LESSON 1: MDG & SDG CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

2. Achieve universal primary education

MILLENNIUM DEVELOPMENT GOALS ➔ 90% of children in primary school
3. Promote gender equality and empower
women
● A road to sustainability, equity, and solidarity
➔ Equal number of girls and boys
started school
UNITED NATIONS MILLENNIUM DECLARATION
4. Reduce child mortality
➔ 17,000 fear children died each day
● In September 2000, 147 heads of States and than in 1990
Governments, and 189 nations in total, 5. Improve maternal health
committed themselves to making the right to ➔ Maternal mortality fell by 45%
development a reality for everyone. since 1990
● Every country has committed itself until 6. Combat HIV/AIDS, malaria and other diseases
2015: ➔ Fewer people infected by HIV/AIDS
○ To reduce poverty, and malaria each year
○ To provide education to all, 7. Ensure environmental sustainability
○ To improve health and ➔ 2.3 billion people gained access to
○ To preserve the environment clean drinking water
● By Signing the UN Millennium Declaration 8. A global partnership for development
Macedonia, has committed its leadership to ➔ Debt service declined; foreign aid
achieve MDGs by 2015. A national MDG increased
process has already started
DIFFERENCE BETWEEN MDGs & SDGs
THE 8 MDGs

Categories MDG SDG

Full form Millennium Sustainable

Development Development
Goal Goal

Number of goals 8 goals (limited 17 goals (more

goals) comprehensive)

Number of 21 169
targets

Implication 2000-2015 2015-2030

framework

General social Economic

1. Eradicate extreme poverty and hunger scope/focus growth. Social
➔ Share of poor people reduced by inclusion, &
50% from 1990 - 2015 environmental

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 LESSON 1: MDG & SDG CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

Categories MDG SDG Categories MDG SDG

protection Delivery focus Narrow: poverty Broad: global

reduction development
Implication 200-2015 (MDGs 2015-2030 (SDGs with and for
framework are the are the sustainability.
predecessor of successor to the Beyond the
SDG) MDGs) symptoms of
poverty to issue
Approach Top-down Inclusive goal of peace,
process setting process stability, human
rights and good
governance
Target Developing Entire world (rich
countries, and poor)
particularly the Static used Traditional Traditional
poorest (The statics statics + data
MDGs were in revolution
the context of
“rich donors Focus The MDG targets The SDGs are
aiding poor for 2015 were designed to
recipients”) set to get us “hal finish the job –
way” to the goal to get a
Formulation Produced by a Result of of ending hunger statistical “zero”
group of experts consultation and poverty, on hunger,
process among: with similar poverty,
- 193 UN proportional preventable child
Members states goals in other deaths and other
- Civil society fields targets
- Other
stakeholders Funds for The MDGs were SDG addresses
implementation largely the ability of
Focused areas MDG could not SDG focuses envisioned to be countries and
focus holistically holistically on funded by aid also social
on development. development flows challenges
It mainly focused largely through
on social improving their
dimensions and own revenue
better health generating
capabilities
Source of MDGs were SDGs put
funding largely sustainable, Prioritization of Prioritized social Three
envisioned to be inclusive goal needs over dimension:
funded by aid economic economic and Economic, social
rows, which did development at environmental and
not materialize the core of the ones (seven environmental
strategy social goal and aspects
just one
environmental
goal)

CAEC09: ECONOMIC DEVELOPMENT LESSON #1 | ROSARIO, NHERIE KRIZIA F. | BLOCK 3 | 24-2134-793

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 LESSON 1: MDG & SDG CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

● integration of economic, environmental, and

Categories MDG SDG
social concerns throughout the decision
Disabilities No reference to 7 references in making process.
concern person with SDG: Education
disabilities (2), employment ISSUE: economic growth and depletion of resources
inequalities,
inclusive cities
(2),
disaggregation of
data by disability.
(All together 11
agenda 2030 and
9 in global
indicators

Nature of goal Simplicity: single Universal goal

set of goals of
21st century

Scope of work MDG only SDG emphasizes

emphasized on on present and
the prevalent upcoming
challenges challenges
THE 2030 AGENDA FOR SUSTAINABLE
Cost MDGs were less SDGs are much DEVELOPMENT
costly compared more costly
to SDG compared to
MDGs ● Launched by the United Nations in
September 2015.
● Builds on the achievements of the MDGs.
SUSTAINABLE GROWTH DEVELOPMENT
● Define the international, regional and
national development agenda priorities over
➔ By year 2030, SDG goals aims to meet all of the next 15 years.
the 17 goals it has listed ● Based on results of the consultation process
➔ It has 15 years, 17 goals, 169 targets, and 232 among the 193 UN member states, civil
indicators society and other stakeholders.
● Covers the entire world (rich and poor
SUSTAINABLE DEVELOPMENT countries)

● development that meets the needs of the WHAT IS AGENDA 2030?

present without compromising the ability of
future generations to meet their own needs The Sustainable Development Goals (SDGs), otherwise
● long term stability of the economy and knowns the Global Goals, are
environment ● a universal call to action t o end poverty
protect the planet and ensure that all people
enjoy peace and prosperity

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 LESSON 1: MDG & SDG CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

● about finding the balance in the

development trajectories of the economic,
social, and environmental dimensions such
that the development is sustainable and no
one is left behind

TWO PRINCIPLES OF SDG KEY CONCEPTS OF SDG

1. Sustainable development ● Which goals are concerned with economic

2. No one left behind development?
➔ Goals 8, 9, and 12
17 SUSTAINABLE DEVELOPMENT GOALS ● Which goal is the most important?

● Which goal is the most interconnected? the

least interconnected?
➔ Goal 12 is the most interconnected
with other goals, it has 14 goals
connected with others
➔ Goal 14 is the least interconnected
with the other goals, it only have 2
goals related with others

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 LESSON 1: MDG & SDG CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

CAEC09: ECONOMIC DEVELOPMENT LESSON #1 | ROSARIO, NHERIE KRIZIA F. | BLOCK 3 | 24-2134-793

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 LESSON 2: AMBISYON NATIN 2040 CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

and we have the freedom to go where we desire,

AMBISYON NATIN 2040 protected and enabled by a clean, efficient, and fair
government.
● AmBisyon Natin 2040 represents the
collective long-term vision and aspirations of SECTIONS OF AMBISYON NATIN 2040
the Filipino people for themselves and for
the country in the next 25 years. FILIPINOS ARE STRONGLY ROOTED: MATATAG
● It describes the kind of life that people want
to live, and how the country will be by 2040.
➔ Filipino families live together; there is
● As such, it is an anchor for development
work-life balance so that there is time to
planning across at least four administrations.
spend with family even for members who
● It is like a destination that answers the
work. On weekends, families and friends
question “Where do we want to be?”.
enjoy time together in parks and recreational
● AmBisyon Natin 2040 is the vision that guides
centers.
the future and is the anchor of the country’s
➔ It is a high-trust society with a strong sense
plans.
of community. There are volunteer
opportunities, and Filipinos spend time to
BACKGROUND ABOUT AMBISYON NATIN 2040 serve the community, help others who are in
need, and contribute to various causes.
● AmBisyon Natin 2040 is the result of a
long-term visioning process that began in FILIPINOS ARE COMFORTABLE: MAGINHAWA
2015.
● More than 300 citizens participated in focus
➔ No one is poor, no one is ever hungry. Filipino
group discussions and close to 10,000
families live in comfortable homes with the
answered the national survey.
desired amenities and secure tenure.
● AmBisyon Natin 2040 was built by NEDA or
➔ Families and friends are within reach because
National Economic and Development
transport is convenient and affordable, and
Authority
they can take a vacation together within the
country and abroad.
THE LIFE OF ALL FILIPINOS IN 2040 ➔ Children receive quality education so that
they realize their full potentials and become
Matatag, Maginhawa, at Panatag na Buhay productive members of society.
By 2040, Filipinos will enjoy a strongly rooted, ➔ Decent jobs that bring sustainable income
comfortable, and secure life. are available, including opportunities for
entrepreneurship.
In 2040, we will all enjoy a stable and comfortable
lifestyle, secure in the knowledge that we have enough
for our daily needs and unexpected expenses, that we
can plan and prepare for our own and our children’s
future. Our family lives together in a place of our own,

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 LESSON 2: AMBISYON NATIN 2040 CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

FILIPINOS ARE SECURE: PANATAG FILIPINOS LIVE IN A PROSPEROUS PREDOMINANTLY

MIDDLE CLASS SOCIETY WHERE NO ONE IS POOR
➔ Filipinos feel secure over their entire lifetime.
They expect to live long and enjoy a Economic growth must be relevant, inclusive and
comfortable life upon retirement. sustainable. Over the next 25 years (until 2040), per
➔ There are resources to cover unexpected capita income must increase by at least three-fold.
expenses, and there are savings. They feel More than the increase in income, economic growth
safe in all places in the country. must progressively improve the quality of life of the
➔ Filipinos trust their government because it is majority of Filipinos.
free of corruption and provides service to all
its citizens equally. AmBisyon can be partly achieved by having competitive
enterprises that offer quality goods and services at
affordable prices. Government must encourage
investments in these sectors by improving market
linkages, simplifying government procedures, and
facilitating access to finance. These should be
complemented by appropriate human capital
development, science, technology and innovation
REALIZING THE AMBISYON
PRIORITY SECTORS OF AMBISYON:
All sectors of society, whether public or private, should
direct their efforts towards creating opportunities for
Filipinos to enjoy a matatag, maginhawa at panatag na
buhay.

Government, in particular, must use its tools of fiscal,

monetary and regulatory policies to steer the ● HOUSING AND URBAN DEVELOPMENT
development path towards enabling Filipinos to attain Construction, construction-related manufacturing,
their AmBisyon. This pertains to all dimensions of house development-related manufacturing, and
development: economic, human and physical capital, utilities (electricity, gas, and water).
institutional, social and cultural.

By 2040, the Philippines will be a prosperous middle

class society where no one is poor. People live long and
healthy lives and are smart and innovative. The country
is a high-trust society where families thrive in vibrant,
culturally diverse, and resilient communities. ● MANUFACTURING
Food processing, housing related, construction-related,
transport manufacturing, and other manufacturing.

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 LESSON 2: AMBISYON NATIN 2040 CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

● HEALTH AND WELLNESS SERVICES

● CONNECTIVITY Primary, secondary, and tertiary care, pharmaceuticals,
Roads and bridges, port, airports, vehicles, transport wellness facilities, sports and fitness facilities, etc.
systems, and communication.

● FINANCIAL SERVICES
Consumer financing, enterprise financing, and
● EDUCATION SERVICES insurance savings mobilization.
Formal education and re-tooling services.
It must also be recognized that certain individuals
cannot immediately participate in the growth process.
For infants and children, there is the requisite care,
guidance, health, and education services until they
become mature enough. It is important that parents
and families should be able to provide these, although
● TOURISM AND ALLIED SERVICES the government should stand ready to fill the gap. A
Resort, rest-recreation hotels, accommodation, travel major intervention, therefore, is for parents to
and tour cultural shows, heritage sites, etc. adequately prepare for having a family.

