Test 1. Short essay.

Please give a brief definition on the following terms:

1. Fiscal Policy
Fiscal policy is based on the theories of economist John Maynard
Keynes, which holds that increasing or decreasing revenue from taxes and
expenditures levels influence inflation, employment and the flow of
money through the economic system. It is often used in combination to
monetary policy to influence the direction of the economy and meet
economic goals.

2. Fiscal Discipline
Fiscal Discipline refers to a state of an ideal balance between revenues and
expenditure of government, in an economy. Governments should maintain fiscal
positions that are consistent with macroeconomic stability and sustained economic growth.

3. Austerity Measures
New policies imposed by the government to action to reduce spending and or
increase revenue by increasing tax rates or coverage.

4. Monetary Policy
Measures or actions taken to influence the general price level and the level of liquidity in the
economy. It aims at influencing the timing, cost and availability of money and credit, as well as other
financial factors, for the main objective of stabilizing the price level.

5. Inflation Targeting
It’s a monetary policy framework focuses mainly on achieving price stability. It
emphasizes the central role of information in the conduct of monetary policy and
it’s a forward-looking and information- intensive approach to monetary policy.

6. St. Louis Model

It was developed in th early 1970’s and described as a small-scale monetarist

7. Andersen-Jordan Equation
It’s the centerpiece of St Louis Model which shows the total spending equation,
which put together the
change in nominal GNP to changes in the nominal
money stock and to (high employment) government
expenditures.

8. Current Account
The current account is composed of transactions of payments for goods and
services, plus investment income and transfers, between an economy and the rest of
the world. Payments coming into an economy are called credits and payments
leaving an economy are called debits.
9. Capital Account
It includes money and other financial assets that enter and exit the economy
such as foreign investments and foreign loans.

10. Structural Policy

Test 2. Long Essay. Discuss your responses.

1. Based from the Stratbase ADR report ending 2019 can you conclude that the Philippines is
in a position of strength and resilience to withstand the worst crisis? What are the
macroeconomic indicators that made you decide on this? Justify your choices.

Based on Stratbase’s data, it is showing that we are in “good position” in

This covid19 pandemic continue to upended many lives and disrupt economic
activities. As of today, there are no signs indicating recovery here in the Philippines.
Because of this, we will be expecting a decrease in our growth rate this year but a strong
rebound is seen in the subsequent years based on the report but this is only if we have an
effective economic recovery plan. Key factors have been affected including transport
and tourism, exports, remittances, consumption and other temporarily suspended work
operations which will lead to higher unemployment and decrease in government revenues,
increasing debts and not to mention huge government allocations for subsidies and
assistance. We are hardly hitting our growth targets in the last three years how much more
in this time of pandemic.

Household final consumption expenditures and the servicing sector are listed as our
growth drivers in the previous years but the demand shift brought by measures imposed to
contain the virus like social distancing, business operation disruptions will present a
serious risk in our economy.

Inflation is also at high risk, although the increase of demand in heath supplies
offsets lowers transportation costs, fuel prices and other private consumptions, there are
projected problems in the supply chain and market disruptions in terms of delay in
production and delivery.

As per government expenditures, we continue to incur deficits and this is not

As covid19 brings global crisis, balance of trades are also affected because we
depend our supplies mostly from China. Air and land travels are restricted. Also, oil
price disputes are still up in the air and it is expected to worsen as the world faces
this pandemic.

Foreign Investments, balance of payments and remittances will not show otherwise as
many countries are also affected. Investors will have to slow down with all the
uncertainties. This is evident in the stock market today, many traders and investors-
local or foreign have already pulled out as stock prices are sliding down. Many OFW’s
were also sent home without sufficient savings. Banks have decreased interests while
withdrawals continue to increase and also loans were given back.

Business outlook in the Philippine economy has improved for the last quarter of
2019 as overall confidence index (CI) increased but this has been revised or weakened
based on Bangko Sentral ng Pilipinas and Asian Development Bank official reports during
the first quarter of 2020 but it is expected to recover along with the containment of the
spread of covid19.
 Although consumer and business sentiments are stable, the government should still
be transparent when it comes to their economic recovery plan.

With all of this information, while we may seem to have still sufficient financial
resources and the government seen to continue to work tirelessly, this does not give us
enough confidence that our country will withstand the worst crisis. Everyone should work
in solidary and if possible apply extreme measures to win this pandemic and achieve a
prosperous, resilient and sustainable future.

2. The CoVid19 Pandemic brought about a huge dent in the Global Economy, but the emerging
economies (Philippines included) may experience a -1 GDP growth for year 2020. Based from the
BusinessWorld inforgraph which sector in the macro-economy would you think that may experience a
longer path towards economic recovery?? Identify and discuss.

Based on the data given by the Business World Research, the manufacturing Sector and
wholesale and retail trade sector both shows significant amount of projected losses. It’s
inevitable because of globalization. We depend our raw materials and exports from other
countries. Disruptions in one area of global supply chains affect other areas, and may even
result to the diversion of trade and investments. On top of this, the strongest economies in the
world like China, US, and Europe are as well affected.

Air and transportation are suffering massive losses which will to problems in the delivery
and prices of our imports and the same goes to our exports. Consumers will also be more
conservative in terms spending with the thought of financial crisis thus affecting demand on
finished good products.

All other sectors go hand in hand. For example, when there is a sharp drop price in oil, this
means that there are no demands of it because business operations are disrupted like the
manufacturing sector and air and land transportation.

We are a country that responds to big economic players like US and China. If they enter
recession, then we are likely to face it too. Based on projections made by NEDA, we are
optimistic that we will expect a strong rebound on 2021, better than other ASEAN countries.
At we could only depend our future with how our government will respond and provide as
an effective economic recovery plan.