Circular Flow -the movement of econ activities that is taking place in the economic system Household- sending factors

of production and payment to firms Firms- providing goods and services and factors of payment to household Taxes- to government (outflow) Expenditures (inflow) Savings- to banks (outflow) Investments (inflow) Imports- to foreign countries (outflow) Exports (inflow) Increase in circulating money= low purchasing power= high prices of commodities= INFLATION Decrease in circulating money= high purchasing power= low prices of commodities= DEFLATION ECONOMIC POLICIES 1. Monetary Policies- refers to actions of the BSP to alter money supply, move interest rates or both. BSP- regulates the magnitude and movements of money through the banking and credit system TOOLS OF MONETARY POLICIES 1. Required Reserves funds that the banks cannot use Depository banks- who handle the money of certain agency Land Bank of the Philippines- usual DB of govt agencies 2. Rediscounting- as the holder of money, BSP has the authority and power to apply loan promissory notes. 3. Open Market Operations- government securities 4. Selective Credit Control- meeting who to prioritize and persuading the credit banks 5. Moral suasion- persuasion of bank borrowers such as agricultural, commercial, educational and health development; they are persuaded by the chairman of the monetary board or BSP

2. Fiscal Policies- manipulation of the inflows (expenditures) and outflows (taxes) of the government sectors. Dealing with the budget.