FILIPINOS LIVE A LONG AND HEALTHY LIFE

A long and healthy life allows people to realize their full

potential and to enjoy the attainment of their
● AGRICULTURE AmBisyon for many years. This is borne out of healthy
Food production, commercial and industrial crop, lifestyle choices. New products and processes that are
agricultural biotechnology, etc. safer and cleaner, and certainly products that promote
good health, are needed as well.

Policies that promote work-life balance can reduce the

strain on people’s health. Filipinos must also be given
more affordable, clean and safe options for rest and
recreation, like open spaces, nature parks, and public

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 LESSON 2: AMBISYON NATIN 2040 CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

sports and fitness facilities. In case of illness, Filipinos FILIPINOS LIVE IN A HIGH-TRUST SOCIETY
must have access to affordable and good-quality
healthcare.
A high-trust society allows Filipinos to enjoy a panatag
na buhay together with their families. Extending to the
Ensuring the quality of health care and health-related
bigger community, a high trust society equals a
products and the safety of other products is the
matatag na pamayanan.
responsibility of the government as well.
A high-trust society allows people to see to their
FILIPINOS ARE SMART AND INNOVATIVE economic pursuits, secure in the knowledge that they
will be able to enjoy the fruits of their labor. However,
Well-educated, innovative Filipinos will continuously societal ties must be strengthened where every Filipino
improve the quality of life in the Philippines. If cares for the plight of his fellow Filipino. Every Filipino
education is the process of facilitating the “acquisition must feel upset if another Filipino is found hungry and
of knowledge, skills, values, beliefs, and habits”, formal poor, or unable to recover from unfortunate events.
education is the structured method of facilitating the
acquisition of a select set of such knowledge, skills, A caring society does not evolve overnight; it must be
values, beliefs, and habits. Government, therefore, cultivated. Venues and opportunities for interpersonal
must be proactive in setting the agenda for education. interaction must be provided. But usually, it takes root
It is, after all, about molding the future Filipino and from building trust in established institutions like the
creating the future Philippine society. government. Government must therefore begin the
process of confidence-building by being clean, fair, and
● More than ensuring that Filipino students citizen-centered. After all, a high-trust society is the
acquire the foundational literacies (reading, most durable bedrock for vibrant, culturally diverse,
numeracy, scientific literacy, ICT literacy, and resilient communities of the Philippines by 2040–
economic and financial literacy, cultural and hopefully, sooner.
civic literacy),
● the formal education system must also
ensure that students obtain competencies
(critical thinking, problem-solving, creativity,
communication, collaboration)
● and develop character qualities (curiosity,
initiative, persistence and grit, adaptability,
leadership, social and cultural awareness).
● There must be access to lifelong learning
opportunities so that competencies are
continuously upgraded and updated

CAEC09: ECONOMIC DEVELOPMENT LESSON #2 | ROSARIO, NHERIE KRIZIA F. | BLOCK 3 | 24-2134-793

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 LESSON 3: THE MARKET FORCES OF SUPPLY AND DEMAND CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

similar products, same goes through with

THE MARKET FORCES OF SUPPLY & DEMAND buyers.
➔ A competitive market is a structure in which
no single consumer or producer has the
SUPPLY & DEMAND
power to influence the market. (example:
farmer)
➔ Refer to the behavior of people as they
interact with one another in competitive
PERFECTLY COMPETITIVE MARKET
markets

➔ A type of market in which all available goods

SUPPLY – SELLERS
and services are identical
➔ There are no restrictions on who can enter
➔ The total amount of a specific good or service the market, and there are numerous
that producers are willing and able to sell at numbers of buyers and sellers
each possible price, other things held ➔ In a perfectly competitive market:
constant ◆ All goods exactly the same
◆ Buyers & sellers so numerous that
DEMAND – BUYERS no one can affect market
price—each is a “price taker”
➔ A consumer’s desire to purchase goods and
services and willingness to pay a specific DEMAND
price for them
QUANTITY DEMANDED
MARKET & COMPETITION
➔ the amount of the good that buyers are
MARKET willing and able to purchase.
LAW OF DEMAND
➔ A market is a group of buyers and sellers of a
particular product. ➔ the claim that the quantity demanded of a
➔ In a market, buyers determine the demand, good falls when the price of the good rises,
while sellers determine the supply other things equal
➔ CETERIS PARIBUS, when the price of a good
COMPETITIVE MARKET rises, the quantity demanded of the goods
falls. When the price falls, the quantity
➔ A market in which there are a large number demanded rises
of buyers and sellers and as a single buyer or ➔ CETERIS PARIBUS: All other things held
seller can affect the market price. constant
➔ In this market, one seller has no control over
the price because other sellers are offering

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 LESSON 3: THE MARKET FORCES OF SUPPLY AND DEMAND CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

DEMAND SCHEDULE DEMAND CURVE SHIFTERS

➔ a table that shows the ● The demand curve shows how price affects
relationship between the quantity demanded, other things being
price of a good and the equal.
quantity demanded ● These “other things” are non-price
determinants of demand (i.e., things that
➔ Example: determine buyers’ demand for a good, other
Helen’s demand for lattes. than the good’s price).
Notice that Helen’s ● Changes in them shift the D curve…
preferences obey the law
of demand. NUMBER OF BUYERS

● Increase in # of buyers
– Increases quantity demanded at each price,
shifts D curve to the right.

MARKET DEMAND VS. INDIVIDUAL DEMAND

● The quantity demanded in the market is the

INCOME
sum of the quantities demanded by all
buyers at each price.
2 TYPES OF CONSUMER GOODS:
1. NORMAL GOOD
➔ Demand for a normal good is positively
related to income. Increase in income causes
an increase in quantity demanded at each
price, shifts the D curve to the right.

2. INFERIOR GOOD
Suppose Helen and Ken are the only two buyers in the ➔ Demand for an inferior good is negatively
Latte market. (Qd = quantity demanded) related to income. An increase in income

CAEC09: ECONOMIC DEVELOPMENT LESSON #3 | ROSARIO, NHERIE KRIZIA F. | BLOCK 3 | 24-2134-793

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 LESSON 3: THE MARKET FORCES OF SUPPLY AND DEMAND CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

leads to a decrease in demand. It shifts D security, demand for new autos

curves for inferior goods to the left. may fall now.

PRICES OF RELATED GOODS SUMMARY: VARIABLES THAT INFLUENCE BUYERS

➔ Substitute, complement, or they have no

relationship at all

SUBSTITUTES
➔ Goods that could replace each other because
they are similar or they satisfy similar
demands.
➔ Two goods are substitutes if an increase in
the price of one causes an increase in
demand for the other.

COMPLEMENTS
➔ Goods that you tend to use together ● Prices represent the movement along the
➔ Two goods are complements if an increase in curve, while the number of buyers, income,
the price of one causes a fall in demand for price of related goods, tastes, and
the other. expectations is what shifts the curve.

TASTES DEMAND CURVE

➔ Anything that causes a shift in tastes toward Draw a demand curve for music downloads. What
a good will increase demand for that good happens to it in each of the following scenarios? Why?
and shift its D curve to the right.
A. The price of iPods falls

EXPECTATIONS

➔ Expectations affect consumers’ buying

decisions.
➔ Examples:
◆ If people expect their incomes to
rise, their demand for meals at
expensive restaurants may
increase now.
◆ If the economy sours and people
worry about their future job

CAEC09: ECONOMIC DEVELOPMENT LESSON #3 | ROSARIO, NHERIE KRIZIA F. | BLOCK 3 | 24-2134-793

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 LESSON 3: THE MARKET FORCES OF SUPPLY AND DEMAND CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

B. The price of music downloads falls SUPPLY SCHEDULE

➔ A table that shows the

relationship between the
price of a good and the
quantity supplied.
➔ Example:
Starbucks’ supply of lattes.
Notice that Starbucks’
supply schedule obeys the
law of supply.

C. The price of CDs falls

MARKET SUPPLY VS. INDIVIDUAL SUPPLY

SUPPLY ● The quantity supplied in the market is the

sum of the quantities supplied by all sellers
QUANTITY SUPPLIED at each price.

➔ The quantity supplied of any good is the

amount that sellers are willing and able to
sell.

LAW OF SUPPLY

➔ the claim that the quantity supplied of a

good rises when the price of the good rises, Suppose Starbucks and Peet’s are the only two sellers
other things equal in this market. (Qs = quantity supplied)

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 LESSON 3: THE MARKET FORCES OF SUPPLY AND DEMAND CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

SUPPLY CURVE SHIFTERS NUMBER OF SELLERS

● The supply curve shows how price affects ➔ An increase in the number of sellers
quantity supplied, other things being equal. increases the quantity supplied at each
● These “other things” are non-price price, shifts S curve to the right.
determinants of supply.
● Changes in them shift the S curve… EXPECTATIONS

INPUT PRICES ➔ Example:

◆ Events in the Middle East lead to
➔ A fall in input prices makes production more expectations of higher oil prices.
profitable at each output price, so firms ◆ In response, owners of Texas oil
supply a larger quantity at each price, and fields reduce supply now, save
the S curve shifts to the right. some inventory to sell later at the
➔ Examples of input prices: wages, prices of higher price.
raw materials. ◆ S curve shifts left.
➔ In general, sellers may adjust supply* when
their expectations of future prices change.
(*If good not perishable)

SUMMARY: VARIABLES THAT INFLUENCE SELLERS

TECHNOLOGY

➔ Technology determines how much input

prices are required to produce a unit of
output. ● Price is what causes the movement along the
➔ A cost-saving technological improvement has S curve, but the input prices, technology,
the same effect as a fall in input prices, shifts number of sellers, and expectations is what
S curve to the right. shifts the S curve

CAEC09: ECONOMIC DEVELOPMENT LESSON #3 | ROSARIO, NHERIE KRIZIA F. | BLOCK 3 | 24-2134-793

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 LESSON 3: THE MARKET FORCES OF SUPPLY AND DEMAND CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

SUPPLY CURVE SUPPLY & DEMAND TOGETHER

Draw a supply curve for tax return preparation EQUILIBRIUM

software. What happens to it in each of the following
scenarios? ➔ When the level of quantity supplied is equals
A. Retailers cut the price of the software. to the quantity demanded

EQUILIBRIUM PRICE

➔ The price that equates quantity supplied with

quantity demanded
B. A technological advance allows the software
to be produced at lower cost.

EQUILIBRIUM QUANTITY

➔ The quantity supplied and demanded at the

equilibrium price

C. Professional tax return preparers raise the

price of the services they provide.

