APPLIED ECONOMICS – STUDY GUIDE

Unit 1: Introduction to Applied Economics The discipline of economics does not just
focus on identifying choices. Instead, it tries
Lesson 1.1. Economics as a Social Science
to understand how to make these choices
Economics is related to the choices that effectively. The question is: how do
individuals and societies make. It is the individuals and societies decide which
discipline that seeks to understand how choice makes the most sense? How do you
individuals and societies make decisions in conclude which of the strands is your best
consideration of their scarce resources and choice?
unique circumstances. Deals with humans,
Choices are made by identifying the amount
their activities (choices, consumption, etc.),
of utility we can gain from selecting one
and their environment (governments,
option over another.
nations, etc.). Use of empirical tools and
evidence, qualifies economics as a social Utility is a measure that economics uses to
science. weigh the satisfaction or usefulness a
consumer can receive when using a
Basic Economic Concepts Economists
product. Economists believe that as
recognize that human wants are unlimited.
humans, we are rational beings, and as
However, this notion of unlimited human
such, will always make choices that help us
wants directly conflicts with the reality that
maximize our utility. Economists evaluate
resources are limited. This is the economic
decisions primarily by identifying the
problem that we face: human wants and
corresponding costs or consequences that
needs are unlimited, but resources are
accompany these choices.
scarce. It is because of this scarcity that
individuals are forced to make choices. Opportunity Cost
Scarcity In economics, scarcity is defined as
By choosing to pursue the GAS or ABM
the limited availability of a resource, good,
program, you gave up the chance to take
or service. When economists say a resource
STEM or HumSS instead. The strands that
is scarce, they do not necessarily mean only
you did not pick are your opportunity costs
a small number of this resource. Instead,
in this decision.
they say that this resource is limited relative
to people’s demand for it. By recognizing and understanding the costs
of our choices, we can properly evaluate our
Choice
decisions. We can say that a decision is
Because of the conflict between infinite good or bad by comparing what we might
human wants and scarce resources, people have gained from the option we took and
are forced to choose which personal needs what we missed out on by letting the
and wants they will satisfy. They have to alternatives go.
decide how they will allocate their scarce
In understanding scarcity and choice and
resources to fulfill the never-ending list of
recognizing opportunity costs, we can begin
wants they might have.
analyzing how decisions are made.
APPLIED ECONOMICS – STUDY GUIDE

Wrap-Up scale, societies are met with these three

questions:
● Economics is a study of choices and
understanding how scarce resources can be ● What should we produce?
allocated to fulfill unlimited human wants ● How should we produce it?
and needs.
● For whom should we produce it?
● Scarcity, or the reality that resources are
What Should We Produce?
limited, forces humans to choose where to
allocate them. This question asks what products and services
an economy should focus on producing. Should
● In making choices, we sometimes they focus on what they are naturally skilled at?
consider utility, but inevitably have to give Or should they instead allocate their resources
up the alternatives. toward gaining experience by producing a good
that might have future utility? This question also
● Opportunity cost represents the value of
forces societies to consider which of their
the next best option or alternative. members’ needs they will prioritize.
● The fields of economics differ in the scope How Should We Produce It?
of their study. Microeconomics focuses on
individuals and smaller economic agents. This economic question asks how the economy
will produce these goods and services. Will they
On the other hand, macroeconomics looks
focus on manual labor or will they shift to
at aggregates and larger economic agents
modern technology to improve workflow?
Lesson 1.2 Economics as an Applied
For Whom Should We Produce It?
Science
The last economic question asks for whom the
The Philippines seeks to address this issue final goods and services should be given. Should
through the Philippine Development Plan goods and services be produced for everyone
anchored on the long-term vision entitled equally, or should it instead be given to those
AmBisyon Natin 2040, the components of who are capable of paying for them? How about
which were developed by the National equitably providing these to those who need
Economic Development Authority (NEDA). them most?
One of the key goals of AmBisyon Natin While these economic questions have unique
2040 is to improve the overall living characteristics, consequences, and implications,
standards of Filipinos and alleviate or they all share a similarity in determining
significantly reduce poverty rates. resource allocation or the process of assigning
limited resources to specific uses. The three
The Three Economic Questions The main
economic questions enable society to consider
economic problem we face is that human wants
their scarce resources when making choices to
are unlimited, but resources are scarce. This is
provide for people's needs.
the driving force behind the discipline of
economics itself, and it is easy for an individual Factors of Production
or a small group of people to visualize this
As individuals, the different resources that we
problem. In answering this problem on a larger
have to allocate are our time, money, and the
APPLIED ECONOMICS – STUDY GUIDE

