 Economics, social science that seeks to analyze and describe the production, distribution,

and consumption of wealth.

 Economics is the study of how people allocate scarce resources for production,
distribution, and consumption, both individually and collectively. The two branches of
economics are microeconomics and macroeconomics. Economics focuses on efficiency in
production and exchange

 Economics is the study of how humans make decisions in the face of scarcity. These can be
individual decisions, family decisions, business decisions or societal decisions.
Macroeconomics is a branch of economics that studies the behavior of an overall economy,
which encompasses markets, businesses, consumers, and governments.

Macroeconomics examines economy-wide phenomena such as:

A. inflation,

B. price levels,

C. rate of economic growth,

D. national income,

E. gross domestic product (GDP), and

F. changes in unemployment.

Macroeconomics is a field of study used to evaluate overall economic performance and develop actions that can
positively affect an economy. Economists work to understand how specific factors and actions affect output, input,
spending, consumption, inflation, and employment

Understanding Macroeconomics

As the term implies, macroeconomics is a field of study that analyzes an economy through a
wide lens. This includes looking at variables like unemployment, GDP, and inflation.
Why Is Macroeconomics Important?
Macroeconomics helps a government evaluate how an economy is performing and decide on actions it can take to
increase or slow growth

Macroeconomic Indicators

Macroeconomics is a rather broad field, but two specific research areas dominate the
discipline. The first area looks at the factors that determine long-term economic growth. The
other looks at the causes and consequences of short-term fluctuations in national income and
employment, also known as the business cycle.
Economic Growth
Economic growth refers to an increase in aggregate production in an economy.
Macroeconomists try to understand the factors that either promote or retard economic growth
to support economic policies that will support development, progress, and rising living
standards.

Economists can use many indicators to measure economic performance. These indicators fall
into 10 categories:

 Gross Domestic Product indicators: Measure how much the economy produces
 Consumer Spending indicators: Measure how much capital consumers feed back into
the economy
 Income and Savings indicators: Measure how much consumers make and save
 Industry Performance indicators: Measure GDP by industry
 International Trade and Investment indicators: Indicate the balance of payments
between trade partners, how much is traded, and how much is invested internationally
 Prices and Inflation indicators: Indicate fluctuations in prices paid for goods and
services and changes in currency purchasing power
 Investment in Fixed Assets indicators: Indicate how much capital is tied up in fixed
assets
 Employment indicators: Show employment by industry, state, county, and other areas
 Government indicators: Show how much the government spends and receives
 Special indicators: Include all other economic indicators, such as distribution of
personal income, global value chains, healthcare spending, small business well-being,
and more

The Business Cycle

Superimposed over long-term macroeconomic growth trends, the levels and rates of change of significant
macroeconomic variables such as employment and national output go through fluctuations. These
fluctuations are called expansions, peaks, recessions, and troughs—they also occur in that order. When
charted on a graph, these fluctuations show that businesses perform in cycles; thus, it is called the
business cycle. The National Bureau of Economic Research (NBER) measures the business cycle, which
uses GDP and Gross National Income to date the cycle.2 The NBER is also the agency that declares the
beginning and end of recessions

Macroeconomics vs. Microeconomics

Macroeconomics differs from microeconomics , which focuses on smaller factors that affect
choices made by individuals. Individuals are typically classified into subgroups, such as
buyers, sellers, and business owners. These actors interact with each other according to the
laws of supply and demand for resources, using money and interest rates as pricing
mechanisms for coordination. Factors studied in both microeconomics and macroeconomics
typically influence one another.

KEY TAKE AWAYS

 Macroeconomics is the branch of economics that deals with the structure, performance,
behavior, and decision-making of the whole, or aggregate, economy.
  The two main areas of macroeconomic research are long-term economic growth and
shorter-term business cycles.
 Macroeconomics in its modern form is often defined as starting with John Maynard
Keynes and his theories about market behavior and governmental policies in the 1930s;
several schools of thought have developed since.
 In contrast to macroeconomics, microeconomics is more focused on the influences on
and choices made by individual actors—such as people, companies, and industries—in
the economy.