CAEC09: ECONOMIC DEVELOPMENT LESSON #3 | ROSARIO, NHERIE KRIZIA F. | BLOCK 3 | 24-2134-793

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 LESSON 3: THE MARKET FORCES OF SUPPLY AND DEMAND CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

SURPLUS & SHORTAGE THREE STEPS TO ANALYZING CHANGES IN EQ’M

SURPLUS (a.k.a. Excess supply) To determine the effects of any event,

1. Decide whether the event shifts S curve, D
curve, or both.
➔ When quantity supplied is greater than
2. Decide in which direction the curve shifts.
quantity demanded. Theses are excess
3. Use supply—demand diagram to see how
supplies
the shift changes eq’m P and Q.

TERMS FOR SHIFT VS. MOVEMENT ALONG CURVE

● Change in supply: a shift in the S curve

occurs when a non-price determinant of
supply changes (like technology or costs)
● Change in the quantity supplied: a
movement along a fixed S curve occurs when
➔ Facing a surplus, sellers try to increase sales P changes
by cutting prices. ● Change in demand:a shift in the D curve
➔ This causes QD to rise and QS to fall, which occurs when a non-price determinant of
reduces the surplus. demand changes (like income or # of buyers)
➔ Prices continue to fall until the market ● Change in the quantity demanded: a
reaches equilibrium. movement along a fixed D curve occurs
when P changes
SHORTAGE (a.k.a. Excess demand)
EXAMPLES:
Use the three-step method to analyze the effects of
➔ When quantity demanded is greater than
each event on the equilibrium price and quantity of
quantity supplied
music downloads.

➔ Facing a shortage, sellers raise the price,

➔ causing QD to fall and QS to
rise, which reduces the
shortage.
➔ Prices continue to rise until
market reaches equilibrium

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 LESSON 3: THE MARKET FORCES OF SUPPLY AND DEMAND CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

HOW PRICES ALLOCATE RESOURCES

● One of the Ten Principles from Chapter 1:

➔ Markets are usually a good way
to organize economic activity.
● In market economies, prices adjust to
balance supply and demand. These
equilibrium prices are the signals that guide
economic decisions and thereby allocate
scarce resources.

CAEC09: ECONOMIC DEVELOPMENT LESSON #3 | ROSARIO, NHERIE KRIZIA F. | BLOCK 3 | 24-2134-793

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 LESSON 4: GDP VS. GNP CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

● The United States abandoned the use of GNP

GDP VS. GNP: AN OVERVIEW in 1991, adopting GDP as its measure to
compare itself with other economies.
GDP and GNP are two of the most commonly used
measures of a country's economy. Both represent the GROSS DOMESTIC PRODUCT (GDP)
total market value of all goods and services produced
over a certain period. However, they are calculated in ➔ is the most basic indicator to measure the
slightly different ways. overall health and size of a country's
economy.
GROSS DOMESTIC PRODUCT (GDP) ➔ This metric counts the overall market value
of the goods and services produced
➔ is the value of the finished domestic goods domestically by a country.
and services produced within a nation's ➔ GDP is an important figure because it gives
borders. an idea of whether the economy is growing
➔ While GDP limits its interpretation of the or contracting.
economy to the geographical borders of the ➔ Calculating GDP includes adding together
country private consumption or consumer spending,
government spending, capital spending by
GROSS NATIONAL PRODUCT (GNP)
businesses, and net exports—exports minus
imports.
➔ is the value of all finished goods and services
produced by a country's citizens, both
Here’s a brief overview of each component:
domestically and abroad.
➔ GNP extends it to include the net overseas
CONSUMPTION
economic activities performed by its
nationals.
➔ The value of the consumption of goods and
KEY TAKEAWAYS services acquired and consumed by the
country’s households.
➔ This accounts for the largest part of GDP.
● Gross domestic product (GDP) and gross
national product (GNP) are both widely used
GOVERNMENT SPENDING
measures of a country's aggregate economic
output.
● GDP measures the value of goods and ➔ All consumption, investment, and payments
services produced within a country's borders, made by the government for current use.
by citizens and non-citizens alike.
● GNP measures the value of goods and CAPITAL SPENDING BY BUSINESSES
services produced by a country's citizens,
both domestically and abroad. ➔ Spending on purchases of fixed assets and
● GDP is the most commonly used by global unsold stock by private businesses.
economies.

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 LESSON 4: GDP VS. GNP CAEC09

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NET EXPORTS ● When the GDP rises, it means the economy is

growing. Conversely, if it drops, the economy
is shrinking and may be in trouble.
➔ Represents the country's balance of trade
● But if the economy grows to the point of
(BOT), or the difference between exports and
reaching full production capacity, inflation
imports.
may start to rise. Central banks may then
➔ A positive number indicates that the country
step in, tightening their monetary policies to
exports more than it imports.
slow down growth.

TWO CATEGORIES OF GDP

GROSS NATIONAL PRODUCT (GNP)

1. Real GDP
➔ GNP is another metric used to measure a
2. Nominal GDP
country's economic output.
➔ GNP is the market value of goods and
REAL GDP
services produced by all citizens of a
country—both domestically and abroad.
➔ A country's real GDP is the economic output ➔ GNP represents how its nationals are
after inflation is factored in contributing to the country's economy.
➔ The GDPs of two or more years are compared ➔ It factors in citizenship but overlooks
using real GDP. location. For that reason, it's important to
note that GNP does not include the output of
NOMINAL GDP foreign residents.
➔ GNP can be calculated by adding
➔ nominal GDP does not take inflation into consumption, government spending, capital
account. spending by businesses, net exports (exports
➔ Nominal GDP is usually higher than real GDP minus imports), and net income by domestic
because inflation is almost always positive. residents and businesses from overseas
➔ Nominal GDP is generally used to compare investments. This figure is then subtracted
different quarters in the same year because from the net income earned by foreign
inflation will usually not be a significant residents and businesses from domestic
factor. investment.

NOTE: WHEN IS GNP MORE USEFUL THAN GDP?

● GDP can be used to compare the
performance of two or more economies, ➔ Gross national product, or gross national
acting as a key input for making investment income, records the net income from foreign
decisions. sources owned by a country's citizens. This
● It also helps the government draft policies to metric may be useful to scholars measuring
drive local economic growth. the effect of overseas businesses or remote
workers on a country's economy.

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WHAT IS THE DIFFERENCE BETWEEN GNP & GNI?

➔ The 1993 System of National Accounts

replaced the term "gross national product"
with the new term "gross national income."
➔ Both represent a country's domestic output
plus net income from the businesses or labor
of a country's citizens abroad.

IS GDP OR GNP BETTER?

➔ While there is no objective basis for saying

that one metric is better than the other, GDP
is the most popular metric for the overall
productivity of a country's economy. GNP
was formerly the default measure for a
country's economic production but it fell out
of favor by the 1990s.

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 LESSON 5: PURCHASING POWER & INFLATION CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

UNDERSTANDING PURCHASING POWER

UNDERSTANDING PURCHASING POWER & THE
CONSUMER PRICE INDEX (CPI) ● Purchasing power affects every aspect of
economics, from consumers buying goods to
PURCHASING POWER investors buying stock to a country’s
economic prosperity.
➔ is the value of a currency expressed in terms ● Inflation reduces a currency's purchasing
of the number of goods or services that one power. Similarly, loss of purchasing power
unit of money can buy. has the same effect of an increase in prices.
➔ It can weaken over time due to inflation. ● To measure purchasing power in the
That's because rising prices effectively traditional economic sense, you could
compare the price of a good or service
decrease the number of goods or services
that one unit of money can buy. against a price index such as the Consumer
➔ Purchasing power is also known as a Price Index (CPI).
currency's buying power.
➔ In investment terms, purchasing or buying PURCHASING POWER & CPI
power is the dollar amount of credit available
to a customer based on the existing ● Governments institute policies and
marginable securities in the customer's regulations to protect a currency’s
brokerage account. purchasing power and keep an economy
healthy.
KEY TAKEAWAYS ● They also monitor economic data to stay on
top of changing conditions.
● Purchasing power is the amount of goods or
services that a unit of currency can buy at a CONSUMER PRICE INDEX (CPI)
given point in time.
● Inflation erodes the purchasing power of a ➔ is one of the measures of inflation and
currency over time. purchasing power. It calculates the change in
● Central banks adjust interest rates to try to the weighted average of prices of consumer
keep prices stable and maintain purchasing goods and services, and in particular,
power. transportation, food, and medical care, at a
● One U.S. measure of purchasing power is the given time.
Consumer Price Index (CPI). ➔ CPI can point to changes in the cost of living
● Globalization has linked currencies more as well as deflation.
closely than ever so protecting purchasing ➔ CPI measures the prices of certain consumer
power worldwide is crucial. goods and services over time to discern
changes in prices that indicate inflation.

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PURCHASING PRICE PARITY ➔ Inflation is the rate of increase in prices over

a given period of time.
➔ PPP is an economic theory that estimates the ➔ Inflation is typically a broad measure, such as
amount by which an item should be adjusted the overall increase in prices or the increase
for parity, given two countries’ exchange in the cost of living in a country.
rates. ➔ But it can also be more narrowly
➔ PPP can be used to compare countries’ calculated—for certain goods, such as food,
economic activity, income levels, and other or for services, such as a haircut, for example.
relevant data concerning the cost of living, or ➔ Whatever the context, inflation represents
possible rates of inflation and deflation. how much more expensive the relevant set
of goods and/or services has become over a
certain period, most commonly a year.
PURCHASING POWER LOSS OR GAIN

MEASURING INFLATION
➔ refers to the decrease or increase in how
much consumers can buy with a given
amount of money. ➔ Consumers’ cost of living depends on the
➔ Consumers lose purchasing power when prices of many goods and services and the
prices increase. They gain purchasing power share of each in the household budget.
when prices decrease. ➔ To measure the average consumer’s cost of
➔ Causes of purchasing power loss can include living, government agencies conduct
government regulations, inflation, and household surveys to identify a basket of
natural and human-made disasters. commonly purchased items and track over
➔ Causes of purchasing power gain include time the cost of purchasing this basket.
deflation and technological innovation.
CONSUMER PRICE INFLATION
HOW DOES INFLATION ERODE
PURCHASING POWER? ➔ the percentage change in the CPI over a
certain period
➔ Inflation is the gradual rise in the prices of a ➔ the most widely used measure of inflation.
broad range of products and services. If
inflation persists at a high level or gets CORE CONSUMER INFLATION
out-of-control, it can eat away purchasing
power—what you can buy with the money ➔ focuses on the underlying and persistent
you have. trends in inflation by excluding prices set by
the government and the more volatile prices
INFLATION: PRICES ON THE RISE of products, such as food and energy, most
affected by seasonal factors or temporary
➔ Inflation measures how much more supply conditions.
expensive a set of goods and services has ➔ Core inflation is also watched closely by
become over a certain period, usually a year policymakers.

