Price Stability
ECONTWO1MicroIndividuals (Buyer)Sellers (CompaniesMarket EquilibriumMarket structure – IndustryMacroAggregateHouseholdBusiness SectorGovernmentGoals in Macro Economic PolicyPrice Stability – Inflation → Increase in general price level → Money Supply ↑Sustainable Economic GrowthFull EmploymentPrice StabilityTo measure success, inflation rate must e kept at single digit (less than 10%)An increase in price levels will reduce the value of moneyInflation rate is measured every monthInflation rate – measures the overall increase in price level in a given time periodTao – Bank – Company – Price10 % wage vs. 0% inflation↓Demand -↓Price-↑DemandDeflation in Japan 1990Life ExpectancySaving vs. SpendingSaving → Government66 % Dependent34 % 18-64↓Demand = ↓Price = ↓Q Supply = ↓ # of worker = ↑unemployment = ↑ Government Rely = ↓Interest Rate 0.000001%Iceland – 7 to 8 %Economy CollapsedLargest Denominated NoteZimbabwe – One Hundred Trillion Dollars2World Bank – Long term loansInternational Monetary Fund – Short term loans
InterestPolicy RecommendationEconomic PoliciesHow do we measure inflation rate?Government uses a “basket of goods” to determine the increase in price levelBasket of goods is composed of different commodities such as food, clothing, oil, transport, utilities etc.Ex. May 2013 – P1002014 – P110Inflation 10%Basket of Goods20002006Food, Beverage & Tobacco40.97%43.47%Clothing2.96%3.36%Housing, Fuel, Light & Water 22.46%23.70%Services18.36%15.72%Miscellaneous15.25%13.75%Price Stability in the PhilippinesInflation RateHeadline Inflation – Increase in the Basket of goods