opportunity to have new experiences. However, Entrepreneurship

these resources are only applicable when
analyzing economic activities from a micro The intellectual capacity to organize and put
perspective. From a macro perspective, there together with other factors of production
are four particular resources that societies must (land, labor, and capital) to produce goods
decide on how to allocate. These are land, labor, and services the society needs. It is the
capital, and entrepreneurship vaguest of the four factors, but it is also
arguably the most important because,
Land
without the coordination of the
Resources that can conceivably be entrepreneur, the other elements would be
attributed to the land or the sea. It consists significantly less productive on their own.
of all-natural resources available to us such
as clean water, physical land, and even the Economic Growth vs. Economic
trees and plant life around us. Some raw Development
materials are also classified under land,
Economic growth is considered an
such as coal, oil, solar energy, and wind
important goal that any economy should
energy.
strive for. However, there is a growing
Labor opinion among economists that economic
growth is not necessarily what we should
Tangible human element that is involved in
strive for. They argue that economic
the production of goods and services. It is
development should be considered as our
the contributions made by the workforce,
primary economic goal in order to truly
whether physical or mental.
build a better society.
Capital
Economic Growth
Investments made to improve production.
Economic growth is the overall expansion of
These can come in the form of physical
an economy. This is seen through an
capital which is best represented by the
increase in gross domestic product (GDP), a
different tools and equipment used to make
statistical measure of total value of goods
goods. Hammers, heavy machinery, and
and services produced within a country
transportation vehicles are all examples of
during a specific period of time, usually
physical capital. Another form of capital is
annually. In essence, economic growth looks
human capital, which are investments made
at how wealthy an economy is by
toward improving the human element of
considering the value of goods and services
production. This can come in the form of
being produced, measured in monetary
education to better equip the workforce
units. It does not accurately represent the
with the skills and knowledge needed to be
actual welfare or well-being of the people
productive, or even a well-designed
residing in a particular country. It can be
healthcare system that allows individuals to
limited and concentrated among a small
stay healthy and be productive for a longer
group of wealthy elites.
period of time.
APPLIED ECONOMICS – STUDY GUIDE

Economic Development current use, but also to take into

consideration the world we will leave for
The measure of the welfare and well-being later generations.
of the economy’s members. In measuring
development, a wider range of statistics is Inclusive Growth
taken into consideration.
One of the key goals identified in AmBisyon
Economic development does not only look 2040 was inclusive growth. Inclusive growth
at how much money the economy is is characterized by a growth that not only
making, but it also accounts for the different benefits the elite few but makes equitable
factors that contribute to an individual’s provisions for everyone in society. This is
standard of living. growth that helps eliminate poverty,
improves the living standards of the
the goal of economic development moves
majority, and provides opportunities for
toward the idea of equity being more
people to live meaningful lives in a
important than efficiency. This concept
sustainable and environmentally
argues that the focus should shift from just
responsible manner.
being able to produce all that we are
capable of producing, and instead look Why Study Economics?
toward providing to those who need more
in an effort to make life as fair and as It matters because the different lessons you
comfortable to all involved. will learn from this discipline will help you
make better decisions not just for yourself
Sustainable Development or the people around you, but also for
future generations.
A subset of economic development that has
gained traction over the past few decades is You will be given an opportunity to learn
the idea of sustainable development. This how to discern the actions and policies of
concept was conceived from the growing local governments and entire nations not
reality that while economic growth is just by their explicit costs incurred but also
(primarily) good and possible, it is not by the different opportunities they forgo.
sustainable for future generations if natural Understanding economics enables you to
resources, such as fossil fuels and other form well-informed opinions and decisions
non-renewable resources, are being of your own that represent who you are and
consumed at a significantly rapid rate. what principles you believe in.
defined by the International Institute of Wrap-Up
Sustainable Development (IISD) as
“development that meets the needs of the ● The three economic questions are:
present without compromising the ability of ○ What should be produced?
future generations to meet their own
needs.” This idea asks us to consider not just ○ How should they be produced?
how to properly allocate resources for ○ For whom should they be produced?
APPLIED ECONOMICS – STUDY GUIDE

