Tarlac State University College of Business and Accountancy Graduate School MASTER IN BUSINESS ADMINISTRATION Tarlac City
MBA 503-ECONOMIC ANALYSIS
FINAL EXAMINATIONS
Submitted by: LIBED, GIZELLE R.
Submitted to: Dr. Limuel P. Pavico Professor
Tarlac State University College of Business and Accountancy Graduate School MASTER IN BUSINESS ADMINISTRATION Tarlac City
MBA 503-ECONOMIC ANALYSIS FINAL EXAMINATIONS I. 1.
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Answer each of the following questions: Political candidates have proposed the policies this recently 2016 national election listed below to speed economic growth. For each, explain qualitatively the impact upon the growth of potential output. If possible, give a quantitative estimate of the increase in the growth of potential output and upon the growth of per capita potential output over the next decade. a. Cut the national budget deficit (or raise the surplus) by 2% of GDP, increasing the ratio of investment to GDP by the same amount. b. Decrease defense spending by 1% of GDP at full employment c. Increase investments in human capital (education and training) by 1% of GDP “During periods of inflation, people use real resources to reduce their holdings of fiat money. Such activities produce a private benefit with no corresponding social gain, which illustrates the social cost of inflation”. Explain this quotation and cite example. Do you think President Duterte’s intention to reduce the tax might have a displacement effect along with government debt? Thus, if the government were to promise large future take home pay and other benefits to workers, would workers feel richer? Elaborate the implications of this premise. What would Keynesians and new classical macroeconomists predict to be the impacts of each of the following on the course of pr ices, output and employment? a. A large tax cut b. A large cut in interest rate Consider the supply of cellular phones. For each of t he following, state the effect on supply: a. A change in technology that lowers production costs b. An increase in the price of LCD screens c. A decrease in the price of cellular phones d. An increase in consumer incomes Put yourself in the shoes of an economic policy maker. The economy is in equilibrium with Price=100 and Q=3000. You refuse to “accommodate” inflation, that is, you want to keep prices absolutely stable at P=100, no matter what happens to output. You can use monetary and fiscal policies to affect aggregate demand, but you can not affect aggregate supply in the short run. How would you respond to : a. A surprise increase in investment spending b. A productivity decline that reduces potential output RESEARCH WORK What role did the economic policies of various governments play in influencing the international expansion strategies of both Mc Donald’s and Wal-Mart?
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Find statistics on the current direct foreign investment in the country? What are the categories of this investment, and how they have changed in r ecent years? A common confusion is that between the debt and the deficit. Discuss the following: a. A budget deficit leads to growing government debt b. Reducing the deficit does not reduce the government debt c. Reducing the government debt requires r unning a budget surplus d. Even though the government deficit was reduced in the recent years, the government still rose in these years
Directions: All answers should be printed in a HARD COPY attached these questionnaires in 1. Short bond paper (8.5 x11”) 2. Calibri 11- inch font 3. Single space 4. Stapled On or before November 18, 2017 @ 11.30pm at TSU-CBA Building, Faculty Room, San Vicente, Tarlac City.
DR. LIMUEL P. PAVICO Associate Professor
MBA 503-ECONOMIC ANALYSIS FINAL EXAMINATIONS 1. Political candidates have proposed the policies this recently 2016 national election listed below to speed economic growth. For each, explain qualitatively the impact upon the growth of potential output. If possible, give a quantitative estimate of the increase in the growth of potential output and upon the growth of per capita potential output over the next decade.
a. Cut the national budget deficit (or raise the surplus) by 2% of GDP, increasing the ratio of investment to GDP by the same amount. When we talk of budget deficit, it involves government spending more money than it is receiving. Thus, if the government cut the national budget deficit by 2% of Gross Domestic product, it would have a significant impact on both aggregate demand and the supply side of the economy depending on which areas of public spending were cut.