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IS INFLATION GOOD OR BAD? committed to ensuring price stability—can

implement contractionary policies that rein
➔ Although high inflation hurts an economy, in aggregate demand, usually by raising
deflation, or falling prices, is not desirable interest rates.
either. When prices are falling, consumers ➔ However, when inflation is driven by global
delay making purchases if they can, rather than domestic developments, such
anticipating lower prices in the future. For policies may not help.
the economy this means less economic
activity, less income generated by producers,
and lower economic growth.
➔ Most economists now believe that low,
stable, and—most important—predictable
inflation is good for an economy. If inflation is
low and predictable, it is easier to capture it
in price-adjustment contracts and interest
rates, reducing its distortionary impact.
Moreover, knowing that prices will be slightly
higher in the future gives consumers an
incentive to make purchases sooner, which
boosts economic activity.

WHAT CREATES INFLATION?

➔ Long-lasting episodes of high inflation are

often the result of lax monetary policy. If the
money supply grows too big relative to the
size of an economy, the unit value of the
currency diminishes; in other words, its
purchasing power falls and prices rise.
➔ This relationship between the money supply
and the size of the economy is called the
quantity theory of money and is one of the
oldest hypotheses in economics.

HOW POLICYMAKERS DEAL WITH INFLATION?

➔ The right set of disinflationary policies, those

aimed at reducing inflation, depends on the
causes of inflation. If the economy has
overheated, central banks—if they are

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 LESSON 6: THE GROWTH THEORIES CAEC09

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long-term unemployment. In a paper titled

THE GROWTH THEORIES “The General Theory of Employment,
Interest and Money,”
➔ Keynes became an outspoken proponent of
● Keynesian Theory: John Maynard Keynes
(1930s) full employment and government
intervention as a way to stop economic
● Laissez-faire theory: Physiocrats (18th
century) recession.
● The doctrine of Rostow
● Harrod-Domar Model: Roy F. Harrod (1939) FULL EMPLOYMENT
& Evsey Domar (1946)
● Solow or Neoclassical Theory: T.W. Swan & ➔ An economic situation in which all available
Robert Solow labor resources are being utilized to their
● Power balance theory: Ragnar Nurkse highest extent.
● Structural Theory: Raúl Prebisch (1949)
● The Lewis-Fei-Ranis Model: W. Artur Lewis NOTE:
(1954) ➔ Full employment doesn’t equate to zero
● New Growth Theory unemployment because there is always a
○ Cobb-Douglas Production percentage for cyclical/natural
Function: Charles Cobb & Paul unemployment. The acceptable
Douglas (1928) unemployment rate during full employment
is 2-7%.
KEYNESIAN THEORY
CAUSES OF CYCLICAL UNEMPLOYMENT
● It was developed by Keynes during 1930s in
an attempt to understand the Great ● Frictional Unemployment
Depression. ● Structural Unemployment
● A school of thought in which government
plays an important role in mitigating FRICTIONAL UNEMPLOYMENT
economic recession.
● An economic theory of total spending in the
➔ It is when workers are jobless and looking for
economy (aggregate demand) and its effects
work in a healthy economy. The following
on output and employment.
four causes are an unavoidable part of the
job search process:
JOHN MAYNARD KEYNES ● Voluntarily leaving the workforce
● Workers relocate
➔ Keynes was an early 20th century British ● New workers enter the workforce
economist, known as the father of Keynesian ● Job seekers re-enter the workforce
economics
➔ His theories of Keynesian economics
addressed, among things, the causes of

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STRUCTURAL UNEMPLOYMENT ➔ It is visible in industrial production,

employment, real income, and
wholesale-retail trade.
➔ It is neither voluntary nor short-term. The
➔ In other words, a recession is a period of
next two causes usually lead to long-term
stagnant or declining economic performance
unemployment.
across an entire economy.
● Computers or robots replace
workers
● Job outsourcing THE POINT OF THIS THEORY

GREAT DEPRESSION ● Government should spend less money

during economic prosperity and spend more
during downturn.
➔ The greatest and longest economic
● The role of government is to spend where
recession in western industrialized history
necessary in order to stabilize the economy
which lasted from 1929 until 1932.
whether it’s by lowering interest rate or
➔ US Stocks were only worth 20% of what they
increasing governmental outlays
were prior to the crisis and one year later,
● Keynes advocated that the best way to pull
almost half of all US banks had failed.
an economy out of recession is for the
➔ By 1935, roughly seven hundred and fifty
government to borrow money and increase
thousand farms had been lost to bankruptcy
demand by infusing the economy with capital
or distressed sales because supply was much
to spend. This means that Keynesian
bigger than demand
economics is a sharp contrast to laissez-faire.
➔ European countries debilitated by the debt
they’ve accumulated to the world war one,
dealt with the severe depression and a LAISSEZ-FAIRE THEORY
sovereign debt crisis ultimately emerged.
● An economic theory introduced by
CAUSES OF GREAT DEPRESSION Physiocrats from 18th century that opposed
any government intervention in business
affairs.
● Overproduction
● The driving principle behind laissez-faire, a
● Banking and Money Policies
French term that translates as “leave alone”,
● Stock Market Actions
is that the less the government is involved in
the economy, the better off business will
RECESSION be– and by extension, society as a whole.
● Laissez-faire economists argue that there is
➔ It refers to a significant decline in general no need for business and industrial affairs to
economic activity in a region, country, or the be complicated by government intervention
entire world that goes on for more than a and just let the forces of the market interact
few months. with one another. They are against any type
of federal involvement such as minimum

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wages, duties, trade restrictions, and THE DOCTRINE OF ROSTOW

corporate taxes.

FIVE STAGES TO REACH ECONOMIC DEVELOPMENT

AGGREGATE DEMAND

1. Traditional Society
➔ Is an economic measurement of the total 2. Pre-conditions for take-off
amount of demand for all finished goods 3. Take-off
and services produced in an economy. 4. Drive to maturity
➔ is expressed as the total amount of money 5. Age of mass consumption
exchanged for those goods and services at a
specific price level and point in time.
TRADITIONAL SOCIETY
➔ It represents the total demand for goods and
services at any given price level in a given
period. ➔ This is an agricultural economy of mainly
subsistence farming, little of which is traded.
➔ The size of the capital stock is limited and low
AGGREGATE DEMAND VS. GDP
quality resulting in very low labor
productivity and little surplus output left to
● Aggregate demand over the long-term equals sell in domestic and overseas markets.
GDP because the two metrics are calculated
in the same way.
PRE-CONDITIONS FOR TAKE-OFF
● GDP represents the total amount of goods
and services produced in an economy while
aggregate demand is the demand or desire ➔ Agriculture becomes more merchandised
for those goods. As a result of the same and more output is traded.
calculation methods, the aggregate demand ➔ Savings and investment grow although they
and GDP increase or decrease together. are still a small percentage of national
income (GDP). Some external funding is
required – for example in the form of
overseas aid or perhaps remittance income
from migrant workers living overseas.

TAKE-OFF

➔ Manufacturing industry assumes greater

importance, although the number of
industries remains small.
REASONS WHY AD CURVE IS DOWNARD-SLOPING ➔ Political and social institutions start to
develop – external finance may still be
● Wealth Effect required.
● Interest Rate Effect

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➔ Savings and investment grow, perhaps to 15% ● The model was developed independently by
of GDP. Roy F. Harrod in 1939 and Evsey Domar in
➔ Agriculture assumes lesser importance in 1946.
relative terms although the majority of ● The key factor is physical capital like
people may remain employed in the farming machinery, buildings, equipment, etc.
sector.
➔ There is often a dual economy apparent with EVALUATING THE HARROD-DOMAR MODEL:
rising productivity and wealth in ➔ the efficiency of capital in relation to
manufacturing and other industries economic growth depends on several factors.
contrasted with stubbornly low productivity For instance, values of the workers, their
and real incomes in rural agriculture. skills, technology, government policies, and
the like determine whether capital could be
DRIVE TO MATURITY productive or not. Poor nations are deficient
in capital. But this is not the key factor in
their economic growth. It is more on human
➔ Industry becomes more diverse. Growth
and institutional developments.
should spread to different parts of the
country as the state of technology improves -
the economy moves from being dependent SOLOW OR NEOCLASSICAL THEORY
on factor inputs for growth towards making
better use of innovation to bring about ● T.W. Swan and Robert Solow, made
increases in real per capita incomes. important contributions to economic growth
theory in developing what is now known as
AGE OF MASS CONSUMPTION the Solow-Swan growth model.
● The theory focuses on three factors that
impact economic growth: labor, capital, and
➔ Output levels grow, enabling increased
technology, or more specifically,
consumer expenditure. There is a shift
technological advances.
towards tertiary sector activity and the
● The output per worker (growth per unit of
growth is sustained by the expansion of a
labor) increases with the output per capita
middle class of consumers.
(growth per unit of capital) but at a
decreasing rate. This is referred to as
HARROD-DOMAR MODEL diminishing marginal returns. Therefore,
there will become a point at which labor and
● The Harrod–Domar model is a classical capital can be set to reach an equilibrium
Keynesian model of economic growth. state.
● It is used in development economics to ● The Solow Growth Model is an exogenous
explain an economy's growth rate in terms model of economic growth that analyzes
of the level of saving and productivity of changes in the level of output in an
capital. economy over time as a result of changes in
● It suggests that there is no natural reason for the population growth rate, the savings rate,
an economy to have balanced growth. and the rate of technological progress.

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● The Solow Growth Model, developed by NOTE:

Nobel Prize-winning economist Robert Solow, ➔ The neo-classical theory of economic growth
was the first neoclassical growth model and suggests that increasing capital or labor
was built upon the Keynesian Harrod-Domar leads to diminishing returns. Therefore,
model. The Solow model is the basis for the increasing capital has only a temporary and
modern theory of economic growth. limited impact on increasing the economic
growth. As capital increases, the economy
ECONOMIC GROWTH maintains its steady-state rate of economic
growth.
➔ the increase in the goods and services
produced by an economy, typically a nation, HOW TO INCREASE THE RATE OF ECONOMIC
over a long period of time. GROWTH IN SOLOW/SWAN MODEL
➔ It is measured as percentage increase in real
gross domestic product (GDP) which is gross ● An increase in proportion of GDP that is
domestic product (GDP) adjusted for invested – however, this is limited as higher
inflation. proportion of investment leads to
➔ GDP is the market value of all final goods diminishing returns and convergence on the
and services produced in an economy or steady-state of growth
nation. ● Technological progress which increases
productivity of capital/labor
TWO MAJOR CONCERNS IN THIS ERA ● It suggests poor countries who invest more
should see their economic growth converge
with richer countries.
1. the conclusion that continuous economic
growth can only occur with technological
advances, which happen by chance and POWER BALANCE THEORY
therefore cannot be modeled.
2. it relies on diminishing marginal returns of ● This model stresses international power
capital and labor. However, there is no balance as an important factor in
empirical or real-life evidence to support this development, including the terms and
claim. Therefore, the model is known for patterns of trade which tend to keep some
identifying technology as a factor in growth countries poor while other countries get
but fails to ever substantially explain how. richer.