● The four factors of production that have influenced certain practices within more
societies try to allocate are land, labor, modern economic systems.
capital, and entrepreneurship.
Command Economic System
● Economic growth refers to an increase in
A central authority that provides the answers to
the GDP of a country. Economic the three economic questions. The role of this
development focuses on the improvement authority is typically filled by the government. In
of the welfare of a country’s citizens. this type of system, the government solely
decides how to allocate resources such as labor
● Economics is valuable as a discipline
(who works which kind of jobs) and food
because of how it teaches you to make
(rations).
better decisions for yourself, the people
around you, and future generations. It also easily adapt to changing circumstances. Because
allows you to think critically and form better the decision-making is delegated to a central
informed opinions. group, they can theoretically make decisions
that will put the country in the best position to
Lesson 1.3 Philippine Socioeconomic succeed without having to go through the
Development in the 21st Century lengthy processes of elections, debates, or
legislation. However, a command economy is
Economic Systems One of the key takeaways susceptible to problems with innovation and
from the previous lesson was the concept of the motivation.
three economic questions, which refers to the
questions that societies have to answer when Market Economic System
addressing the economic problem of resource
A market economic system is characterized by
allocation. These questions are: “What do we
an economy that has little to no government
produce?”, “How do we produce it?”, and “For
intervention. In this system, the interactions in
whom do we produce it?”. Is it the government
the free market provide the answers to the
who is answering all three questions, or is it the
three economic questions. Goods and services
markets (producers and consumers)? Who
are produced depending on the level of demand
dictates the system by which resources are
and are typically produced in the most efficient
allocated in a specific country? Depending on
manner. Resources are allocated based on the
the answers, different countries will have
consumers’ willingness and ability to pay.
different economic systems.
Market economies benefit from high levels of
Traditional Economic System personal incentives for each individual. Because
there is an opportunity to profit at a high rate,
The three economic questions are answered
people are inclined to work harder and longer
through traditions and established trends. In
hours to earn more. Entrepreneurs with great
this system, there is very little division of labor,
ideas are more likely to innovate and take risks
and it is commonplace for sons and daughters
to make it big. As such, the rate of growth is
to take up their parents' professions. Not as
usually far greater in a market economy
widespread as they might have been in the past.
compared to the other systems.
However, they are still being utilized in different
rural or indigenous communities. There are also Mixed Economic System
characteristics of traditional economies that
APPLIED ECONOMICS – STUDY GUIDE

