Lesson 1: Welfare Issues and Concerns
- Positive Economics – economic phenomena
- Normative Economics – attempts to evaluate the economic phenomena
- Welfare Economics – deals with topics on justice, equity, freedom, and other topics that concerns economic growth and progress. Welfare Economics assumes that individuals are the best judges of their own welfare.
Lesson 2: Economic Growth Vis-à-vis Economic Development
Growth in Economics connotes a positive change or movement toward optimum, if not better standards of living for the members of society.
- Pareto Optimality or Paretian Optimum
- Economic Growth
- Economic Development
- Balanced Growth Thesis
- Unbalanced Growth Thesis
Two Major Strands to the Study of Development
- Stages of Economic Growth Theories of the 1950s and early 1960s (Linear Stage Model)
- Structural – Internationalist Theories of the late 1960s and 1970s
- Neo – Colonical (or Neo – Marxist) Dependence Model
- False Paradigm Model
- an American Economist Historian who popularized the idea of a “take – off” into a self – sustaining economic growth. His popular work, the Stages of Economic Growth, is a non – communist manifest (1960) which lists the following key characteristics:
Walt Whitman Rostow
- It is evolutionist
- It is unilinear
- It is internalist
- It is recapitulationalist
Andre Gunder Frank
- is an American Economist who coined the phrase “the development of underdevelopment.” The view takes society in a Global Capitalist System. It is characterized by whole chain of metropolis - satellite relations. This chain links the entire system. The key characteristics are:
- It is externalist
- It is bilinear
- It is stagnationist
- It is discontinuist
PERSPECTIVE OF DEVELOPMENT
INDICATORS AND CORE VALUES OF DEVELOPMENT
- literacy,education and skills
- income and economic welfare
- choice,democracy and participation
ECONOMIC DEVELOPMENT THEORIES
- production function
- saving function
- labor supply function
(saving rate)s/AY(capital-output ratio)
- commonly used by developing countries in economic planning.
- With a target growth rate, the required saving rate is known.
EXOGENOUS GROWTH MODEL
- emphasize on the role of technological change.
- the saving rate will only determine the level of income but not the rate of growth.
SURPLUS LABOR MODEL
- It is a model taking the peculiar economic situation in developing countries into account:
> underemployment of resources
ECONOMIC DEVELOPMENT THEORY
-sustained, concerted actions of policy makers and communities that promote the standard of living and economic health of a specific area.
Lesson 3: Sustainable Development
Sustainable Development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
Gross National Product (GNP) – the market value of an economy’s final goods and services produced over a period of one year.
Final goods – goods that are ultimately consumed rather than used in the production of another good.
National Income – flow of income and expenditure measures of the country.
Nominal GNP – market value of a nation’s aggregate production of final output based on current prices for the goods and services produced during the year.
Real GNP – measure of the value of a nation’s aggregate output of final products obtained by using market prices prevailing for products during a certain base or reference year.
Aggregate Real Income – the nominal (money) income of a nation, adjusted for inflation, expectations of Equivalent to real GNP.
Net Exports – any excess of expenditures on exports over imports.
Aggregate Expenditures – the nominal income of a nation, adjusted for inflation.
- counts all the output of the residents of a country.
- is precise if prices and value of peso is constant
Causes of GNP deformation:
Inflation - increase in price level
Deflation - decrease in price level
Aggregate Demand - demand for total output of the economy
Consumption - represents the household expenditures/spending
consumption = disposable income
"Current real income is the most important determinant of consumption in the short run."
States Affecting Consumption:
- Consumer Confidence
The Methods of Computing/Measuring National Income
- there are three methods of measuring national income:
- The Product Method
- The Expenditure Method
- The Income Method
The Product Method or Value Added Method
- defines a nation's gross product as the market value of goods and services currently produced within a nation during a one year period of time.
- the product approach involves adding:
- Transport and Communication
- Administration and Defense
- Distribution of Income
Precautions for Product Method or Value Added Method
- Problem of Double Counting
- Value Addition in Particular Year
- Stock Appreciation
- Production for Self Consumption
- as total spending on final goods and services produced within nation during a year.
Broad Categories of Expenditures
- Consumption Expenditure
- Investment Expenditure
- Government Expenditure
- Net Export Expenditure
Precautions for Expenditure Method
- The expenditure on second hand goods should not be included
- Expenditure on purchase of old shares and bonds is not included
- Expenditure on transfer payments by government
- This method seeks to measure national income at the phase of distribution.
Four categories of payments are briefly described below
- Transfer payments such as gifts , donations , scholarships, indirect taxes
- Illegal money earned through smuggling and gambling
- Windfall gains such as prizes won , lotteries , etc.
- Receipts from the sale of financial assets such as shares , bonds
Precautions for Income Approach
why the three methods of computing/measuring national income are equal?
By Geoff Diaz