BSED Major in Social Studies 2

Notes on "Economic Theory"

Introduction

Motivation: Start with a thought-provoking question:

"What strategies can we use to prioritize spending when resources are limited but desires are boundless?"

The word "economy" comes from the greek word "oikonomus" which mean - the one who manage a household. At first, this origin might seem peculiar but household faces many financial decisions just like economics.

What is Economic Theory?
Economic theory helps us understand how economies work and guide decision-making. It uses models and ideas to explain and predict economic behaviors and phenomena.

A. The Construction of Economic Theory:

I. Conceptual Frameworks

First, what is Aggregate Demand and what is stimulus?

Conceptual frameworks play a vital role in structuring economic theory by providing a systematic way to organize key relationships between economic variables. Involves the development of models representing economic relationships. (These are in the presentations)

These frameworks serve as a blueprint that helps theorists and economists understand how different components of the economy interact. For example, in Keynesian economic theory, the conceptual framework focuses on the relationship between aggregate demand (meaning the demand for goods and services in the economy), government intervention, and economic output, particularly during periods of recession or economic downturn.

Note: Explain the Conceptual Frameworks in the presentation.

Example of Keynesian Theory in the Philippines:

In the Philippines, Keynesian theory has been applied, particularly during periods of high unemployment, by utilizing government spending and stimulus programs to boost economic demand and create jobs.

Example: Post-COVID-19 Economic Recovery

After the COVID-19 pandemic hit, the Philippine economy faced high unemployment, with many businesses closing down or reducing their workforce. To address this, the government implemented the Bayanihan to Recover as One Act (Bayanihan 2), a stimulus package based on Keynesian principles.

Here's how Keynesian theory was applied:

1. Government Spending to Boost Demand: The government injected billions of pesos into the economy through various programs aimed at stimulating economic activity. This included cash assistance (known as "ayuda") to unemployed individuals and funding for infrastructure projects to create jobs.

2. Public Works Projects: By increasing spending on infrastructure, also known as the "Build, Build, Build Program," the government aimed to create jobs in construction and related industries, boosting employment. These projects are rooted in Keynesian ideas, where public spending is used to stimulate demand and reduce unemployment.

3. Assistance to Businesses: Keynesian economics also recognizes that boosting business activity can increase employment. The Bayanihan 2 act allocated funds for loans to small and medium enterprises (SMEs), aiming to help them recover, rehire workers, and restart operations.

In short, the Keynesian approach in the Philippines during the pandemic emphasized government intervention through fiscal stimulus to boost demand, create jobs, and reduce unemployment. By increasing spending on infrastructure and providing financial assistance, the government aimed to revive the economy and address the unemployment crisis caused by the pandemic.

Term to explain:
In simple terms, a stimulus (or something to boost) is when the government spends money or lowers taxes to help the economy when it's struggling. This extra money helps people buy things, creates jobs, and makes businesses grow, so the economy can recover faster.