BASIC ECONOMIC ACTIVITIES

Production
The process of production of goods and services is carried by combining the factors like land, labour, capital and
entrepreneurship.
Scarce resources are used in the production of goods and services with the objective of satisfying our needs and
wants.
Factors are paid rent, wages, interest and profits for their productive services.

Consumption
The consumption activity consists of the use of goods and services for the direct satisfaction of individual or
collective human wants.

Capital formation
A part of current production is saved for future to add to existing capital stock like, plant, machinery, building etc.
every year in order to expand production potential in future. -are called the basic economic activities of an
economy. So whatever is produced is disposed of either for consumption or for capital formation or both.

Economic resources or factors of production are the inputs into the production process, such as land, labour,
capital, and entrepreneurship.

EXAMPLE Imagine a pizza restaurant. The economic resources required to produce pizzas include land for the
restaurant building and parking lot, labour to make and serve the pizzas, capital for the ovens, refrigerators, and
other equipment, and entrepreneurship to manage the business and market the restaurant. Without these
resources, the pizza restaurant couldn't exist as a business.

Types of economic resources

There are four types of economic resources: land, labour, capital, and entrepreneurship.

A. Land constitutes natural resources such as water or metal. The natural environment asa whole is also classified
under ‘land’.
1. Natural resources
Natural resources are sourced from nature and used for the production of goods and services. Natural resources
are often limited in quantity due to the time it takes for them to form. Natural resources are classified further into
nonrenewable resources and renewable resources.
a. Oil and metal are examples of non-renewable resources.
b. Timber and solar power are examples of renewable resources.

2. Agricultural land
Depending on the industry, the importance of land as a natural resource may vary. Land is fundamental in the
agricultural industry as it’s used to grow food.
3. The environment
The ‘environment’ is a somewhat abstract term that includes all the resources in the surrounding environment that
we can use. They primarily consist of:
a) Abstract resources such as solar or wind energy
b) Gases such as oxygen and nitrogen.
c) Physical resources such as coal, natural gas, and fresh water.

Labour

Under labour, we classify human resources. Human resources not only contribute to the production of goods but
also play an essential role in offering services. Human resources generally possess some form of education and
skills. Businesses need to ensure their labour force is capable of conducting the production processes required by
providing appropriate training and ensuring the safety of the work environment. However, human resources are
also capable of adjusting themselves, because they are a dynamic factor of production. They can increase their
productivity to contribute more to the efficiency of production. In terms of education or training, businesses can
source labor from a specific educational background to reduce the training time.

Capital
Capital resources are resources that contribute to the production process of other goods. Hence, economic capital
is different from financial capital. Financial capital refers to money in a broad sense, which doesn’t contribute to
the production process, though it is essential for businesses and entrepreneurs to carry on their economic
activities.

There are various types of economic capital:

Entrepreneurship

Entrepreneurship is a special human resource that not only refers to the entrepreneur who sets up a business. It
also refers to the ability to come up with ideas that would be potentially turned into economic goods, risk-taking,
decision-making, and running the business, which requires the incorporation of the other three factors of
production.
Characteristics of economic resources
There are several key characteristics of economic resources that are important to understand

1. Limited supply: There are not enough resources to produce all the goods and services that people want. The
fact that economic resources are limited in supply and have alternative uses gives rise to the concept of scarcity

2. Alternative uses: Economic resources can be used in different ways, and the decision to use a resource for one
purpose means that it cannot be used for another purpose.

3. Cost: Economic resources have a cost associated with them, either in terms of money or opportunity cost (the
value of the next best alternative use of the resource.

4. Productivity: The amount of output that can be produced with a given input of resources varies depending on
the quality and quantity of the resource.

The fundamental economic problem is that human needs are diverse and continuously increasing, while resources
to satisfy them are relatively limited. This problem gives rise to four basic problems of an economy:
1. What to produce?
2. How to produce?
3. For whom to produce?
4. What provisions (if any) are to be made for economic growth?

different types of macroeconomic models :

1. Simple theoretical models (STM)
 STM macroeconomic models are normally comprised of simple diagrams and/or
equations that aim to describe an economy in whole.

 Macroeconomic models, such as STMs, are composed of diagrams and/or equations and
deal with several variables. These include aggregate measures, such as gross domestic
product (GDP) and unemployment rates.