A system that takes all the best characteristics individuals who might be dependent on the
from each of the three economic systems to social support provided by the government.
form a balance between the free market and
government intervention. Almost all economies Stable Inflation Rate
are some type of mixed economy, though there Another target that governments set is
are rarely ever two that are the same. Each maintaining a stable inflation rate. Inflation
country has its own system in place that reflects refers to an increase in the average price levels
the principles it holds as a society with some of an economy’s basket of goods over a period
favoring more government intervention and of time. This basket of goods refers to goods and
others preferring a freer market. services that are typically consumed by a
Macroeconomic Goals household. Usually, statistical agencies report
the average inflation rate for all the goods and
Throughout the history of the world, countries services. In addition, the inflation rate for
have had to endure the fundamental economic specific types of goods and services is also
problem of scarcity. In addressing this problem, computed and made available to the public.
governments identify similar goals that they
Economies typically set different targets for
push their economies to achieve. Achieving
their inflation rate, but it should be a single-digit
these goals is expected to improve the
rate or less than ten percent. For 2020, the
socioeconomic status of different countries.
Philippines has set an inflation target of 1.75%
Low Unemployment to 3.75%. The target varies depending on the
different circumstances and factors within each
the state wherein a person is actively seeking economy.
but unable to find work. In understanding the
state of unemployment in a particular country, Economic Growth
we most often rely on the unemployment rate,
Along with the two macroeconomic goals is the
which is the number of people who are
pursuit of economic growth. We had earlier
unemployed expressed as a percentage of the
defined economic growth as an increase in gross
total labor force. the labor force is the sum of
domestic product or GDP. Gross domestic
employed and unemployed individuals aged 15
product (GDP) is the measure of the value of all
and older. This represents the economically
final goods and services produced in a country
active population or the population of
over a given period of time, usually one
individuals who are capable of contributing to
calendar year. Goods and services included are
the economy of the country. Those who are not
those that can be produced by individuals or
looking for work for reasons such as schooling,
companies of different nationalities or
disabilities, or housekeeping are excluded from
ownership located within the country. As
the labor force.
previously discussed, GDP can be measured in
Countries typically strive for an unemployment three ways, namely the expenditure approach,
rate of around 5%. This relatively low number the income approach, and the output
impacts the economy in two ways. For one, a approach. The value of total output can be
low unemployment rate points towards the measured by how much money is being spent in
country being efficient with its labor resources. an economy, how much money is being earned,
This would mean a higher level of production. At or the value of the goods and services
the same time, this also reduces the number of produced. Since these three different
APPLIED ECONOMICS – STUDY GUIDE

approaches measure the same thing, they all imports. Exports can be defined as goods
should yield the same value. Any expense made produced in the country and sold abroad,
within an economy should theoretically lead to while imports are goods entering the
earnings or income of the same value for country from producers elsewhere. When
someone else. In the same vein, the total value
exports are greater than imports, there is a
of output should equate to the expenses made
trade surplus. The formula for GDP under the
for those same goods and services.
expenditure approach is GDP = C + I + G + NX.
Solving for GDP using the Expenditure Step 1: Identify the different expenses
Approach incurred by the economy as well as their
Consumption (C) refers to the purchase of respective monetary costs.
final goods and services by individuals and Step 2: Multiply each expenditure by its
households. These can range from durable respective monetary cost.
goods such as refrigerators, vehicles, and
Step 3: Add together all of the
gadgets, to non-durable goods that are expenses to find the gross domestic product.
typically consumed quickly such as food,
hygiene products, and the like. Services are Let’s Calculate
actions performed by other individuals,
Example 1 : Assume that the economy only has
such as healthcare and education. the following goods and services. In a given
Investments (I) refer to spending by firms year, the economy produces 35 books that cost
and households on certain capital and long- ₱ 450 each, 12 factory machines that cost ₱
7,500 each, 4 road repair projects that cost ₱
term goods. Firms can consider spending on
94,000 each, and finally ₱ 22,500 in net exports.
capital goods such as equipment, buildings,
What is the GDP of the economy for that year?
and machineries as an investment, while
households are more likely to consider Solution
purchasing a house, land, or an apartment Step 1: Identify the different expenses
unit as an example of personal investment. incurred by the economy as well as their
respective monetary costs. In the
Government spending (G) refers to all
aforementioned economy there are:
government purchases and spending, which
include salaries for employees on 1. 35 books worth ₱ 450 each
government payrolls as well as purchases
2. 12 factory machines worth ₱ 7,500
for government projects such as each
infrastructure. Note that transfer payments
or money given out to those who need 3. 4 road repair projects worth ₱ 94,000
social support are not considered each
government spending. This is because these 4. Net exports worth a total of ₱ 22,500
transfer payments do not represent any
additional production of goods and services.
Step 2: Multiply each expenditure by its
Net exports (NX) is a measure of the value respective monetary cost.
of all exports subtracted from the value of
APPLIED ECONOMICS – STUDY GUIDE

Books: 35 x ₱ 450 = ₱ 15,750 the income attributed to the factor of

production of entrepreneurship.
Factory machines: 12 x ₱ 7,500
= ₱ 90,000 As such, the formula for GDP under the income
approach is GDP = W + R + I + P. Assuming you
Road repair projects: 4 x ₱
are provided with the necessary information,
94,000 = ₱ 376,000
you can compute the value of GDP.
Net exports: 1 x ₱ 22,500 = ₱
Step 1: Identify the different sources of income
22,500
of an economy as well as their respective
monetary gains.

