1. Macroeconomic
Concerns
Economic Growth
Inflation
Unemployment
Mr. Rey Belen

2. Economic Growth
O National Income and Product Accounts
are an accounting system used to
measure of aggregate economic activity.
O The measure of aggregate output in the
national income accounts its gross
domestic product or GDP.

3. Gross Domestic Product
(GDP)
3 ways to define GDP
1. The value of the final goods and services
produced in the economy during a given
period
2. The sum of value added in in the
economy during a given period
3. The sum of incomes in the economy
during a given period.

4. Economic Growth: GDP
Approaches to measure GDP
1. Expenditure approach, or GDP = C
(consumption) + I (investment) + G
(government spending) + NX (net exports or
exports minus imports)
2. Sectoral(producton) approach, or GDP =
Agriculture + Industry + Services
3. Income approach, or GDP = wages + profits
+ rents + interests payments.
The first two are more common in the National Income Accounts
(NIA) if the Philippines.

5. Economic Growth: GDP
Example, in 2003 (in thousands)
 Expenditure Approach
Personal Consumption P2, 750, 853, 000
Government Consumption 488, 740, 000
Gross Domestic Capital Formation 776, 191, 000
Exports 1, 968, 534, 000
Imports 1, 989, 104, 000
 Income Approach
Compensation of employees 1, 028, 888, 000
Operating Surplus 2, 355, 748, 000
Depreciation 342, 364, 000
Indirect Taxes less subsidies 302, 654, 000 – 6, 960, 000
 Production Approach
Agriculture 631, 970, 000
Industry 1, 378, 870, 000
Services 2, 305, 562, 000

6. Nominal and Real GDP
O Nominal GDP is the sum of the quantities of final
goods produced times their current price.
O Nominal GDP increases overtime because:
O The production of most goods increases overtime.
O The prices of most goods also increases overtime.
O Nominal GDP is also called peso GDP or GDP in
current pesos
O Real GDP is constructed as the sum of the
quantities of final goods times constant (rather than
current) prices.
O Real GDP is also called GDP in terms of goods, GDP
in constant pesos, GDP adjusted for inflation, or GDP
in 1985 pesos (which is the benchmark for real GDP
in the Philippines.

7. Nominal and Real GDP
Year Quantity Price of Nominal Real GDP
of Motorbike GDP (in 2008
Motorbike s pesos)
s
2007 10 P 20, 000 P 200, 000 P 240, 000
2008 12 P 24, 000 P 288, 000 P 288, 000
2009 13 P 26, 000 P 338, 000 P 312, 000
To construct the real GDP, multiply the number of motorbikes in each year
by a common price. Suppose we use the price of the motorbikes in 2008
as the common price. This approach give us, in effect, real GDP in 2008
pesos.

8. Nominal and Real GDP
O Real GDP per capita is the ratio of real GDP to the
population of the country.
O GDP growth equals:
(Yt – Yt-1)
Y t-1
 GDP refers to the real GDP, where Yt denotes real
GDP in year t and Yt-1 denotes the previous year.
 Periods of positive GDP growth are called
expansions
 Periods of negative GDP growth are called
contractions.

9. A Typical Business Cycle:
Expansion and Contraction
O Expansion or Boom
O The period in the business cycle from a
through up to a peak, during which output
and employment rise.
O Contraction, Recession or slump
O The period in the business cycle from a
peak down to a through, during which
output and employment fail.