 STM models include the Investment Saving/Liquidity preference Money supply (IS/LM)
model .

 The IS/LM model, for example, has the main function of showing how interest rates are
related to real output concerning the goods and services sector and the money market.

2. Empirical forecasting models (EFM)

 EFM models mainly use historical data and observations in an attempt to forecast future
macroeconomic outcomes.

 EFM models are built to make use of statistical methods to attempt forecasting possible
scenarios. These models use historical data to estimate and understand the relationship
between different macroeconomic variables.

 EFM models do sometimes go in detail. In doing so, they may, for example, study
relationships between employment and investment in a particular industry.

3. Dynamic stochastic general equilibrium (DSGE) models

 Models like the DSGE include frameworks that seek to predict the effects of changes
in economic policy

 Models like DSGE include two main opposing frameworks. One is known as the real
business cycle model, and the other is the New Keynesian DSGE model. The real
business cycle model consists of macroeconomic models that are based on a theory that
claims, among other facts, that business cycle fluctuations are to a great extent
accounted for by real shocks. In economics, these are unexpected and unpredictable
events that have either negative or positive impacts on economies.

 The New Keynesian DSGE framework underpins models mainly based on the theory
that governments and central banks should intervene in an economy when necessary in
order to stabilize the economic environment.

4. Agent-based computational economics (ACE) models

 ACE models aim to understand macroeconomic relations by going somewhat in detail on a
microeconomic level.
 Finally, ACE models attempt to break-down macroeconomic relationships into more
industry-focused microeconomic ones. These models identify individual agents active in an
economy, such as households and firms.

FOUR SECTORS OF ECONOMY

A. Primary Sector
This sector involves activities related to natural resources and raw materials. It
includes industries such as agriculture, forestry, fishing,mining, and extraction
of natural resources.

B. Secondary Sector
The secondary sector involves the processing and manufacturing of
raw materials obtained from the primary sector. This includes industries such as
manufacturing, construction, and utilities. In this sector,raw materials are

transformed into finished goods. This sector is all about turning raw materials into finished
products that we can use. Imagine you have some wood and metal - in the secondary sector, you might
use those materials to build a table or a chair. Or think about turning cotton into a t-shirt.

C. Tertiary Sector
Also known as the service sector, the tertiary sector includes activities that
provide services to individuals and businesses. It encompasses a wide range of
industries such as retail, education, healthcare,
finance, entertainment, and hospitality.

D. Quaternary Sector
Some models also include a quaternary sector, which involves intellectual
activities and knowledge-basedservices. This sector includes research and
development,information technology, consultancy, and other knowledge-
based professions.

FOUR CIRCULAR FLOW MODEL IN THE MACROECONOMICS

A. Households

1. Consumers -Households are where people buy and consume things.

2. Workers: Households are also where people work.

B. Businesses

Businesses are the entities that produce goods and services

1. Production: Businesses use resources like workers, machines,and raw materials to make things .
2. Employment: They hire people (workers) to help with making and selling those things. In
return, workers get paid wages or salaries.
3. Sales: After making things, businesses sell them to households
4. Income: Businesses make money by selling things. They use some of that money to pay for the
resources they used (like paying workers and buying materials), and whatever is left is profit

C. Government

1.Making Rules: The government makes sure everyone follows certain rules. These rules could be about
how people should behave, how businesses should operate,and how money is used.

2. Collecting Money: To do all these things, the government needs money.

3. Protecting Everyone: The government is like a big protector .

D. Financial markets
The financial markets facilitate the flow of money between savers (households) and
borrowers (businesses and government).Households save money by investing in financial instruments,
and businesses and the government borrow money to fund their activities. This flow of money helps
support investment and economic growth.

1. Savers (People with Money)

These are the folks who have some extra money and don't want tospend it right away. They put
their money into the financial market by buying things like stocks or bonds.

2. Borrowers (People who Need Money)

On the other side, you have people and businesses who need money for various reasons –

maybe to start a new project, build a factory, or fund a government program .

What Is a Market?
A market is a place where parties can gather to facilitate the exchange of goods and services. The parties involved
are usually buyers and sellers. The market may be physical, like a retail outlet, where people meet face-to-face, or
virtual, like an online market, where there is no physical presence or contact between buyers and sellers.