Step 3: Add together all of the expenses Step 2: Multiply each source of income by its
to find the gross domestic product. respective monetary gain.

₱ 15,750 + ₱ 90,000 + ₱ Step 3: Add all of the income to find the gross
376,000 + ₱ 22,500 = ₱ 504,250 GDP = ₱ domestic product.
504,250

Solving for GDP using the Income Approach

Nominal vs. Real GDP
When solving for the GDP using the
nominal GDP refers to the value of the gross
income approach, we can understand the total
domestic product that is not adjusted for
to be equal to the value of total national income
inflation. This measure takes the overall value of
(TNI).
goods and services produced in a given period
Total national income (TNI) refers to with respect to current prices. As such, it is
the income generated by the different incorrect to compare nominal GDP data over
factors of production, including all time since we have yet to take into account the
wages, rent, interest, and profits earned changes in prices.
by members of the economy in a given
real GDP focuses on the value of goods and
period. These refer to the income
services produced within a given time period
generated by the different factors of
with constant prices. The use of constant prices
production.
means that the measure is computed using the
Wages (W) are the income generated by
prices of a specific year called the base year. As
the labor force from jobs and self-
such, computing for real GDP with 2010 as the
employment. These are income earned
base year would mean that all computations
from jobs and self-employment.
would use the prices of 2010. This would mean
Rent (R) is the income that comes from
that whether you were computing for the real
ownership of land.
GDP of 1995 or 2015, you would still use the
Interest (I) is the increase in the value of
prices of 2010. Computing for GDP using
capital goods. This also represents the
constant prices allows us to account for the
income generated by this factor of
changes in price levels. As such, it becomes
production.
easier to compare year on year because goods
Profit (P) is the income generated by
and services are measured using a single price
firms operating in the country. This is
(which is the price of the base year).
APPLIED ECONOMICS – STUDY GUIDE

Solving for real GDP is similar to the the base year is 2017. With that in mind, the
steps mentioned earlier for computing for GDP. costs for each expense in 2017 are:
However, one has to take into consideration the
1. Rice costs ₱ 11 per unit
use of the prices of the base year in making
these computations. 2. Fish costs ₱ 18 per unit
Step 1: Identify the different expenses 3. Beef costs ₱ 27 per unit
incurred by the economy in a given year.
Step 3: Multiply each expenditure by its
Step 2: Identify the monetary cost for monetary cost in the given base year. Since we
each expense for the given base year. are solving for the real GDP in 2019, we will use
the quantity consumed for each expense in
Step 3: Multiply each expenditure by its
2019 but multiply them against the prices of
monetary cost in the given base year.
2017 or our base year.
Step 4: Add together all of the expenses
Rice: 59,000 units x ₱ 11 = ₱ 649,000
to find the real gross domestic product.
Fish: 31,000 units x ₱ 18 = ₱ 558,000
Let’s Calculate
Beef: 13,500 units x ₱ 27 = ₱ 364,500
Example 3: Assume that an economy only
consumes the following goods: rice, fish, and
beef. The data on expenses over the past three
Step 4: Add together all of the expenses to find
years are shown in the table below:
the real gross domestic product.

₱ 649,000 + ₱ 558,000 + ₱ 364,500 = ₱

1,571,500 Real GDP in 2019 = ₱ 1,571,500

Another measure of economic activity

Using 2017 as the base year, what is the real that can be considered in measuring economic
GDP of the economy in 2019? growth is the gross national product (GNP). The
gross national product consists of similar
Solution components to GDP, plus net income from
Step 1: Identify the different expenses incurred abroad. By taking this into account, GNP
by the economy in a given year. Since we are effectively represents the value of goods and
being asked to solve for real GDP in 2019, we services produced by all of the citizens of a
can identify the following expenses for that country wherever they are located. As such, an
year: overseas Filipino worker (OFW) working in the
United States would contribute to the GNP of
1. 59,000 units of rice the Philippines but an American working in the
Philippines would be contributing to the GNP of
2. 31,000 units of fish
the United States.
3. 13,500 units of beef
Positive economic growth usually leads
Step 2: Identify the monetary cost for each to a higher average income and offers more
expense for the given base year. Take note that incentive for innovation in technology,
APPLIED ECONOMICS – STUDY GUIDE

