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  C- Consumption I- Investment G- Government Expense (X-M)- Net Exports SD- Statistical Discrepancies GDP- Gross Domestic Product  NFFYA- Net Foreign Factor Income from Abroad GNP- Gross National Product Dep- Depreciation  NNP- Net National Product IT- Indirect Tax  NI- National Income S- Corporate Savings T- Corporate Tax GEI- Government Entrepreneurial Income TP- Transfer Payments PI- Personal Income PT- Personal Taxes DI or Yd- Disposable Income PS- Personal Savings CI- Corporate Income GI- Government Income R- Raw Materials I- Industry S- Service Y- Income MPC- Marginal Propensity to Consume MPS- Marginal Propensity to Save APC- Average Propensity to Consume APS- Average Propensity to Save M- Multiplier Gross National Product Expenditure Approach C I G (X-M) + SD GDP +NFFYA GNP - DEP  NNP - IT  NI -(S+T+GEI) + TP PI - PT DI - C PS Income Approach PI CI +GI  NI +IT - Subsidies +Dep GNP +NFFYA GDP Value-added Approach R I +S GDP +NFFYA GNP - DEP  NNP - IT  NI -(S+T+GI) + TP PI - PT DI - C PS GNP= C+I+G+(X-M) PI= NI-(S+T+GEI)+TP PI= W+D+W+TP DI=PI-PT C= DI-PS C= PI-PT-PS Savings= Y-C MPC=  C ÷  Y MPS=  S ÷  Y M= 1 ÷ (1-MPC) Yd= C + S APC= C÷Yd APS= S÷Yd MPS+MPC= 100% or 1  Ideas and Theories of Economic Development Economic ideas and theories are generally the products of existing conditions. Ideas and theories may be intended to change or improve existing conditions. Ancient Economic Ideas Ancient economic ideas were based on the Holy Scriptures and codes of laws. These ideas focus on the ways of making a living. Medieval Economic Thoughts This includes power from feudal lords, shifts into merchants, and into craftsmen. During the later part of medieval period, the church became very  powerful, in religious, political, and economic affairs. The most admired of them was St. Thomas Aquinas who preached distributive justice and compensatory justice. The church opposed capitalism they themselves participate and threatened the church and the feudal lords. The Economic Doctrines of Mercantilism The great thinkers of Europe, like Machiavelli, Bodin, and Serra, influenced much the growth of capitalism. They claimed that it is the duty of the state to create and accumulate wealth. Wealth then came from gold and silver. Those that acquire such are considered powerful and wealthy. During this time, agriculture was no longer appreciated. Instead, manufacturing was the one given top priority since it can be sold readily abroad than agricultural products due to natural shortcomings. It was Thomas Mun who provided the ways of achieving favorable foreign trade. Physiocracy  –   Rule of Nature Many significant changes took place in Europe but some people believe in the will of God that that created the world and to the expansion of science and the increasing variations of inventions. Wealth came from the land They give importance to agriculture because they believe that wealth came from the land and in support, they explained that people could not exist without food and natural resources. Laissez Faire Theory Laissez Faire is a French term that was introduced by Physiocrats. It connotes non-interference, liberty or freedom. In economics, it means that the government should not intervene in economic affairs. Just let the forces of the market interact with each other. This is in accordance with the natural law and the result would be good for the individuals and society according to Physiocrats. Classical Theories Theory of Karl Marx Karl Marx emphasize that labor must be socially necessary since in manufacturing, only the capitalists benefit from the production and not the workers. He developed his theory of scientific social evolution by saying that in the beginning  –   when it was still a primitive society  –   there was social equilibrium. However, when new ideas and new tools of doing things were introduced, the old system was disturbed. This made  people greedy of power and wealth. As such, the ones that are already superior even  became more superior as they accumulate wealth at the expense of the workers. Karl Marx thought that free enterprise would later be dissolve but instead, it became stronger. Promotion of Human Values Jean Sismondi, who disagreed in many ways with Adam Smith, stated that wealth should not be measure in terms of material things but in terms of human welfare. He rejected the laissez faire theory which provided freedoms to individuals to seek their own self-interests for their own welfare and that of society. The ideas of Sismondi were the products of his observations of capitalism which outraged him as he witnessed the human miseries created by the economic system. He then proposed an active role for the government in protecting human values. Theory on Progress and Poverty The made by Henry George famous and in his analysis he concluded that rent is the root cause of poverty and for him rent is an unearned income. Modern Theory of Employment Employment is determined by supply and demand for labor. A decrease in employment means that wages are high in relation to the prices of goods. So they get more workers if they are willing to accept lower wages. Thus, the main point of theory is that the cause of unemployment is high wages. However, John Meynard Keynes found the answer that high wages could not be the cause of unemployment  because of what happened that workers in America could not find jobs at any wages. Keynesian Theory of Employment (According to John Meynard Keynes) Employment determines the necessity of equating the aggregate supply of goods with aggregating demand for goods. When people buy more goods, it means there is more expenditure or consumption. This condition stimulates more investments which also increases employment and production. Innovation Theory (By Joseph Schumpeter) Posits that innovation in business is the major reason for increased investments and business fluctuations. Some Growth Models The Ricardian Growth Model This was derived from the law of diminishing returns of David Ricardo. The key factor of this growth model is land. This means that agricultural sector assumes a very vital role in economic development. The Harrod-Domar Model - developed by Sir Harrod of England and Professor Domar of America - The key factor is physical capital or investment such as machinery,  building, equipment, etc. The