KEY TAKEAWAYS

 A market is where buyers and sellers can meet to facilitate the exchange or transaction of goods and
services.
 Markets can be physical, like a retail outlet, or virtual, like an e-retailer.
 Examples include illegal markets, auction markets, and financial markets.
 Markets establish the prices of goods and services, determined by supply and demand.
 Features of a market include the availability of an arena, buyers and sellers, and a commodity.

How Markets Work

A market is any place where two or more parties can meet to engage in an economic transaction—even those that
don't involve legal tender.

Two parties are generally needed to make a trade. However, a third party is required to introduce competition and
balance the market. As such, a market in a state of perfect competition, among other things, is characterized by a
high number of active buyers and sellers.

It may also describe a collection of people who wish to buy a specific product or service in a particular place, such
as the Brooklyn housing market.

Certain decisions that help shape the market are determined by an economic system known as the market
economy. In this system, factors like investments and the production, distribution, and pricing of goods and services
are led by supply and demand from businesses and individuals

The Securities and Exchange Commission (SEC) regulates the stock, bond, and currency markets in the United
States. It puts provisions in place to prevent fraud while ensuring traders and investors have the right information to
make the most informed decisions possible.
Supply and Demand
Whatever the context, a market establishes the prices for goods and other services. These rates are determined
by supply and demand. The idea of supply and demand is one of the very basics of economics. The sellers create
supply, while buyers generate demand.

Markets try to find some balance in price when supply and demand are in balance. But that balance can be
disrupted by factors other than price, including incomes, expectations, technology, the cost of production, and the
number of buyers and sellers participating.

Sellers increase production when buyers demand more goods and services. Producers tend to raise their prices
when demand increases. When buyer demand decreases, they drop their prices and, therefore, the number of
goods and services they bring to market.

Physical and Virtual Markets

Markets may be represented by physical locations where transactions are made. These include retail stores and
similar businesses that sell individual items to wholesale markets selling goods to distributors. Or they may be
virtual. Internet-based stores and auction sites such as Amazon and eBay are examples of markets where
transactions can occur entirely online, and the parties involved never physically connect.

Markets may emerge organically or as a means of enabling ownership rights over goods, services, and information.
When on a national or more specific regional level, markets may often be categorized as developed or developing.
This distinction depends on many factors, including income levels and the nation or region’s openness to
foreign trade.

Features of a Market
Certain features help define a market and are necessary for it to function. The following are the most basic
characteristics that shape a market:

 Arena: This is the platform where transactions are conducted between buyers and sellers. Keep in mind
that this doesn't necessarily mean a physical location.
 Buyers and Sellers: For the market to function, there must be buyers and sellers. The market can't exist if
someone isn't buying something that someone else is selling. These entities can be businesses, individuals,
or even governments, and they can execute their transactions physically or virtually, thanks to the internet.
 One Commodity: A single market depends on a single commodity, so a related commodity must be present
for a market to operate. For instance, wheat is the commodity bought and sold in the wheat market.
Electronics make up the electronics market en masse but can be broken down into subcategories.

Types of Markets
Underground Market
An underground or black market refers to an illegal market where transactions occur without the knowledge of the
government or other regulatory agencies. Many illegal markets exist to circumvent existing tax laws.

Many illegal markets exist in economically developing countries with planned or command economies where the
government controls the production and distribution of goods and services.

Illegal markets can also exist in developed economies. These shadow markets, as they're also known, become
prevalent when prices control the sale of specific products or services, especially when demand is high.

Auction Market
An auction market brings many people together for the sale and purchase of specific lots of goods. The buyers or
bidders try to top each other for the purchase price. The items for sale go to the highest bidder.
 Financial Market
The blanket term "financial market" refers to any place where securities, currencies, and bonds are traded between
two parties. These markets are the basis of capitalist societies, providing capital formation and liquidity for
businesses. They can be physical or virtual.

Regulating Markets
Other than underground markets, most markets are subject to rules and regulations set by governing body that
determines the market’s nature. This may be the case when the regulation is as wide-reaching and as widely
recognized as an international trade agreement or as local and temporary as a pop-up street market where vendors
maintain order and rules among themselves.