medicine, and other similar fields. Higher individuals with an opportunity to have a high
economic growth could also be indicative of quality of life. People would have an
improved competitiveness in the global market opportunity to make an honest, liveable wage
wherein locally produced goods are considered that would be enough to provide for their
at par with foreign-produced goods or even needs. On top of this, an equitable income
better. distribution would also leave incentives for
others to innovate and exert more effort
However, similar to the discussion in the
towards being a productive member of society.
previous lesson, we identified some of the
If an economy pursued an equal income
shortcomings of using economic growth as the
distribution, there would be no reason for
measure used when trying to understand
people to work hard knowing that they would
improvements in an individual's quality of life.
receive the same benefits with those who are
More and more economists start to believe that
not as productive.
economic growth, while a reliable indicator of
economic progress, does not accurately reflect Pursuing this macroeconomic goal
the well-being of its citizens. brings about the potential to significantly
alleviate poverty. Reducing and potentially
Equity in Income Distribution
eliminating poverty affects not only the
To specifically address the issue that individual but society as a whole. Individuals can
economic growth does not represent the social lead good lives and at the same time be in a
reality of inequality, a macroeconomic goal that position to contribute to society. Rather than
most nations also take into consideration is always having to provide government programs
equity in income distribution. for short-term relief, a pursuit of equitable
income distribution could lessen the
To start, we must first differentiate the government's burden of providing social
concept of equality from equity. While equality support and move towards positive economic
focuses on providing the same type and amount growth.
of resources to everyone, equity focuses on
fairness. This would mean redistributing Socioeconomic Development of the
resources towards those who are in need to Philippines in the 20th Century
make the allocation fair to everyone.
With a deeper understanding of the
Income distribution talks about how the
different economic concepts that characterize a
output of a country is distributed or shared with
nation’s pursuit of socioeconomic development,
the population. Having an equal distribution of
we are now better equipped to discuss the
income would mean that every single person in
different highlights in the country’s history. We
an economy would earn an equal amount of
will be moving from the theoretical and
income. As some people earn significantly more
conceptual side of economics and applying
while others are barely earning anything,
these directly to the economic history of the
income inequality rises. This can lead to a
Philippines.
situation wherein some live extremely
exorbitant lifestyles while others are unable to The 1970s and 1980s: Martial Law in the
fulfill even their most basic needs. Philippines

The idea of achieving equity in income This period is often regarded as the
distribution is one that hopes to provide all “Martial Law Era” of the country. It was during
APPLIED ECONOMICS – STUDY GUIDE

