ECONOMIC DEVELOPMENT

Development economics studies the transformation of emerging nations into more prosperous nations.

Basic Economic Concepts

SCARCITY- the condition that results from the imbalance between unlimited wants and limited resources.

OPPORTUNITY COST- is the forgone value or benefit of the next best alternative when scarce resources are use for one
purpose rather than another.

FACTORS OF PRODUCTION- refers to input or resources that are needed to produce goods and services.

MONETARY POLICY- refers to the actions taken by a central bank to manage the money supply within an economy.

FISCAL POLICY- the use of government spending and taxation to control a country’s economy.

PRODUCTION POSSIBILITIES CURVE- Shows the maximum attainable combinations of two products that may be
produced if we use our resources efficiently.

Absolute advantage- is the ability of an individual, company, region, or country to produce a greater quantity of a
good or service with the same quantity of inputs per unit of time

Comparative advantage- is an economy's ability to produce a particular good or service at a lower opportunity
cost than its trading partners.

ECONOMIC SYSTEM

The production, consumption, and distribution of goods and services combine to fulfill the needs of those living and
operating within the economy.

TRADITIONAL ECONOMY- Some parts of the world still function with a traditional economic system. It is commonly
found in rural settings in second and third world nations, where economic activities are predominantly farming or
other traditional income-generating activities.

COMMAND ECONOMY- In a command system, there is a dominant centralized authority – usually the government – that
controls a significant portion of the economic structure.

MARKET ECONOMY- Market economic systems are based on the concept of free markets. In other words, there is very
little government interference. The government exercises little control over resources, and it does not interfere with
important segments of the economy.

MIXED ECONOMY- A mixed economic system accepts private property and permits economic freedom in the use of
capital, but also allows for governments to interfere in economic activities in order to achieve social aims.

DEMAND & SUPPLY

Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices
over a certain period. It represents the buyer's side of the market.

Supply, at its core, refers to the quantity of a good or service that producers can offer for sale at various price points
within a given period.

NATIONAL INCOME AND OUTPUT

CONCEPTS OF NATIONAL INCOME

GROSS DOMESTIC PRODUCT - Is the total money value of all final goods and services produced within the boundaries
of a country in a given time period.

Formula: GDP = C + G + I + NX

GROSS NATIONAL PRODUCT- Is the total market value of all final goods and services produced by a country’s residence
in a given time period.

Formula: GDP = C + G + I + NX

GROSS NATIONAL PRODUCT- is the total market value of all final goods and services produced by a country’s residence
in a given time period.

Formula: GNP = GDP + (X-M)

X-M = Net Factor Income

FACTOR COST (FC)- is the real prices that is earned by the producers or sellers.

Formula : GDP(FC) = GDP (MP)- Indirect Tax + Subsidies

NET NATIONAL PRODUCT (NNP)- is GNP minus the value of capital consumption or depreciation during the year. NNP is
also referred as National Income at market prices.

NATIONAL INCOME (NI)- is the income that is actually received by individuals and household in a nation during a year.

Formula: NNP (MP) = GNP (FC) – Depreciation Value

Or

NI = NNP(MP) + Subsidies – Indirect Taxes

CONCEPTS OF NATIONAL INCOME

PERSONAL INCOME- Is the income that is actually received by individuals and households in a nation during a year.

DISPOSABLE PERSONAL INCOME- is the income that is actually received by individuals and households in a nation
during a year.

Formula: DPI = PI – Personal Income tax

GROSS DOMESTIC PRODUCT (GDP)- Gross domestic product or GDP is the market value of all final goods and services
produced in a year within a country’s borders
GDP COMPONENTS; >CONSUMPTION, INVESTMENT, GOVERNMENT, NET EXPORTS

GDP = C + I + G + XN

NOMINAL GDP vs. REAL GDP

Nominal GDP (or "Current GDP") = face value of output, without any inflation adjustment
Real GDP (or "Constant GDP") = value of output adjusted for inflation or deflation.
Example 2:
In Year 1, the country produces 1,000 cars, and each car costs $20,000.
Nominal GDP (Year 1) = 1,000 × $20,000 = $20 million

In Year 2, the country produces 1,100 cars, but due to inflation, the price of each car rises to $22,000.
Nominal GDP (Year 2) = 1,100 × $22,000 = $24.2 million

Real GDP (Year 2) = 1,100 × $20,000 = $22 million

NATIONAL INCOME ACCOUNTING

 National income accounting is an attempt to classify transactions in a way that is economically meaningful

 refers to the government bookkeeping system that measures the health of an economy
 Y = C + I + G + (X-M)

BUSINESS CYCLE

The business cycle depicts the rise and fall in output (production of goods and services), over time.

Foundation of Aggregate Demand

Aggregate demand is a measurement of the total amount of demand for all finished goods and services produced in an economy.
Aggregate demand is a macroeconomic term and can be compared with the gross domestic product (GDP). GDP represents the total
amount of goods and services produced in an economy while aggregate demand is the demand or desire for those goods

FOUR COMPONENTS: REASONS FOR DOWNWARD SLOPING

Investment Interest Rate Effect

Government Exchange Rate Effect

Net Exports
OPEN MACRO ECOCNOMY

An open economy is one that interacts freely with other economies around the world.
An open economy interacts with other countries in two ways.

1. It buys and sells goods and services in world product markets.