How Do Markets Work?

Individual demand refers to the quantity demanded by a single consumer, for any given product, at any given price, at any point in
time
.Market demand is the aggregate quantity that all the consumers of a commodity are willing and able to buy at a point of time, in a
market at different possible prices.

 Individual demand is based on the preferences, income, and budget of a single consumer.
 Market demand is the sum of all individual demands for a good or service .

What are the non-price determinants of demand?

Various factors determine the demand for an item other than its price. Six of them are:

1. Income
2. Future price expectations
3. Price of substitute goods
4. Price of complementary goods
5. Changes in tastes and preferences
6. Changes in the number of consumers

MIDTERM see notes for solving

What is Supply?

 Supply is an economic principle can be defined as the quantity of a product that a seller is willing to
offer in the market at a particular price within specific time.

The supply of a product is influenced by various determinants, such as price, cost of production,
government policies, and technology. It is governed by the law of supply, which states a direct
relationship between the supply and price of a product, while other factors remaining the same.

 A market is a place where buyers and sellers are engaged in exchanging products at certain prices.

In a market, the two forces demand and supply play a major role in influencing the decisions of
consumers and producers.

The behaviour of buyers is understood with the help of the concept of demand. On the other hand,
the behaviour of sellers is analysed using the concept of supply.
 Concept of Supply

What is Supply Concept? In economics, supply refers to the quantity of a product available in the market
for sale at a specified price and time.

In other words, supply can be defined as the willingness of a seller to sell the specified quantity of a
product within a particular price and time period. Here, it should be noted that demand is the willingness
of a buyer, while supply is the willingness of a supplier.

Meaning of Supply

What is Supply Meaning? Supply has three important aspects, which are as follows:

1. Supply is always referred in terms of price

The price at which quantities are supplied differs from one location to the other.
For example, fast moving consumer goods (FMCG) are usually supplied at different prices in different
prices.

2. Supply is referred in terms of time

This means that supply is the amount that suppliers are willing to offer during a specific period of time
(per day, per week, per month, bi-annually, etc.)

3. Supply considers the stock and market price of the product

Both stock and market price of a product affect its supply to a greater extent. If the market price of a
product is more than its cost price, the seller would increase the supply of the product in the market.
However, a decrease in the market price as compared to the cost price would reduce the supply of
product in the market.

Supply Definition

What is Supply Definition? Economist has given different supply definition but the essence is same.

“Supply may be defined as a schedule which shows the various amounts of a product which a particular
seller is willing and able to produce and make available for sale in the market at each specific price in a
set of possible prices during a given “.McConnell

“Supply refers to the quantity of a commodity offered for sale at a given price, in a given market, at given
time.” Anatol Murad
 Supply Example

What is Supply? Let us understand the concept of supply with an example.

For example, a seller offers a commodity at 100 per piece in the market. In this case, only commodity and
price are specified; thus, it cannot be considered as supply.

However, there is another seller who offers the same commodity at 110 per piece in the market for the
next six months from now on. In this case, commodity, price, and time are specified, thus it is supply.

Classification of supply

What is Supply Classification? Supply can be classified into two categories, which are individual supply
and market supply.

1. Individual supply is the quantity of goods a single producer is willing to supply at a particular price and
time in the market. In economics, a single producer is known as a firm.

2. Market supply is the quantity of goods supplied by all firms in the market during a specific time period
and at a particular price. Market supply is also known as industry supply as firms collectively constitute
an industry.

Types of Supply

 Market Supply
 Short-term Supply
 Long-term Supply
 Joint Supply

Determinants of Supply

9 Determinants of supply are:

1. Price of a product
2. Cost of production
3. Natural conditions
4. Transportation conditions
5. Taxation policies
6. Production techniques
7. Factor prices and their availability
8. Price of related goods
9. Industry structure
WHAT IS UNEMPLOYMENT?
The term unemployment refers to a situation where a person actively searches for
employment but is unable to find work. Unemployment is considered to be a key
measure of the health of the economy. The most frequently used measure of
unemployment is the unemployment rate. It's calculated by dividing the number of
unemployed people by the number of people in the labour force.