THREE FACTORS THAT IMPACT ECONOMIC GROWTH VIEWS OF RAGNAR NURKSE

1. Labor The balance growth theory can be explained using the

2. Capital views of Ragnar Nurkse
3. Technology

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● Prof. Nurkse holds that the major obstacle to SUPPLY SIDE

the development of the underdeveloped
countries is the VICIOUS CIRCLE OF POVERTY.
➔ Vicious circle of poverty affects the supply
side of capital formation. In the
VICIOUS CIRCLE OF THEORY underdeveloped countries, poverty exists
because the per capita income of the people
is low. Due to low per capita income, the
level of saving is low.
➔ Since investment depends on savings, so
investment would be low due to which
capital formation would be low. Low capital
formation would lead to low productivity
which would result in poverty.

➔ shows that income in underdeveloped

countries is low. Low income leads to low
savings. Low savings will naturally result in
low investment, which will result in less
production. Low production will generate low
income. Low income will create low demand
for goods. In other words, it will result in
smaller markets (limited extent of markets).
Thus, there will be no inducement to invest.

VICIOUS CIRCLE OF POVERTY OPERATES ON:

WAYS TO BREAK VICIOUS CIRCLE OF POVERTY

1. Demand Side
1. Complementary Demand
2. Supply Side
2. Government Intervention
3. External Economies
DEMAND SIDE
4. Economic Growth

➔ Vicious circle of poverty affects the demand

COMPLEMENTARY DEMAND
side of capital formation.
➔ The underdeveloped countries are poor
➔ The vicious circle of poverty cannot be
because their level of income is low.
broken with industrial investment decisions.
➔ Due to low level of income, their demand for
➔ This means the vicious circle of poverty
low income goods is low.
cannot be broken only by making investment
in one industry or one sector. Rather, there

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should be overall investment in all the the view that “Balanced Growth is a means
sectors. This is the only way to enlarge the of getting out of rut”. Nurkse is of the view
size of the market. that increase in investment in different
branches of production can enlarge the total
GOVERNMENT INTERVENTION market. This can break the bonds of the
stationery equilibrium of underdevelopment.
➔ Nurkse is of the view that the government
must intervene in productive activities BASIS OF BALANCE GROWTH THEORY
through economic planning.
➔ He is of the view that when government 1. Firstly, in the absence of balanced growth,
participates in productive activities, it will prices in one sector may be higher than the
help in breaking the vicious circle of poverty. prices in the other sector. On account of
➔ Nurkse opines that if entrepreneurs are unfavorable terms of trade in the domestic
available in underdeveloped countries, then market, they might suffer heavy losses. As a
they can be induced to make investment. But result, no investment will be made there in
in underdeveloped countries, private and their growth will be halted. Because of
entrepreneurs cannot come forward with so balanced growth equality in comparative
much heavy investment. prices in all the sectors will be made and
➔ This can easily be carried by the government thereby all the sectors will continue to grow.
only. Thus, vicious circle of poverty can be 2. Secondly, when the economy grows, then
broken only by the intervention of the several bottlenecks appear in different
government. sectors. As a result of economic
development, income of the people also
EXTERNAL ECONOMIES increases. Due to increase in income,
demand of those goods rises whose demand
is income-elastic. If the production of these
➔ External economies are those which accrue
goods does not increase, there may appear
because of the setting up of new industries
several bottlenecks. However, in case of
and expansion of the existing industries.
balanced growth, it is possible to increase
➔ The accruing of external economies leads to
production of those goods whose income
the law of increasing returns to scale. It
elasticity of demand is more. Thereby,
leads to a fall in the cost of production and
chances of bottlenecks in different sectors
hence the price level.
will be quite remote.
➔ A fall in the price leads to the increase in
demand which is useful for economic
development. STRUCTURAL THEORY

ECONOMIC GROWTH ● It is agreed that structuralist thought in its

initial form was created by the economist
Raúl Prebisch.
➔ Balanced growth helps in accelerating the
● In his 1949 manifesto, Prebisch introduced
pace of economic growth, G.M.Meier is of
the notion of an international structure

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divided between an industrial hegemonic NEW GROWTH THEORY

centre and an agrarian dependent periphery,
both of which determine the existence of an
● The development of knowledge is seen as a
original and unequal development process. key driver of economic development.
● The implication is that, in order to develop,
KEY ASSUMPTIONS OF STRUCTURAL THEORY economies should move away from an
exclusive reliance on physical resources to
● Economic growth is a path-dependent expanding their knowledge base, and
process support the institutions that help develop
● Developing economies are characterized by and share knowledge.
structural heterogeneity ● Governments should invest in knowledge
● Modern economic activities are generally because individuals and firms do not
urban manufacturing activities necessarily have private incentives to do so.
● The faster the growth rate of manufacturing For example, while knowledge is a merit
output, the faster the growth rate of GDP good, and acquiring it does not deny anyone
● The faster the growth rate of manufacturing else that knowledge, its usefulness to
output, the faster the growth rate of labor individuals and firms may be undervalued,
productivity in manufacturing and yet knowledge can generate increasing
● The faster the growth rate of manufacturing returns and drive economic growth.
output, the faster the growth rate of Government should, therefore, invest in
aggregate labor productivity human capital, and the development of
education and skills. It should also support
THE LEWIS-FEI-RANIS MODEL private sector research and development
and encourage inward investment, which
➔ W. Arthur Lewis (1954) developed the first will bring new knowledge with it.
two sector model which attempted to ● The theory also argues that innovation and
capture the interaction between a new technologies do not occur simply by
traditional agricultural sector and a modern random chance. Rather, it depends on the
industrial sector for a developing economy. number of people seeking out new
➔ Explains how economic growth gets started innovations or technologies and how hard
through structural change – increase in size they are looking for them.
of the industrial sector relative to ● In addition, people also have control over
subsistence agricultural sector. their knowledge capital. If the profit
incentive is great enough, people will choose
to grow human capital and look harder for
THREE SECTORS
new innovations.

1. Traditional and modern;

2. Agricultural and industrial;
3. Rural and urban

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HUMAN CAPITAL

➔ The intangible asset that represents

valuable ideas, methods, processes and
other intuitive talents that belong to a
company.
➔ It can be classified as the economic value of
a worker's experience and skills. This
includes assets like education, training,
intelligence, skills, health, and other things
employers value such as loyalty and
punctuality.
➔ Human capital largely relies on the talents of
people rather than the work of machines,
which means companies that want to grow
and maintain knowledge capital must grow
and maintain talent in their employees.
➔ Under the new growth theory, nurturing
innovation internally is one of the reasons
for organizations to invest in human capital.
By creating opportunities and making
resources available within an organization,
the expectation is that individuals will be
encouraged to develop new concepts and
technology for the consumer market.

COBB-DOUGLAS PRODUCTION FUNCTION

➔ In 1928, Charles Cobb and Paul Douglas

presented the view that production output is
the result of the amount of human capital
and physical capital invested. This analysis
produced a calculation that is still in use
today, largely because of its accuracy.
➔ The Cobb-Douglas production function
reflects the relationships between its inputs
- namely physical capital and human capital
- and the amount of output produced. It's a
means for calculating the impact of changes
in the inputs, the relevant efficiencies, and
the yields of a production activity.

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Economic Economic
MEASURING GROWTH AND DEVELOPMENT Category
Development Growth

Measurement Qualitative HDI Quantitative,

● For many years economic development was
(Human Increases in real
considered synonymous with economic Development Index), GDP
growth. gender-related index
● Economic development is broader and much (GDI), Human
poverty index (HPI),
more encompassing view that economic Infant mortality,
growth. literacy rate etc.
● Economic development relates levels of
social and humanitarian achievement and
MEASURING GROWTH
income distribution, as well as a narrower
measure of per-capita income.
GROSS DOMESTIC PRODUCT
ECONOMIC GROWTH VS. ECONOMIC DEVELOPMENT
➔ is the total monetary or market value of all
the finished goods and services produced
Economic Economic within a country's borders in a specific time
Category
Development Growth
period.
Implications Economic Economic growth ➔ As a broad measure of overall domestic
development implies refers to an production, it functions as a comprehensive
an upward increase over scorecard of the country’s economic health.
movement of the time in a
entire social system country’s real
in terms of income, output of goods TYPES OF GDP MEASUREMENT
savings, and and services
investment along (GNP) or real
with progressive output per capita 1. Nominal GDP
changes in income 2. Real GDP
socioeconomic
3. GDP growth rate
structure of country
(institutional and 4. GDP per capita
technological
changes).
NOMINAL GDP
Factors Development relates Growth relates to
to growth of human a gradual increase ➔ is the measurement of the raw data
capital indexes, a in one of the
decrease in components of ➔ nominal GDP does not take inflation into
inequality figures, Gross Domestic account.
and structural Product:
changes that improve consumption,
the general government
population’s quality spending,
of life investment, net
exports.

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REAL GDP NET EXPORTS

➔ takes into account the impact of inflation ➔ Net exports represent the difference
and allows comparisons of economic output between what a country exports minus any
from one year to the next and other imports of goods and services.
comparisons over periods of time. NOTE:
● In GNP, the Philippines ranks 32nd while the
GDP GROWTH RATE United States lands on 1st place and China on
2nd.
➔ is the increase in GDP from quarter to
quarter. MEASURING ECONOMIC DEVELOPMENT

GDP PER CAPITA HUMAN DEVELOPMENT INDEX (HDI)

➔ measures GDP per person in the national

populace; it is a useful way to compare GDP
data between various countries.

