INCOME - NONTAX EXPENSES
- 36. Analyze andcalculate your average monthly disposable and discretionary incomes. Suppose your salary is your only source of income. You receive P72,000.00 gross monthly income. You pay personal income taxes of 32%. You are living with your parents so you do not pay rent. However, you settle your family’s utilities such as average monthly electricity bill of P2,300.00, water bill of P550.00 and internet bill of P1,999.00. You spend an additional P5,000.00 for transportation expenses and allot P10,000.00 per month for your savings. ( solve on a 1/4 sheet of paper) DISPOSABLE INCOME = GROSS INCOME - INCOME TAXES DISCRETIONARY INCOME = DISPOSABLE INCOME - NONTAX EXPENSES
- 37. Solution to theQuiz Gross Income P 72,000.00 Income Tax (32%) (23,040.00) Disposable Income 48,960.00 Electricity (2,300.00) Water (550.00) Internet (1,999.00) Transportation (5,000.00) Discretionary Income 39,111.00 Discretionary Income for savings (10,000.00) Discretionary income for other expenses 29,111.00
- 38.
- 39. Objectives: 1. Determine expensesthat contribute to GDP 2. Solve GDP from actual statistical data
- 40. Unlocking Difficulties finalgoods – products bought or consumed by end consumer intermediary goods – products or goods that are used for further processing or production nonproduction transactions – include transfer payments (social security benefits) and financial market securities (stocks and bond certificates) GDP – Gross Domestic Product GNP – Gross National Product GNI – Gross National Income Net primary income – income from nationals working abroad
- 42. Table 1.Gross domestic product in 2005 (In PhP million at constant 1985 prices)
- 43. GDP is definedas the total value of final goods and services consumed during a given period. This is usually expressed in Philippine Peso (Php) Total expenditure of the economy All final goods produced within the country are included in the GDP Nonproduction transactions are excluded
- 44. There are fourcomponents of GDP • Consumption • Investment • Government • Foreign (X - M)
- 45. Gross Domestic Product GDP is defined by the following formula: GDP = Consumption + Investment + Government Spending + Net Exports GDP = C + I + G + Xn GDP= C + I + G + (X – M) where consumption (C) represents private-consumption expenditures by households and nonprofit organizations, investment (I) refers to business expenditures by businesses and home purchases by households, government spending (G) denotes expenditures on goods and services by the government, and net exports (Xn) represents a nation’s exports (X) minus its imports (M).
- 46. Gross National Product GNPfactors in outputs or products by Filipinos or Filipino companies abroad. GNI = GDP + Net Primary Income GNI is the income equivalent of GNP
- 47. GNP vs GDP GDPis made in the Philippines while GNP is made by Filipinos.
- 48. Is This Countedas Part of GDP? 1. A monthly check received by an economics student who has been granted a government scholarship Excluded: transfer payment from government to an individual 2. A farmer’s purchase of a new tractor Included: business fixed investment
- 49. Is This Countedas Part of GDP? 3. A plumber’s purchase of a two-year-old used truck Excluded: Truck was not produced in current year. 4. Cashing a government bond Excluded: Bond is a financial asset.
- 50. Is This Countedas Part of GDP? 5. The services of a mechanic in fixing the radiator on his own car Excluded: This is a nonmarket activity. 6. A Social Security check from the government to a retired store clerk Excluded: transfer payment from government to an individual
- 51. Is This Countedas Part of GDP? 7. An increase in business inventories Included: Inventory is an investment. 8. The government’s purchase of a new submarine for the Navy Included: government purchase of a good
- 52. Is This Countedas Part of GDP? 9. A barber’s income from cutting hair Included: income from services provided 10. Income received from the sale of Jollibee stock/share Excluded: Stock is a financial asset.
- 53. Synthesis 1. Wecount only the final retail price of a new good or service in GDP.Why? 2. A purely financial transaction will not be counted in GDP. Why? 3. When a homeowner does home-improvement work, the value of the labor is not counted in GDP. Why?
- 54. Solve for theGDP and GNI Type of Expenditure 2005 Household Final Consumption Expenditure 4,259,131.00 Government Consumption 513,254.00 Capital Formation 1,223,578.00 Exports 2,619,543.00 Imports 2,937,757.00 Net Primary Income 1,472,565.00
- 55. How much doesMario add to GDP? Mario works part-time at Pizza Hut and earns an annual wage plus tips of $15,000. He sold 4,000 pizzas at $10 per pizza during the year. He was unemployed part of the year, so he received unemployment compensation of $3,000. During the past year, Mario bought a used car for $1,000. Determine how much has Mario contributed to GDP?
- 56. Assignment Read thearticle entitled, “Venezuela: the land of 500% inflation” http://money.cnn.com/2016/04/12/news/economy/venezuela-imf- economy/index.html
- 57. • Inflation isthe rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.
- 58. Measuring Price Changes Aconsumer price index (CPI) measures changes in the price level of market basket of consumer goods and services purchased by households. The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically.
- 59. 1. Whatis the total cost of buying all the items in Year 2? $580 2. What is the CPI for Year 2? 120.8 [(580 / 480) x 100]
- 60. 3. Whatis the percentage increase in prices from the base year to Year 2? 20.8%
- 61. 4. InAugust 2000 the CPI was 172.8, and in August 2001 the CPI was 177.50.What was the percentage change in prices for this 12- month period? 2.7%
- 62. Measuring Short-Run Economic Growth •The main difference between nominal and real values is that real values are adjusted for inflation, while nominal values are not. As a result, nominal GDP will often appear higher than real GDP.
- 63. 1. Whatis the real GDP in Year 3? $4,000 [(100 x $5,000) / 125] 2. What is the real GDP in Year 4? $4,400 [(100 x $6,600) / 150] 3. What is the real GDP per capita in Year 3? $364 ($4,000 / 11) 4. What is the real GDP per capita in Year 4? $367 ($4,400 / 12)
- 64. 5. Whatis the rate of real output growth between Years 3 and 4? 10% [(4,400 – 4,000) / 4,000] x 100 6. What is the rate of real output growth per capita between Years 3 and 4? (Hint: Use per-capita data in the output growth rate formula.) 0.82% [(367 – 364) / 364] x 100