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7/31/2019 Money & Monetary Policy
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CURRENT GNPVS
REAL GNP
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Current GNP
-present/nominal GNP value
Real GNP
- GNP value using a PRICE INDEX/GNP deflator.
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REAL GNP = CURRENT GNP
PRICE INDEX
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PRICE INDEX IS COMPUTED
USING THE INFLATION RATE
INFLATION RATE =
CPI B CPI A
CPI A X 100
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To get the price index for the 2nd year : multiply 1(PI
of year 1) by percentage of inflation rate year 2then add /subtract the product to /from 1(Base
Year Price Index)
Base Year Price Index is always
equal to 1.
To get the price index for the 3rd year : multiply the
PI of year 2 by percentage of inflation rate of year
3then add /subtract the product to /from 1( PriceIndex of Year 2)
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Current GNP Inflation Rate Price Index Real GNP100 B 1 100B110 B 5% 1.05 104.76B120 B 10% 1.15 104.35B130 B (10%) 1.03 126.21B140B 20%154B 10%160B 10%144B (10%)
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MONEY &
MONETARY POLICY
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If economics is the dominant sphere ofpeoples lives, at the heart of economics ismoney.
WHEN MONEY TALKS, EVERYBODY
LISTENS
WHAT WE DONT KNOW ABOUTMONEY CAN HARM USMEANING OF MONEY SHOULD BE WELL UNDERSTOOD.
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Net-Worth is
NEVER Equal to Self-Worth.Neale Godfrey
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-An economic tool (medium of exchange)- A social tool(money is at the heart of every
relationship)
- A political and even a spiritual tool(samemoney paid as a bribe can be the same
money donated to charity)
Money is a TOOL
Money is always an issue.
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THE VALUE OF MONEY, REAL &
SYMBOLIC, AS A MEDIUM OFFAIR EXCHANGE, CAN BE USED
TO TEACH PEOPLE SOCIAL
VALUES.
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Kai(9) & Ren(6) on Managing Money
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-Before money was invented, it was BARTER(highlyinconvenient)
-Shells were one of the first forms of money(AncientChinese).
-Native Americans used beads, Mexicans used beans
-Others used stone rings and red feathers
-600 BC coins(staters) made of mixture of gold and silver
were invented in Lydia-600 AD Chinese people started to use notes
-now every country prints its own paper money
Brief History of Money
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earn or get money
save money
spend money
give or share money
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MONETARY INSTRUMENTS
The control of money supply by the Central Bank
to achieve the desired macroeconomic objectives.
Main Functions of the Central Bank1. Internal & external monetary stability
2. Developing sound credit & exchange conditions
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MONEY SUPPLY
Coins & Bills in Circulation
Demand Deposits
Quasi MoneyDeposit Substitutes
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SOURCES OF MONEY SUPPLY
Central Bank printing of BillsBank Lending Operations
Foreign currency Inflow
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MONETARY INSTRUMENTS
(Short-run Monetary Instruments)Reserved Requirements
Rediscounting
Open Market Operations
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Reserve Requirement
Prescription of minimumratio of reserveto deposit liabilities to
control the creation ofcredit and money.
The higher the RR thelower is the amount ofmoney created.
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Rediscounting - buying of
loan papers at rediscountedvalues
Increasing rediscount rates discouragesbanks from selling loan papers, thereforelowering the amount of money created.
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Open Market Operations-buying
and selling of government
securities in the open market
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Monetary Policies are
instruments to influence
consumption, investments
and savings.(The C & I in GNP Exp. App.)
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A tool utilizing (GE) government
expenditures and taxation as a means to
control the economy.Fiscal Policies are tools to influence
The C + I + G & Net Exports
FISCAL POLICY
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-system of payments required to pay thegovernment to sustain its operation in governance
and provision of public goods.
-taxes decreases the disposable income of theperson and are therefore unwanted/a burden.
-- biggest source of governments income.
-- a tool to manipulate macroeconomic conditions.
TAXATION
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Tax Rate the percentage of tax to be paid.Tax Base the value subject for taxation.Tax Burden the negative effect of taxation.Impact burden of the person who pays the tax
for the first time.Incidence burden of the person who ultimatelypays the tax.
*In direct taxation, impact and incidence fall on the same person,while in indirect taxation, they may fall on different
person
Some Key Words:
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Classification:
Direct Tax- levied on people, paid directly totax agencies.Indirect Taxlevied on goods & services.
Tax Collecting Agencies:BIR internal taxation(IT,CT,RT).
BOC-external taxation(ID,Tariffs)
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Progressive
tax rate increases with tax base.
Regressive tax rate decreases as tax base increases.
Proportional
uniform tax rate on all tax base levels.
System of Taxation:
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Govt Sources of INCOME
Tax Revenues-direct & indirect taxation
Non-tax Revenues
- fees, penalties, income from
govt corporations
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Higher tax rates means lower expenditures orlower demand.
(good during inflationary period)
Lower tax rate means higher demand or higherexpenditures .
Taxation as a Policy
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SURPLUS Budgeting = GE < Income
- decreases MS
DEFICIT Budgeting = GE > Income
- increases MS
- possible thru domestic & foreign debts
GE as a Macroeconomic Policy
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ECO 10 Poster Exhibit
(25% of FINAL GRADE)Grade Scheme: 1st Prize: A
2nd Prize: Am
3rd Prize: BpEconomics & SSCs Triple Thrusts:
-Serving Others
-Saving Earth-Seeking Peace & Pursuing It.