GROSS NATIONAL PRODUCT

➔ is an estimate of total value of all the final

products and services turned out in a given ● It is a statistic composite index of life
period by the means of production owned expectancy, education, and per capita
by a country's residents. income indicators, which are used to rank
➔ GNP is commonly calculated by taking the countries into four tiers of human
sum of personal consumption expenditures, development.
private domestic investment, government ● A country scores a higher HDI when the
expenditure, net exports and any income lifespan is higher, the education level is
earned by residents from overseas higher, and the gross national income GNI
investments, minus income earned within (PPP) per capita is higher.
the domestic economy by foreign residents. ● It was developed by Pakistani economist
Mahbub ul Haq, with help from Gustav
PERSONAL CONSUMPTION EXPENDITURES Ranis of Yale University and Meghnad Desai
of the London School of Economics, and was
➔ It is a measure of consumer spending. further used to measure a country's
development by the United Nations
Development Program (UNDP)'s Human
Development Report Office

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INDICATORS AND DIMENSION INDEX OF HDI Expectancy Index, it helps measure the
educational attainment. GNI (PPP) per capita
and life expectancy are also used with the
● Life expectancy at birth: Life Expectancy
Index education index to get the HDI of each
country.
● Expected and mean years of schooling:
Education Index
NOTE:
● GNI per capita: GNI Index
➔ Australia ranked 1st in education index year
NOTE: 2021 with 1.01
➔ 1st rank on HDI is Switzerland with 0.967,
while Philippines ranked 116th with 0.710 GNI PER CAPITA

LIFE EXPECTANCY AT BIRTH ➔ The GNI per capita is the dollar value of a
country's final income in a year, divided by
➔ Life expectancy at birth is the average its population. It should be reflecting the
lifespan a newborn can be expected to live, average before tax income of a country's
assuming that age-specific mortality levels citizens.
remain constant.
➔ This is estimated as the actual age-specific NOTE:
death rate of any birth cohort cannot be ➔ Bermuda ranked 1st in GNI per capita with
known in advance. If death rates fall, actual 125,210 dollars
life spans will be higher than life expectancy
calculated using current death rates. GENDER DEVELOPMENT INDEX (GDI)
➔ Across the world, people are living longer. In
1900, the average life expectancy of a ● The GDI measures differences in male and
newborn was 32 years. By 2021 this had female achievements in three basic
more than doubled to 71 years. dimensions of human development:
○ health,
NOTE: ○ education and
➔ Philippines averaged life expectancy age is ○ command over economic
72, while Macao SAR, China ranked 1st with resources.
85 years of life expectancy age ● Gender disaggregated data is used in each
dimension.
EDUCATION INDEX ○ The health dimension is captured
by life expectancy at birth, female
and male.
➔ The Education Index is a component of the
○ Education is measured using two
Human Development Index (HDI) published
indicators— female and male
every year by the United Nations
expected years of schooling for
Development Programme. Alongside the
children and female and male
economical indicators (GDP) and Life

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mean years of schooling for adults was supplanted by the UN's

ages 25 and older. Multidimensional Poverty Index.
○ Command over economic
resources is measured by female MULTIDIMENSIONAL POVERTY INDEX
and male estimated earned
income.
➔ Uses a range of indicators to calculate a
● measures gender inequalities in the
summary poverty figure for a given
achievement of key dimensions of human
population, in which a larger figure indicates
development: a long and healthy life, a good
a higher level of poverty. This figure
education, and a decent standard of living.
considers both the proportion of the
Values Close to 1 indicate higher gender
population that is deemed poor and the
equality
'breadth' of poverty experienced by these
'poor' households.
HOW IS THE GDI CALCULATED?

● GDI is the ratio of female HDI to male HDI. To

calculate it, the HDI is first calculated
separately for females and for males. The
same goalposts as in the HDI are used for
transforming the indicators into a scale lying
between zero and one. The only exception is
life expectancy at birth where the goalposts
are adjusted, to reflect the empirical finding
that on average, women have a biological
advantage over men, and live about 5 years
longer.

HUMAN POVERTY INDEX (HPI)

● Was an indication of the poverty of

community in a country, developed by the
United Nations to complement the Human
Development Index (HDI) and was first
reported as part of the Human Development
Report in 1997.
● It is developed by United Nations
Development Program which also publishes
indexes like HDI It was considered to better
reflect the extent of deprivation in deprived
countries compared to the HDI.[1] In 2010, it

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● Labor force participation: When women

GENDER AND DEVELOPMENT participate more fully in the workforce, it can
boost economic growth.
➔ GAD is a development perspective and ● Entrepreneurship: Empowering women
process that are participatory and entrepreneurs can stimulate innovation and
empowering, equitable, sustainable, free job creation.
from violence, respectful of human rights, ● Education and Skills: Investing in women's
supportive of self-determination and education and skills training can lead to
actualization of human potential. increased productivity and economic
➔ It seeks to achieve gender equality as a opportunities.
fundamental value that should be reflected
in development choices; seeks to transform SOCIAL DEVELOPMENT
society’s social, economic, and political
structures and questions the validity of the ● Health and Nutrition: Women and girls'
gender roles they ascribed to women and health and nutrition are crucial for the
men; contends that women are active well-being of families and communities.
agents of development and not just passive ● Education: Educated women are more likely
recipients of development assistance; and to have healthier children, participate in
stress the need of women to organize decision-making, and contribute to
themselves and participate in political community development.
processes to strengthen their legal rights. ● Reduced Poverty: Empowering women can
➔ Women and men have different help reduce poverty and inequality.
development needs and interests, which are
institutionalized and perpetuated by cultural, ENVIRONMENTAL DEVELOPMENT
social, economic, and political norms,
systems, and structures.
● Sustainable Practices: Women often play
significant roles in environmental
THE RELATIONSHIP BETWEEN conservation and sustainable agriculture.
GENDER AND DEVELOPMENT ● Climate Change Resilience: Women are often
more vulnerable to climate change impacts,
Gender equality is a critical factor in achieving and their involvement in decision-making can
sustainable development. When women and girls have lead to more resilient communities.
equal opportunities, societies prosper. Conversely,
gender inequality can hinder progress and perpetuate
poverty.

Here are some key ways in which gender relates to

development: KEY CHALLENGES AND OPPORTUNITIES
ECONOMIC DEVELOPMENT

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● Gender Stereotypes: Challenging traditional ● Social Development:

gender roles and stereotypes can unlock ○ Improved health and nutrition
women's potential. ○ Reduced poverty and inequality
● Access to Resources: Ensuring women have ○ Increased education and literacy
equal access to land, credit, and technology rates
can empower them economically. ● Environmental Sustainability:
● Legal and Policy Frameworks: Strong legal ○ Greater involvement in sustainable
and policy frameworks can protect women's practices
rights and promote gender equality. ○ Increased resilience to climate
● Education and Training: Investing in women's change
education and training can equip them with
the skills needed to succeed. KEY STRATEGIES FOR GENDER EMPOWERMENT
● Health Care: Access to quality healthcare,
including reproductive health services, is
● Education: Providing quality education for
essential for women's well-being and girls and women.
empowerment.
● Health Care: Ensuring access to quality
healthcare, including reproductive health
By addressing gender inequalities and empowering services.
women, we can create a more just, equitable, and
● Economic Empowerment: Promoting
sustainable future for all. women's economic participation through
entrepreneurship, employment
GENDER EMPOWERMENT AND DEVELOPMENT opportunities, and financial literacy.
● Legal and Policy Reforms: Enacting laws and
➔ Gender empowerment is the process of policies that protect women's rights and
empowering women to reach their full promote gender equality.
potential. It involves challenging gender ● Challenging Gender Stereotypes: Promoting
stereotypes, ensuring equal access to gender-sensitive attitudes and behaviors.
resources and opportunities, and promoting ● Empowering Women's Leadership:
women's leadership and decision-making. Encouraging women to take on leadership
➔ Gender empowerment is closely linked to roles in government, business, and civil
development as it can significantly society.
contribute to economic growth, social By empowering women, we can create a more just,
progress, and environmental sustainability. equitable, and sustainable future for all.
When women are empowered, they can
contribute more fully to their communities GENDER DEVELOPMENT INDEX (GDI)
and societies. This can lead to:
● Economic Growth:
WHAT DOES THE GDI MEASURE?
○ Increased labor force participation
○ Higher productivity
○ Enhanced innovation and ● The GDI measures differences in male and
entrepreneurship female achievements in three basic

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dimensions of human development: health, in PPP$ (2011 constant prices). Some of these data are
education and command over economic available in the on-line database
resources. http://hdr.undp.org/en/data and the others could be
● Gender disaggregated data is used in each found in the original data sources.
dimension.
○ The health dimension is captured The income component of the GDI is a proxy to
by life expectancy at birth, female command over economic resources. This component
and male. captures income gaps in a way similar to the focus on
○ Education is measured using two gender gaps in other HDI components.
indicators—female and male
expected years of schooling for A number of countries do not have sex-disaggregated
children and female and male wage data. How do you estimate sex-disaggregated
mean years of schooling for adults GNI per capita for these countries?
ages 25 and older. ➔ The global average female to male wage
○ Command over economic ratio across all sectors is 0.8 in 2018. This
resources is measured by female global average is what was used to estimate
and male estimated earned the wage ratio for countries with missing
income. sex-disaggregated wage data.
➔ We recognize the limitations in assuming that
HOW IS THE GDI CALCULATED? the global average applies to all countries
with missing wage data. ILO is currently
working to improve availability of
● GDI is the ratio of female HDI to male HDI.
To calculate it, the HDI is first calculated sex-disaggregated wage statistics.
separately for females and for males.
● The same goalposts as in the HDI are used for
transforming the indicators into a scale lying What is the advantage of grouping countries into five
between zero and one. The only exception is GDI groups instead of ranking them according to the
life expectancy at birth where the goalposts absolute deviation from parity?
are adjusted, to reflect the empirical finding ➔ Estimating the female and male HDIs for all
that on average, women have a biological countries relies on many approximations,
advantage over men, and live about 5 years such as assuming wage ratios of 0.8 for many
longer. countries. Because of this the estimated HDIs
need to be interpreted with caution.
➔ We prefer not to rank the countries based on
HOW IS THE INCOME COMPONENT OF
these approximated HDIs. Instead, we group
THE GDI CALCULATED?
countries into five GDI groups by absolute
deviation from gender parity in HDI values.
The income component, female and male estimated ◆ Group 1 countries have high
earned income, is calculated based on female and equality in HDI achievements
male shares of the population, female and male between women and men:
shares of economically active population, ratio of
female to male wages in all sectors, and GNI per capita

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absolute deviation less than 2.5

percent;
◆ group 2 has medium-high equality
in HDI achievements between
women and men: absolute
deviation between 2.5 percent and
5 percent;
◆ group 3 has medium equality in
HDI achievements between
women and men: absolute
deviation between 5 percent and
7.5 percent;
◆ group 4 has medium-low equality
in HDI achievements between
women and men: absolute
deviation between 7.5 percent and
10 percent;
◆ and group 5 has low equality in
HDI achievements between
women and men: absolute
deviation from gender parity
greater than 10 percent.

WHAT IS THE POLICY RELEVANCE OF THE GDI?

➔ The GDI helps in better understanding of the

gender gap in human development
achievements.
➔ It provides insights into gender disparities in
achievements in three basic capabilities:
health, education and command over
economic resources, and is useful for
designing and monitoring policies to close
the gaps.

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SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

CHALLENGES TO ACHIEVING PEACE AND

PEACE AND DEVELOPMENT DEVELOPMENT

➔ Peace and development are inextricably ● Conflict and Violence: Ongoing conflicts and
linked. A peaceful environment is essential violence hinder development efforts and can
for sustainable development, while lead to displacement and humanitarian
development can contribute to peace. crises.
● Inequality and Poverty: Economic inequality
HOW PEACE CONTRIBUTES TO DEVELOPMENT and poverty can fuel social unrest and
conflict.
● Governance and Corruption: Weak
● Stability: Peace provides a stable
governance and corruption can undermine
environment for economic growth,
development efforts and contribute to
investment, and social progress.
instability.
● Reduced Costs: Conflict and violence divert
● Climate Change: Climate change can
resources from development and
exacerbate existing tensions and lead to new
reconstruction efforts.
conflicts.
● Social Cohesion: Peace fosters social
harmony and cooperation, which are crucial
for development. STRATEGIES FOR PROMOTING PEACE AND
● Human Capital Development: Peace allows DEVELOPMENT
for investments in education, healthcare,
and human capital development. ● Conflict Prevention and Resolution: Early
warning systems, mediation, and diplomacy
HOW DEVELOPMENT CONTRIBUTES TO PEACE can prevent conflicts.
● Inclusive Governance: Ensuring that all
groups are represented in decision-making
● Economic Opportunities: Economic
processes can promote peace and stability.
development can reduce poverty and
● Sustainable Development Goals (SDGs):
inequality, which are often root causes of
Achieving the SDGs, which address a range of
conflict.
social, economic, and environmental issues,
● Social Justice: Development can lead to
can contribute to peace and development.
improved social justice, reducing tensions
● Humanitarian Aid and Development
and grievances.
Assistance: Providing humanitarian aid and
● Education and Empowerment: Education can
development assistance can help rebuild
promote understanding, tolerance, and
communities and promote long-term
peaceful conflict resolution.
stability.
● Strengthened Institutions: Strong
● Education and Cultural Exchange: Promoting
institutions can help maintain peace and
education and cultural exchange can foster
security.
understanding and tolerance between
different groups.