this time that the former president Ferdinand worst economic contractions the country has
Marcos had the country completely under his experienced garnering the Philippines the title
rule. Several key economic events and “Sick Man of Asia.” The GDP shrank by 7.3% in
developments characterized former President 1984 and 1985, representing some of the worst
Marcos’s presidency. periods of Philippine economic performance.
This economic nosedive further fueled the
Initially, this period in Philippine history
unrest of the Filipino people, eventually
experienced significant positive economic
culminating in the People Power Revolution of
growth attributed to the rise in demand for local
1986 and the eventual ousting of the Marcos
raw materials. There were also well-publicized
regime.
and large cale infrastructure projects that
provided numerous job opportunities and The late 1980s and early 1990s: The Aquino
helped fuel the economy. However, these pillars Administration
of the Philippine economy at the time
Former President Corazon Aquino’s
eventually collapsed. The Marcos administration
administration inherited a debt-ridden economy
had a practice of awarding government projects
that was in a very tough situation. The first
to loyal administration allies. This crony
agenda that the Aquino administration laid out
capitalism allowed the closest friends and
towards the goal of a more stable economy
families of the president to rake in wealth
were efforts and programs to pay off the almost
through widespread corruption in the different
$28 billion in debt the Philippines owed to
government projects or positions given to them.
different countries and international
All of these came to a head towards the organizations. The unpaid large amount of debt
end of Marcos regime. At this point, inflation was the first major hurdle the country had to
was skyrocketing with commodity prices overcome in its pursuit of economic growth.
increasing by over 50% by 1984. There were Despite efforts made by the government to
reports of wages for both skilled and unskilled reduce the amount of debt, by the end of
workers falling across the board. The Aquino’s term it moved in the opposite
agricultural sector was one of the hardest hit, direction as the debt had slightly increased.
with a drop of almost 30% in average income
Despite being unable to lessen our
being felt by farmers across the country. This fall
foreign debt, the Philippine economy
in wages coupled with the rising prices led to a
experienced positive growth for the first time in
rise in poverty in the country at the time.
years. Though it was initially slow, momentum
To finance the projects of the picked up towards more respectable growth
administration, the government needed to rates. This was mainly attributed to an initial rise
borrow money abroad and eventually the in consumption from private households.
Philippines’ foreign debt skyrocketed. All the However, over time the international
money borrowed helped fund the initial growth community began to develop more faith in the
that the country experienced in the early years nation’s economy and supported it through
of the administration. However, this short-term investments and other financial aid initiatives.
thinking led to many long-term consequences
While the Aquino administration did
that we are still enduring now.
make strides towards improving the economy of
The last few years of the Marcos the Philippines, it was not without fault.
administration were characterized by the two Programs and legislations towards the
APPLIED ECONOMICS – STUDY GUIDE

alleviation of poverty and the equitable Efforts to curb poverty were also made
distribution of wealth and income were but failed to be properly executed. Land reform
ineffective and full of loopholes. One of the projects from the previous administration were
most prominent examples of this would be the continued but poorly implemented. Although
Comprehensive Agrarian Reform Program the country experienced positive economic
(CARP) of 1988. The land reform acts aimed to growth, the immense increase in population
provide farmers with an opportunity to legally prevented this growth from impacting the
own the land they worked on, giving them a common Filipino. Having more mouths to feed
better foundation from which to rise out of meant needing to stretch resources further.
poverty. However, these programs and laws Though programs were put into place to
were poorly designed and implemented as the encourage better family planning and reduce
bodies in charge of executing them had an population growth, these were insufficient h to
interest in keeping these resources for a small make a real impact on poverty reduction.
group of people.
Following former president Fidel V.
The Rest of the 1990s: The Ramos and Estrada Ramos was the incumbent vice president Joseph
Administrations Estrada. The famous actor was able to convert
his mainstream popularity into a successful
Former president Fidel V. Ramos
political career on both the local and national
succeeded former president Corazon Aquino as
stage. His campaign promised a “pro-poor”
the next president of the Philippines, and it was
stance, and this made him a popular choice
under his administration that the country
among voters. However, his administration was
became more open to the global economy. One
marred by accusations of widespread corruption
of the main highlights of his administration was
and cronyism.
the country’s participation in the World Trade
Organization (WTO) which brought more While the administration did have
opportunities for international trade and bright spots in its pursuit of poverty alleviation
economic growth. The administration also put a as well as increasing the poor’s access to basic
staunch emphasis on addressing the widespread social services, the overwhelming reports of
issue of corruption in the country. corruption led to the early end of Estrada’s
presidency There were reports of misuse of
The Ramos administration also faced
public funds as well as reported payouts
serious problems, such as the 1997 Asian
received by the administration for protecting
Financial Crisis and the national power crisis of
different jueteng lords in the late 1990s. In
the early 1990s. The Asian Financial Crisis was
January 2001, the second EDSA revolution
the widespread devaluation of currencies
brought an end to the Estrada administration
throughout Asia that started with the Thailand
and the start of the nine-year term of former
Baht. The national power crisis of the
President Gloria Macapagal Arroyo.
Philippines began in 1990 wherein Metro
Manila and 33 provinces in Luzon experienced Modern Economic Problems of the
brownouts of up to 4 hours per day. Both of
Philippines
these instances significantly halted the country's
ability to grow at a rapid pace, which held back Having taken the time to discuss and
our economic growth. understand the history of the Philippines’
socioeconomic development in the 20th
century, we now move towards understanding
APPLIED ECONOMICS – STUDY GUIDE