b. Decrease defense spending by 1% of GDP at full employment In considering the appropriate size of the defense budget, it is of course important to identify first the immediate threats to the Philippines and to our allies from China and from various terrorist groups before doing decisions in decreasing defense spending. Today, we have to work now to develop the weapon systems of the future. We have to maintain the industrial and technological capacity to produce those weapon systems, thus, if the government will decrease its defense spending, it is very important that the government must still continue to achieve its primary responsibility of defending Philippines and our global interests and will not affect the way they protect our country. Since government spending on defense is a component of GDP, the immediate direct effect of a one percent reduction in domestic defense spending is to reduce our GDP by one also one percent. The resulting reduction in pay to military personnel and in compensation to the employees of defense suppliers then causes their spending as consumers to decline. If defense suppliers expect the reduced level of defense spending to be sustained, the defense suppliers will also cut their demand for equipment. The total effect of the one percent reduction in defense spending is to reduce GDP by more than one percent, perhaps about double the percentage of reduction or two percent. The direct effect on GDP of changes in defense spending is larger than the corresponding effect of most other potential changes in government outlays.
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Increase investments in human capital (education and training) by 1% of GDP
According to research, Human capital affects economic growth and can help to develop an economy through the knowledge and skills of people. Human capital refers to the knowledge, skill sets and motivation that people have, which provide economic value. The effect of increase in investments in human capital will have a high impact in the employment in the Philippines. Typically, rates of return are computed for various qualifications or for the length of time spent in education or on training courses. The rate of return expresses the value of an additional year of education in terms of the associated increase in earnings or income. The major effect or
result of investment in education or training would reflect on enhanced productivity of an individual. However I think at some point there is a negative effect, as we all know too much is also not good, so proper investments in education would be better. Although such training have a positive effect on both productivity and wages, but there have been few attempts to demonstrate whether these are sufficient to guarantee a good rate of return. Specific training has the greatest impact by raising the productivity of the employee within the firm providing the training. Overall, increasing investments for human capital demonstrate that higher educational investments have had a significant impact on national economic growth. Based on my research, 1 % increase in school enrolment rates has lead to an increase in GDP per capita growth of between 1 and 3 %. However, we have to remember that there is no guarantee that any investment in human capital will result in a positive return, whether it be investment in training, deployment of highly skilled labor. There will always be some risk and uncertainty. In general, such investments pay off but it needs to be considered on its merits. 2. “During periods of inflation, people use real resources to reduce their holdings of fiat money. Such activities produce a private benefit with no corresponding social gain, which illustrates the social cost of inflation”. Explain this quotation and cite example. The value of fiat money is derived from the relationship between supply and demand. If people lose faith in a nation's paper currency, like Philippine Peso, the money will no longer hold any value. Now, when inflation and expectations of inflation rise, so does the nominal interest rate. As a result of the rise in nominal interest rates, individuals hold less cash in order to keep more of their money in interest-bearing accounts. 3. Do you think President Duterte’s intention to reduce the tax might have a displacement effect along with government debt? Thus, if the government were to promise large future take home pay and other benefits to workers, would workers feel richer? Elaborate the implications of this premise. I think that these tax reform Pres. Duterte is not likely what we are expecting as a worker. I highly believe that the elite people would highly be benefited with this reform. If we look into it deeply, we may be conceive by the idea of reducing the tax as the best reform the government could have as it would not benefit the worker but it would have much large impact especially to rich people. The tax reform package is not uplifting because those who are already poor workers would become even poorer. If I am not mistaken they would decrease the tax of low income earner but the high income earner would be the same. Also there will be higher excise taxes on refined petroleum products, certain vehicles, and sugar-sweetened beverages. The excise tax on fuel is expected to drive the prices of basic commodities up so it means as a low income earner, we might have lesser income tax however it would also be the same since the commodities we are buying have a greater taxes, thus will also affect are purchasing power. 4. What would Keynesians and new classical macroeconomists predict to be the impacts of each of the following on the course of prices, output and employment?
a. A large tax cut