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By addressing the root causes of conflict and investing ● First of its kind military scoring system
in sustainable development, we can create a more suggests that US military capabilities are up
peaceful and prosperous world. to three times higher than China.
● The global economic impact of violence
WHAT IS THE GLOBAL PEACE INDEX? increased to $19.1 trillion in 2023,
representing 13.5% of global GDP. Exposure
➔ The Global Peace Index (GPI) measures the to conflict poses a significant supply chain
level of Negative Peace in a country. This data risk for governments and businesses.
can be used to quantify global peacefulness ● Militarisation recorded its largest yearly
and help to understand the factors that deterioration since the inception of the GPI,
create peace in a society. with 108 countries becoming more
➔ The scores are calculated on a scale of 1-5 militarised.
with 5 representing a high degree of ● 110 million people are either refugees or
violence in a country. internally displaced due to violent conflict,
➔ The Global Peace Index 2024 reveals that the with 16 countries now hosting more than
world is at a crossroads. Without concerted half a million refugees.
effort, there is a risk of a surge in major ● North America saw the largest regional
conflicts. deterioration, driven by increases in violent
➔ There are currently 56 conflicts, the most crime and fear of violence.
since World War II. They have become more ● Iceland, Ireland, Austria, New Zealand, and
international with 92 countries involved in Singapore are the top 5 most peaceful
conflicts outside their borders, the most countries in the world in 2024.
since the GPI’s inception.
➔ The rising number of minor conflicts Last year recorded 162,000 conflict related deaths.
increases the likelihood of more major This was the second highest toll in the past 30 years,
conflicts in the future. For example, in 2019, with the conflicts in Ukraine and Gaza accounting for
Ethiopia, Ukraine, and Gaza were all nearly three-quarters of deaths. Ukraine represented
identified as minor conflicts. more than half, recording 83,000 conflict deaths, with
estimates of at least 33,000 for Palestine up to April
2024. In the first four months of 2024, conflict related
KEY RESULTS
deaths globally amounted to 47,000. If the same rate
continues for the rest of this year, it would be the
● 97 countries deteriorated in peacefulness, highest number of conflict deaths since the Rwandan
more than any year since the inception of genocide in 1994.
the Global Peace Index in 2008.
● Conflicts in Gaza and Ukraine were the The Philippines improved four places to 104th out of
primary drivers of the global fall in 163 countries in the 2024 edition of Global Peace
peacefulness, as battle deaths reached Index (GPI) published by think tank Institute for
162,000 in 2023. Economics & Peace. The index assesses independent
● 92 countries are currently involved in states and territories based on their level of
conflicts beyond their borders, more than at peacefulness using three domains:
any time since the inception of the GPI.

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● the level of societal safety and security,

● the extent of ongoing domestic and
international conflict,
● and the degree of militarization.
The latest ranking was the country’s highest since the
report debuted in 2008. The Philippines’ overall GPI
score of 2.210 (where 1 is the most peaceful) was
worse than the Asia-Pacific average score of 1.935,
making it the fourth lowest in the region.

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SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

POVERTY INCIDENCE IN THE PHILIPPINES POVERTY INCIDENCE

11 OUT OF 18 REGIONS RECORDED SIGNIFICANT The national poverty incidence among families in
DECREASES IN POVERTY INCIDENCE IN 2023 2023 was recorded at 10.9 percent. This is equivalent
to 2.99 million Filipino families without enough
Release Date: Thursday, August 15, 2024 income to meet their basic food and non-food needs.
Reference number: 2024-264
At the sub-national level, NCR remained the least poor
The Philippine Statistics Authority (PSA) releases among the regions, with a poverty incidence among
updates on the 2023 Full Year Official Poverty Statistics families estimated at 1.1 percent in 2023. In contrast,
Region IX (Zamboanga Peninsula) recorded the
based on the preliminary results of the 2023 Family
Income and Expenditure Survey. The 2023 Full Year highest poverty incidence among families at 24.2
Official Poverty Statistics was initially released on 22 percent for the same year, followed by the
July 2024 covering data at the national level. The Bangsamoro Autonomous Region in Muslim
updated report includes poverty estimates Mindanao (BARMM) at 23.5 percent and NIR at 22.6
disaggregated at the regional, provincial, and highly percent.
urbanized city levels. Also, it incorporates the poverty
estimates for the newly established Negros Island Out of the 18 regions, 11 recorded statistically
Region (NIR) for years 2018, 2021 and 2023. The significant decreases in poverty incidence among
inclusion of NIR led to the adjustment in the poverty families in 2023 from 2021. Caraga showed the most
estimates of Region VI (Western Visayas) and Region notable improvement with a poverty incidence among
VII (Central Visayas) in 2018 and 2021 to reflect the families of 14.9 percent in 2023, a decrease of 11.0
new composition of the regions. Moreover, separate percentage points from its poverty incidence of 25.9
poverty estimates for Maguindanao del Norte and percent in 2021. In addition, four regions exhibited
Maguindanao del Sur were included in the updated downtrends in their poverty incidence among families
report. in 2023 from 2021. However, these decreases are not
statistically significant. Meanwhile, increasing trends
were recorded in the poverty incidence among
POVERTY THRESHOLD
families in MIMAROPA at 1.2 percentage point
difference, NIR at 4.4 percentage point difference and
A family with five members needed at least PhP Region IX (Zamboanga Peninsula) at 0.8 percentage
13,873 per month to meet their minimum basic food point difference, with only NIR exhibiting statistically
and non-food needs in 2023. Among the regions, nine significant increase.
had poverty thresholds higher than the national
average. This was led by Region III (Central Luzon)
with a poverty threshold of PhP 16,046, followed by
the National Capital Region (NCR) at PhP 15,713, and
Region IV-A (CALABARZON) at PhP 15,457. On the
other hand, Region XII (SOCCSKSARGEN) posted the
lowest poverty threshold at PhP 12,241.

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“The reason we are keeping it constant, in real terms

after adjusting for inflation, is just to ensure that we
The sample breakfast was composed of scrambled egg, are tracking the changes properly and allow us to
coffee with milk, and boiled rice or corn mix. understand whether our policies, our programs are
For lunch, the sample was boiled monggo with working insofar as these are able to reduce poverty,"
malunggay and dried dilis, banana, and boiled rice or Balisacan said.
corn mix. This prompted the senators to urge the NEDA to review
For dinner, the sample food bundle consisted of fried their threshold to ensure that the poverty forecast is
fish or boiled pork, vegetable dish, and boiled rice or accurate.
corn mix. The NEDA chief said the revisiting of the food basket
“The menu is based on a least-cost method approach, will consider the food preferences, the relative prices
meaning the lowest possible cost to arrive at the of goods, among others. —NB, GMA Integrated News
menu,” Mapa said.
“So the food is assumed to be prepared at home (not
purchased in stores outside). In addition, the food
threshold is based on minimum basic needs,” he
added.
NEDA Secretary Arsenio Balisacan, during the Senate
hearing, said that the agency is changing the threshold
based on inflation so they can monitor if the policies
of the government on poverty are effective.

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 LESSON 9: THE BUDGETING PROCESS CAEC09

SOPHOMORE CLASS | S.Y. 2024-2025 | Dela Rosa, Jennifer C.

While distinctly separate, these processes overlap in

GOVERNMENT BUDGETING implementation during a budget year.

➔ is the allocation of public funds to attain the Budget preparation for the next budget year proceeds
economic and social goals of the country. while government agencies are executing the budget
➔ It also entails the management of for the current year. At the same time, the state is
government expenditures to create the most engaged in budget accountability as it reviews the past
impact from the production and delivery of year's budget.
goods and services.
BUDGET PREPARATION
WHY IS GOVERNMENT BUDGETING IMPORTANT?
The budget preparation phase starts with the
Development Budget Coordination Committee
● Government budgeting is important because
it enables the government to plan and (DBCC). It is headed by the DBM Secretary and its
manage its financial resources to support members are the Secretary of Finance, the NEDA
the implementation of various programs and Director-General, and the Bangko Sentral Governor,
projects that best promote the development with the Office of the President for general oversight.
of the country.
● Through the budget, the government can NEDA
prioritize and put into action its plans, NATIONAL ECONOMIC AND DEVELOPMENT
programs and policies within the constraints AUTHORITY
of its financial capability.
➔ The NEDA provides the over-all
MAJOR PROCESSES INVOLVED IN NATIONAL macro-economic assumptions with which
GOVERNMENT BUDGETING budgetary levels are to be determined. They
involve the projected Gross National Product
(GNP) real growth rates, inflation rates,
91-day treasury bill rates, the London
Interbank Offered Rates (LIBOR) rates,
foreign exchange rates, population growth,
and other economic parameters.

Budgeting for the national government involves four

(4) distinct phases:
● budget preparation, DOF
● budget legislation or authorization,
DEPARTMENT OF FINANCE
● budget execution or implementation and
● budget accountability.

