CHAPTER I Socialism--->Communism

MACROECONOMICS FUNDAMENTALS -equittable not equal.

ECONOMICS - is a social science that deals with -Mixed----> system of state.

proper allocation and distribution of limited resources
to satisfy unlimited wants and needs. CHAPTER II

2 DIVISIONS THE NATIONAL INCOME ACCOUNTING

MICROECONOMICS - small. GDP vs. GNP

- firms and consumers. GROSS DOMESTIC PRODUCT - total market or

money value of all final goods and services produced in
MACROECONOMICS - big. a economy over a period of one year.

- national economy aggregate. GROSS NATIONAL PRODUCT - total market or

money value of all final goods and services produced by
- how we can increase our a nations residents, no matter where they are located.
countrys wealth given the available resources.
3 WAYS TO MEASURE GDP
NORMATIVE vs. POSITIVE
EXPENDITURE APPROACH - measures GDP by
NORMATIVE - subjective. adding all the spending for final goods during a period
- dependent on ethical considerations such of one year.
as fairness. GDP=C+I+G+(X-M)
- should. C - Personal consumption expenditure.
POSITIVE - facts or relationships which can be proven I - Gross private domestic investment.
or disproven.
G-Government consumption expenditures and gross
- will. investment.
CIRCULAR FLOW MODEL - movement of goods and (X-M) - Net exports.
services between household (consumer) and the firm
(producer). INCOME APPROACH - measures GDP by adding all
the incomes earned by households in exchange for the
ADAM SMITH - Father of Economics. factors of production during a period of time.
- Classical economics. NATIONAL INCOME(NI) = W + R + P + i
- Market oriented. GDP = compensation of employees + rents + profits
- Wealth of nations. + net interest + indirect taxes + depreciation

SOCRATES GDP = NI + IBT + D

PLATO----->ARISTOTLE----->ADAM SMITH IBT- Indirect business taxes.

|Republic. GDP INDUSTRIAL ORIGIN APPROACH - considers

the contribution of three sectors, namely: (1) agriculture,
|Socialism fishery, and forestry sectors; (2) industry sector; and (3)
service sector.
|Communism
GDP = GVA or GDP = AS + IS + SS
|Utopian State

>KARL MARX
GDP SHORTCOMINGS - nonmarket transactions; MPS + MPC =1
distribution kind and quality of products; neglect of
leisure time; the underground economy and economy S=i
bads. i=Y- C
NOMINAL/CURRENT GDP - value of all final goods where:
and services based on the prices existing during the time
period of production. S - Aggregate savings from currently generated income.

REAL GDP - the value of all final goods and services i - Inflow.
produced during a given time period based on the prices
M= Y
existing in a selected base year.
t
REAL GDP = NORMAL GDP X 100
M = 1 - MPC, then
GDP DEFLATOR
M= 1
CHAPTER III
1 - MPS
CONSUMPTION AND SAVINGS
Generating more income means more savings.
CONSUMPTION - expenditures made by households
on goods and services. FACTORS OF CONSUMPTION

Y=Cb+ C >Taste and preferences.

where: >Population.

Y - Factor income. >Income.

Cb - Borrowings from the economys stock of savings. >Price level.

C- Change in consumption. >Innovation and promotion.

National income minus Inflows of investment (I), CHAPTER IV

Government spending (G), and Net exports (Xn).
MULTIPLIER - process of generating income through
the circular flow exchange between the households and
the firms.
MULTIPLIER CONCEPT - phenomenon whereby
some initial increase or decrease in the rate of spending
will bring about more than proportionate increase or
decrease in national income.
INVESTMENT FUNCTION
INVESTMENT - process of increasing the capital stock
and the expenditure in which it determines the income
and production in the economy.
INVESTMENT EXPENDITURE - component of
aggregate demand and an injection into the circular flow
of national income.

INVESTMENT AND THE MULTIPLIER

K= 1 = 1
y = IM
1-(MPC) MPC
y=I+ C
where:
since initially:
K - multiplier coefficient.
y=C
MPC - marginal propensity to consume.
therefore:
MPS=1-MPC - marginal propensity to save.
 y=C+ C+I >Price level.

y=C+I >Population growth.

where: >Taxes and interest rates.

y - income. >Innovations.

C - consumption. >Profits

I - investment. >Expectations.

M - multiplier. INVESTMENT DEMAND DETERMINANTS

- change in. >Interest rates.

Kn = (K+I-D), Yn = (y+ y1- yd) ACCELERATION PRINCIPLE - states the level of

investment is a function of desired changes in output.
where:

Kn - capital stock after investment and depreciation or

net capital stock.

K - capital stock before investment and depreciation

I - investment.

D - depreciation.

Yn - output after investment and depreciation.

y - output before investment and depreciation.

y1 - change in output due to investment.

yd - change in output due to depreciation.

SAVINGS - unspent portion of income.

S=Y-C

where:

S - saving

Y- income

C - consumption

SAVING-INVESTMENT EQUILIBRIUM - the

increasing, decreasing or maintaining the level of
investment expenditure.

Y=C+I

Y-C=I

S=I

DETERMINANTS OF SAVINGS