Kaldor Model - written by Nicholas Kaldor - the key factor is technology. He pointed out that technology embodied in  physical capital    Comparison chart Economic development versus economic growth comparison chart   Economic development   Economic growth   Implications   Economic development implies an upward movement of the entire social system in terms of income, savings and investment along with progressive changes in socioeconomic structure of country (institutional and technological changes). Economic growth refers to an increase over time in a country`s real output of goods and services (gnp) or real output per capita income. Factors   Development relates to growth of human capital indexes, a decrease in inequality figures, and structural changes that improve the general population's quality of life. Growth relates to a gradual increase in one of the components of gross domestic product: Consumption, government spending, investment, net exports. Measurement   Qualitative.hdi (human development index), gender- related index (gdi), human poverty index (hpi), infant mortality, literacy rate etc. Quantitative. Increases in real gdp.    Effect   Brings qualitative and quantitative changes in the economy   Brings quantitative changes in the economy Relevance   Economic development is more relevant to measure progress and quality of life in developing nations. Economic growth is a more relevant metric for progress in developed countries. But it's widely used in all countries because growth is a necessary condition for development. Scope   Concerned with structural changes in the economy Growth is concerned with increase in the economy's output Goals of Economic Development    Increase in the real per capita income of Filipinos    Equity in the distribution of income and wealth among individuals and among regions    The reduction of mass unemployment    Elimination of poverty    The maintenance of equilibrium between the outflow and inflow of dollars or foreign exchange    Improved social services and infrastructure facilities    Adequacy of educational and training systems    The freedom of Filipinos from external economic and political control    The preservation of environment and Philippine culture    Increased unity among all inhabitants of the Philippines Measuring Economic Growth and Development      Economic Growth Indicators A.   GROSS DOMESTIC PRODUCT (GDP) Measuring GDP   Expenditure Approach  The expenditure approach attempts to calculate GDP by evaluating the sum of all final good and services  purchased in an economy. GDP = C + I + G + (X − M)   Income Approach  The income approach looks at the final income in the country, these include the wages, salaries, and supplementary labor income; corporate profits interest and miscellaneous investment income; farmers’ income; and income from non-farm unincorporated businesses. Two non-income adjustments are made to the sum of these categories to arrive at GDP: GDP = Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income Output Approach The output approach focuses on finding the total output of a nation by directly finding the total value of all goods and services a nation produces. Because of the complication of the multiple stages in the production of a good or service, only the final value of a good or service is included in the total output. GNP, GDP, AND GNI Comparison Chart  B.   INFLATION Causes of Inflation Price rise is the root of inflation Demand-pull inflation Cost-push inflation Built-in inflation Effects of Inflation The general economy-wide inflation rate is calculated as the rate of change in consumer price index (CPI) over a period using the following formula: Inflation Rate = (Current Period CPI − Prior Period CPI) / Prior Period CPI where CPI = (cost of basket in current year/ cost of basket in base year) x 100 C.   EMPLOYMENT    Economic Development Indicators A.   HUMAN DEVELOPMENT INDEX (HDI) The Human Development Index (HDI) is a summary measure of key dimensions of human development. HDI = Dimension index = actual value  –   minimum value/ maximum value  –   minimum value Life Expectancy Index (LEI) = Education Index (EI) = Mean years of schooling index = Expected years of schooling index = Income Index (II) = Gender-related development index (GDI) The gender-related development index or GDI, is a gender adjusted HDI. B.   POVERTY Poverty, the state of one who lacks a usual or socially acceptable amount of money or material possessions. Malnutrition Malnutrition, in all its forms, includes under nutrition (wasting, stunting, underweight), inadequate vitamins or minerals, overweight, obesity, and resulting diet-related noncommunicable diseases. Income distribution Income distribution is the smoothness or equality with which income is dealt out among members of a society. C.   DOMESTIC AND FOREIGN INVESTMENTS The level of investment in the economy is made up of the sum of domestic and foreign investments. D.   POPULATION GROWTH Rapid growth of population has been considered a hindrance to economic growth and development because the size of the  population tends to write-off increase of the national income. 3IIEILEI   2083.220-LE  2EYSIMYSI  13.2MYS 20.6EYS In(163)-In(108211)In(163)-In(GNIpc) Basis for Comparison GDP GNP GNI Meaning GDP refers to the official monetary measure of the aggregate output of products and services, produced by the country over the course on one year. GNP is the worth of goods and services produced by the country's citizens irrespective of the geographical location GNI implies the summation of country's gross domestic product and the net income earned abroad, during a particular accounting year. Measures Total output produced Total market value of everything produced by the residents of the country Total income received Basis Location Citizenship Ownership Represents Strength of country's economy. How the residents are contributing towards the country's economy. Economic strength of country's nationals. Focuses on Domestic production Production by nationals Income generated by citizens Calculation GDP = Consumption + Investment + Government Spending + Net Export GNP = GDP - Net Factor Income received from Abroad (NFIA). GNI = GNP +[(income spent by foreigners within the country) -(foreign income not remitted by the citizens)]
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