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➔ The Department of Finance (DOF), the

Bureau of the Treasury, the Bureau of ➔ The DBM then conducts technical budget
Internal Revenue and the Bureau of Customs hearings where agencies defend and justify
help the DBCC in determining the sources of their proposals. Organizational and
financing. They project the revenues that will budgetary issues are clarified.
be generated for the budget year as well as ➔ The proposed expenditure programs are
the borrowings that may have to be tapped. confirmed by the agency heads.
➔ The DBM consolidates the budget proposals
DBCC and then submits them to the Cabinet where
the budget is discussed with the President.
DEVELOPMENT BUDGET COORDINATION COMMITTEE

SUBMISSION TO CONGRESS
➔ The DBCC determines the overall economic
targets, expenditure levels, the revenue
projection, deficit levels and the financing ➔ Once the budget is approved by the
plan. It submits them to the President and President and the Cabinet, the President
the Cabinet for approval. submits it to Congress. This must be done no
more than thirty days after the opening of its
BUDGET CALL regular session, as required under the
Constitution.
➔ Once these are approved, the DBM issues
the Budget Call. This requires agencies to BUDGET LEGISLATION
prepare their budgets in accordance with the
said guidelines, macro-economic ➔ The President submits to Congress the
assumptions, and ceilings. The DBM spells National Expenditure Program (NEP), the
out guidelines, procedures, and timetables. Budget of Expenditures and Sources of
Financing (BESF), and the President's Budget
AGENCIES Message. The BESF is the document which
reflects the annual budget and the estimates
and sources of financing. The document is
➔ Agencies undertake their own internal
presented by the Executive branch to the
consultations. They rank programs, projects
Legislative branch.
and activities using the capital budgeting
approach. Then they submit their budget
estimates, taking into account their own HOUSE OF REPRESENTATIVES
priorities and those of the national
government under the Medium-term Public ➔ The proposed budget is first reviewed by the
Investment Program (MTPIP). Committee on Appropriations of the House
of Representatives. The Committee summons
DBM the agencies to justify their budgets, with the
DBM assisting and providing technical inputs.
The Appropriations Committee then presents

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to the House body the proposed budget and Allotments are issued, chargeable against the
passes it at the Third Reading. regular agency budgets. It is also at this stage
where agencies may submit requests for
SENATE OF THE PHILIPPINES availment from SPFs. Agencies are often
required to submit additional reports and
documents to support their requests.
➔ This then goes to the Senate Finance
Committee for another round of hearings
and deliberations. The Committee presents ISSUANCE OF ALLOTMENT RELEASES
the proposed amendments to the House
Budget Bill to the Senate for approval. ➔ Cash releases are made to agencies to cover
obligations that are current or carried over
BICAMERAL CONFERENCE COMMITTEE from the previous year.
➔ However, not all allotment releases require
the issuance of Notice of Cash Allocation
➔ Then a Bicameral Conference Committee,
releases or NCAs. Examples of these are debt
composed of members of both Houses, is
service, customs duties and taxes, the
convened to resolve differences. The
conversion of liability to equity, or the
committee arrives at a common version, and
subsidy to government corporations
it is then submitted to the President. If there
are items which he/she disagrees with, then
CASH RELEASE PROGRAM
the President can exercise line-item veto
power. The President then signs it into law as
the General Appropriations Act. ➔ The Cash Release Program is also based on
actual obligations of an agency, as reported
GAA (GENERAL APPROPRIATION ACT) in the quarterly trial balance submitted to
DBM. Hence, it will not issue NCAs for
unobligated balances of allotments.
➔ The law contains the new appropriations in
BUDGET ACCOUNTABILITY
terms of specific amounts: for salaries, wages
and other personnel benefits; for
maintenance and other operating expenses; ➔ The accountability phase is the final phase
for capital outlays, all authorized to be spent of the budget process. This is when the
by the government for a given year. The agencies report their actual physical and
approved budget becomes effective on the financial performance.
first day of the budget year concerned, or
when it is signed by the President, whichever PERFORMANCE INDICATORS
comes later.
➔ The assessment of the physical
BUDGET EXECUTION achievements of an agency is aided by
performance indicators. These are yardsticks
➔ It is at the budget execution stage that the for determining how well an agency has
expenditure program is implemented. accomplished its objectives. They measure

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outcome, output, process efficiency and

client satisfaction. They may be quantitative HOW DOES THE BUDGET BECOME A LAW?
or qualitative in nature.
➔ In accordance with the requirements of the
ASSESSMENT OF AGENCY PERFORMANCE Constitution, the President submits his/her
proposed annual budget in the form of a
➔ At this phase, the Commission on Audit Budget of Expenditures and Sources of
(COA) figures prominently in the assessment Financing (BESF) supported by details of
of agency performance. The COA is the proposed expenditures in the form of a
government body tasked with looking at the National Expenditure Program (NEP) and the
legality, propriety and accuracy of President's Budget Message which
government financial transactions. summarizes the budget policy thrusts and
➔ The COA has auditors assigned to each priorities for the year.
government agency and it has regional
offices to review these transactions. THE PROCESS
➔ Those that are considered excessive,
inappropriate or illegal are not passed in ● In Congress, the proposed budget goes first
audit. COA can recommend means for setting to the House of Representatives, which
them right, if such is still possible. assigns the task of initial budget review to its
➔ Trial balances of agencies, which are Appropriations Committee.
submitted to DBM and COA on a quarterly ● The Appropriations Committee together with
and annual basis, report how agencies use the other House SubCommittees conduct
up their allotments and cash allocations. hearings on the budgets of
departments/agencies and scrutinizes their
WHY DOES THE GOVERNMENT PREPARE A NEW respective programs/projects. Consequently,
BUDGET EVERY YEAR? the amended budget proposal is presented
to the House body as the General
➔ The preparation of the government's budget Appropriations Bill.
every year is in accordance with the ● While budget hearings are on-going in the
Constitution. The Charter requires the House of Representatives, the Senate
President to submit a budget of expenditures Finance Committee, through its different
and sources of financing within 30 days from subcommittees also starts to conduct its own
the opening of every regular session of review and scrutiny of the proposed budget
Congress. and proposes amendments to the House
➔ The yearly preparation of the budget also Budget Bill to the Senate body for approval.
follows the principle that all government ● To thresh out differences and arrive at a
spending be justified anew each year. This common version of the General
ensures that the government continuously Appropriations Bill, the House and the Senate
evaluates and reviews the allocation of creates a Bicameral Conference Committee
resources for cost efficiency and that finalizes the General Appropriations Bill.
effectiveness.

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● Once a common budget bill has been

approved by both Houses, it is submitted to ➔ Following the SFRS, DBM requires the
the President for signing into law, at which submission of an individual agency budget
time it becomes the General Appropriations matrix (ABM) at the beginning of each
Act. budget year, upon approval of the annual
General Appropriations Act. The ABM is a
GENERAL APPROPRIATIONS ACT (GAA) disaggregation of all the programmed
appropriations for each agency into various
➔ The General Appropriations Act (GAA) is the expenditure categories. As such, the ABM
legislative authorization that contains the serves as a blueprint which provides the
new appropriations in terms of specific basis for determining the timing,
amounts for salaries, wages and other composition and magnitude of the release of
personnel benefits; maintenance and other the budget.
operating expenses; and capital outlays
authorized to be spent for the
implementation of various programs/projects
and activities of all departments, bureaus ALLOTMENT RELEASE PROGRAM (ARP)
and offices of the government for a given
year. ➔ Based on updated resources and economic
development thrusts, and consistent with the
HOW IS BUDGET IMPLEMENTED? cash budget program, the Allotment Release
Program (ARP) is prepared. It prescribes the
➔ Budget implementation starts with the guidelines in the prioritization of fund
release of funds to the agencies. To releases.
accelerate the implementation of
government programs and projects, and to GARO/SARO
ensure the judicious use of budgeted
government funds, the government adopted ➔ In previous years, the ARP serves as basis for
the Simplified Fund Release System (SFRS) the issuance of either a General Allotment
beginning 1995. Release Order (GARO), or a Special Allotment
Release Order (SARO). Both authorize
SIMPLIFIED FUND RELEASE SYSTEM (SFRS) agencies to incur obligations. The GARO was
subsequently replaced by the what you see is
➔ In contrast to the previous system of what you get policy or WYSIWYG. Currently,
releasing funds based on individual agency DBM no longer adopts the WYSIWYG
requests, the SFRS standardized the release instead authorizes the incurrence of
of funds across agencies which are similarly obligations through the approval of the
situated in line with specific policy initiatives. different ABM.

AGENCY BUDGET MATRIX (ABM) NOTICE OF CASH ALLOCATION

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Adjustments are made on the budget even during

➔ Subsequently, DBM releases the Notice of implementation primarily because of the following:
Cash Allocation (NCA) on a monthly or ● Enactment of new laws – Within the fiscal
quarterly basis. The NCA specifies the year, new legislation with corresponding
maximum amount of withdrawal that an identified new revenue sources are passed.
agency can make from a government bank ● Adjustments in macroeconomic parameters
for the period indicated. The Bureau of the – The macroeconomic targets considered in
Treasury replenishes daily the government the budget are periodically reviewed and
servicing banks. The replenished funds are updated to reflect the impact of recent
equivalent to the amount of negotiated economic developments. The relevant
checks presented to the said banks by indicators affecting the budget include the
implementing agencies. following: the Gross National Product (GNP),
inflation rates, interest rates, foreign
SUMMARY LIST OF CHECK ISSUED exchange rates, oil prices, and the level of
imports. Sensitivity measures will determine
whether recent macroeconomic
The release of NCAs by DBM is based on:
developments have a negative or favorable
1. the financial requirements of agencies as
effect on the budget.
indicated in their ABMs, cash plans, and
● Change in resource availabilities -- Budget
reports, such as the Summary List of Checks
adjustments are undertaken when additional
Issued (SLCI); and
resources become available such as new
2. the cash budget program of government
grants, or proceeds from newly negotiated
and updates on projected resources.
foreign loans and grants. Corresponding
budget adjustments are also needed when
COMMON FUND
resource generation falls below target.

➔ Agencies utilize the released NCAs following WHAT MECHANISMS ENSURE THAT FUNDS HAVE
the Common Fund concept. Under this, BEEN PROPERLY ALLOCATED AND SPENT?
agencies are given maximum flexibility in
the use of their cash allocations. The proviso
➔ Systems and procedures are set in place to
is that the authorized allotment for a
monitor the performance and cost
specific purpose is not exceeded. Projects
effectiveness of agencies. These activities
thus run faster.
belong to the fourth and last step of the
budget process: the budget accountability
WHY ARE ADJUSTMENTS MADE ON THE phase. At the agency level, this takes the
BUDGET PROGRAM? form of management's review of actual work
accomplished compared to work targets,
● Revisions in macroeconomic targets vis-a-vis the financial resources made
● Budgetary adjustments available.

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COA AUDIT

➔ Also, detailed examinations of each agency's

books of accounts are undertaken by a
resident representative of the Commission
on Audit (COA). They ensure that all
expenses have been disbursed in accordance
with accounting regulations and authorized
funding purposes.
IS THE ROLE OF THE DBM IN THE BUDGETING
PROCESS LIMITED TO NATIONAL
GOVERNMENT AGENCIES?

● Corporate operating budgets

● Local annual/supplemental budgets

➔ No, the role of DBM here is not limited to

national government agencies. It coordinates
all levels of government, national
government departments/agencies,
government-owned and controlled
corporations, and local government units -- in
the preparation, execution and control of
expenditures.
➔ DBM reviews the corporate operating
budgets of GOCCs and ensures the proper
allocation of cash. DBM likewise
recommends the budget policy covering the
allowable deficits. It sets the criteria for
determining the appropriate subsidy, equity
and net lending of GOCCs.
➔ For LGUs, DBM reviews the annual and
supplemental budgets of provinces and
highly urbanized cities. It also manages the
proper allocation and release of the Internal
Revenue Allotment (IRA) of LGUs and their
share in the utilization of national wealth.

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