the modern economic circumstances of our misuse of public power in the pursuit of private
nation since the start of the 21st century. gain, usually at the expense of the people and
society.
Poverty
Since the onset of the new century,
One of the main problems that every several corruption cases have battered the
administration faces is widespread poverty. nation. Included in these are reports of electoral
Poverty is defined as the condition wherein fraud under the Arroyo administration, the well-
individuals lack the financial and material known Priority Development Assistance Fund
resources to meet their basic needs. In the scam (better known as the Pork Barrel Scam) of
Philippines, poverty is measured using a poverty Benigno Aquino III’s term, and recently the
threshold or an estimated monthly figure that PhilHealth 15-B fund corruption.
allows a household of five to meet their basic
food and non-food needs. In 2018, the poverty Each instance of corruption in the
threshold was estimated to be at ₱ 10,727 per country has led to the inefficient allocation of
month. Achieving the goal of poverty reduction resources that could have been better used to
requires the alignment of necessary conditions the benefit of the majority (rather than the gain
such as a rise in economic growth, more of the few). Other regular instances of
equitable distribution of income as well as the corruption at the local level, while considered
provision of more employment opportunities negligible individually, add up to also serve as an
for the masses. additional roadblock to the development of the
nation.
Data suggests that the Philippines has
been able to reduce the poverty rate of the Sustainable and Inclusive Economic
country over the past two decades, with Growth
poverty declining from 26.6% in 2006 to 21.5%
in 2015 and finally 16.7% in 2018. The pursuit of economic growth is
something that the Philippines consistently has
Some of the programs recently been able to achieve year in and year out. In
established by the government to alleviate recent years the country has been able to
poverty include the Pantawid Pamilyang Pilipino maintain GDP growth rates of about 6 to7%,
Program or the 4Ps, the TRAIN law which sought buoyed primarily by a stronger agricultural
to reform the current tax systems, as well as the industry, as well as continuous growth in the
introduction of an improved land reform act industrial and service sectors. Despite the 2008
that hoped to transfer land from hacienda Global Financial Crisis which caused a dip in the
owners to local farmers. However, these economy’s growth, the Philippines has done
programs had varying levels of success in well to be the 36th largest economy in 2019.
eliminating poverty.
Despite the promising signs shown by
Corruption the country, there are still questions that beg to
be answered; namely how sustainable and
The overwhelming reason behind the
inclusive our current growth trends are. The
failure of implementation of some of the
pursuit of this sustainable and inclusive growth
aforementioned projects was due to the
is one of the main rationales behind AmBisyon
corruption happening in both the local and
2040 which serves as the long-term vision for
national government. Corruption refers to the
the Philippines’ socioeconomic development.
APPLIED ECONOMICS – STUDY GUIDE

While we have achieved high economic effective and ineffective policies and decisions
growth rates, just how inclusive has this growth that led us to the current state of affairs.
been? Experts argue that while we are growing
● The primary economic problems that the
fast as a nation and the poverty rate is indeed
country has to contend with are poverty,
going down, too many are still being left behind
corruption, and the pursuit of sustainable and
in the process. Particularly those in the
inclusive economic growth.
vulnerable sectors such as those working in
agriculture who still find it difficult to improve
their living conditions. There is also the question
of environmental sustainability, with the
Philippines ranking 31st in carbon dioxide
emissions in 2018, and how the country
contributes to the solution. The onset of the
coronavirus pandemic also presented a
curveball to the positive trend we were working
towards, with the closure of businesses and
other economic activities causing our economy
to experience its worst recession ever.

Wrap-Up
● An economic system dictates how the three
economic questions are answered.

○ Traditional economies follow accepted

practices from the past.
○ Command economies have a central
authority to make decisions.
○ Market economies allow the laws of
supply and demand to decide.
○ Mixed economies take the best
characteristics of each system.
● The four macroeconomic goals represent the
targets most economies strive toward in the
pursuit of socioeconomic development. These
include:

○ Low unemployment
○ Stable inflation rate
○ Economic growth
○ Equity in income distribution

● The Philippines’ history of socioeconomic

development is rife with both high and low
points. Each administration brought about some