CHAPTER 4: ECONOMIC STRATEGIES/ POLICIES

Rogelio wanted to save only all his income in a bank. Will this contribute to the inflow of the economy? Explain. Rogelio wanted to completely spend all his income from his work. Will this contribute to the circular flow of the economy? Explain. When taxes are spend on government projects, will this help balance the circular flow of the economy? Explain. Teach Rogelio to resolve his economic situation using this illustration. Where is inflation and deflation in this illustration. Explain.

Too much outflows of money in our economy will result to deflation. Producers compete more sharply on the fewer pesos in the hands of the consumers Thus, a drop in the price level and a rise in the value of pesos. Too much inflows of money into our economy usually results to inflation. Inflation: a decline in the value of money, with an upward movement of the price level. When the amount of money in circulation increases, people have more money to spend. There will be an increase in demand. Therefore, consumers compete for available goods. They pay more pesos for the goods they want and consequently, an increase in price. Inflation then can be described as too much pesos going after a small number of goods.

BARTER SYSTEM Products or services are exchanged for other products or services. Is practiced provided that the cost of production is: equal and the participants are willing to trade.

CURRENCY IN CIRCULATION DEMAND DEPOSITS : balances in bank accounts that depositors can demand Three forms: Transaction in Demand Precautionary Demand Speculative Demand

The BSP uses monetary policies to: regulate money through credit and banking system in order to attain monetary stability conducive to economic development.

when the economy is at intense pace: what happens to credit? it tightens credit When money has been easy for too long such that investment, production and income are exceeding resource limits, tight credit may have to be applied. When it is at a dragging pace (when money has been tightened to long): it loosens credit.

the government influences the economy through its revenue and spending TAXES: Inflows for the government which is referred to as revenue Bureau of Internal Revenue (BIR) is the agency responsible for tax collection TARIFFS: Taxes charged on either imported or exported goods Collection of tariffs is undertaken by Bureau of Customs

TIGHT FISCAL POLICY government levies more taxes and tariffs correct inflation less likely the consumer would spend government also lowers its spending, which then leads to improvement in its budget deficit. LOOSE FISCAL POLICY Lowers taxes and tariffs recession in business government increases spending. Consumers are also encouraged to spend.

to impose and collect revenues for the purpose of supporting the government and its recognized objects. In a period of inflation, taxation becomes an effective tool that can be used to siphon off excess money in circulation. An increase in tax rates = decrease in demand Unnecessary spending = eliminated = pull prices down. During deflationary periods, gov’t can: Subsidize Deduct the increase of tax

Imports of goods and services from abroad draw funds away from the circular flow. there is an income, which is not spent back into the circular flow.

2 ADVANTAGES & WHY 2 DISADVANTAGES & WHY

As countries develop, specialization: in production of goods and services happens. If countries have comparative advantage over other nations in the production of certain goods and services, they engage in: trade with other countries. Trading has become a helpful means for countries to acquire things they do not have enough of in exchange of things they have in excess.

High level of competition A nation exposed to a higher level of competition is more likely to develop and improve for survival Eradication of opportunity cost When that specific country ventures into the production of good considered to be in its field of expertise, it is likely to be efficient in producing such good. Certain opportunity costs are eliminated in production since resources have been diverted from producing services and other goods to producing that particular good for trade. Expanded market Since opportunity cost is eradicated, it opens the gate for opportunity to look for other sources of potential demand

Brain drain Result of deploying highly skilled workers abroad. Their host countries are the ones benefitting from their technical expertise. Environmental degradation The volume of rain that the country experienced in the last few years has caused serious landslides and flooding due to forest degradation, mining and quarrying.

Tariffs and Subsidies Tariffs: are taxes imposed on imports which are based on either the value of the product (ad valorem) or on the physical unit of measure. Subsidies: The government has to dole out in equivalent pesos in order to achieve a foreign exchange balance or strength.