KEY TAKEAWAYS

 Unemployment occurs when workers who want to work are unable to find jobs.
 High rates of unemployment signal economic distress while extremely low
rates of unemployment may signal an overheated economy.
 Unemployment can be classified as frictional, cyclical, structural, or
institutional.
 Unemployment data is collected and published by government agencies in a
variety of ways.
 Many governments offer unemployed individuals a small amount of income
through unemployment insurance, as long as they meet certain requirements.

TYPES OF UNEMPLOYMENT
 Frictional- It occurs when people voluntarily change jobs. After a person
leaves a company, it naturally takes time to find another job. Similarly,
graduates just starting to look for jobs to enter the workforce add to frictional
unemployment.
 Cyclical- variation in the number of unemployed workers over the course of
economic upturns and downturns, such as those related to changes in oil
prices.
 Structural- comes about through a technological change in the structure of
the economy in which labor markets operate. Retraining these workers can be
difficult, costly, and time-consuming. Displaced workers often end up either
unemployed for extended periods or leaving the labor force entirely.
  Institutional- results from long-term or permanent institutional factors and
incentives in the economy. Government policies, such as high minimum wage
floors or restrictive occupational licensing laws, can contribute to this type of
unemployment. For example, if a government sets the minimum wage too high,
it might lead to employers being unable or unwilling to hire workers at that
wage, leading to increased unemployment.

WHAT ARE THE MAIN CAUSES OF UNEMPLOYMENT?

 Economic factors
 Technological Changes
 Demographic Factors
 Educational Factors
 Rural-Urban Divide
 Seasonal and Agricultural Factors
 Government Policies
 Lack of Infrastructure
 Social and Cultural Factors
 Globalization Impact
 Informal Labor Market
 Lack of Entrepreneurship and Innovation

PROGRAMS CREATED TO SOLVE UNEMPLOYMENT

 AYUDA Programme
 SPES Program
 GIP Program
 JSP Program
 JBI Program
 Job Search Assistance Programs
 Skills Training Programs
 Livelihood programs

Source:
  https://testbook.com/economics/what-is-unemployment
 https://www.adb.org/sites/default/files/linked-documents/49117-002-sd-04.pdf
 https://hrmasia.com/job-creation-programme-addresses-unemployment-in-the-philippines/

What Is a Financial System?

A financial system is a set of institutions, such as banks, insurance
companies, and stock exchanges, that permit the exchange of funds.
Financial systems exist on firm, regional, and global levels. Borrowers,
lenders, and investors exchange current funds to finance projects, either
for consumption or productive investments, and to pursue a return on
their financial assets. The financial system also includes sets of rules and
practices that borrowers and lenders use to decide which projects get
financed, who finances projects, and terms of financial deals.
A financial system is a network of financial institutions – such as
insurance companies, stock exchanges, and investment banks – that work
together to exchange and transfer capital from one place to another.
Through the financial system, investors receive capital to fund projects
and receive a return on their investments.
Three task of Financial System
1. Capital Mobilization: The financial system mobilizes savings from
households, corporates, and governments, channeling them into
productive investments. This task is essential for economic development
as it ensures that idle funds are put to productive use, driving innovation,
entrepreneurship, and infrastructure development.
2. Risk Transformation: Financial institutions play a crucial role in
transforming and managing risks. They pool resources from multiple
investors and spread risks across diverse assets, thereby reducing the
impact of adverse events on individual investors. This risk
transformation function enhances market stability and investor
confidence.
3. Information Provision: The financial system provides vital information
to investors, enabling them to make informed decisions. This includes
financial statements, market data, credit ratings, and research reports.
Access to accurate and timely information fosters transparency,
efficiency, and trust in financial markets, facilitating better allocation of
resources.
Financial Intermediaries
Financial intermediaries are entities that act as middlemen between savers
(those with surplus funds) and borrowers (those in need of funds). They
play a crucial role in the financial system by facilitating the flow of
funds from savers to borrowers and providing various financial
services. Financial intermediaries help to bridge the gap between those
who have funds available for investment and those who require capital
for various purposes.
Banks: Commercial banks are the most traditional and prominent
financial intermediaries. They accept deposits from savers and provide
loans to borrowers, thereby facilitating the flow of funds within the
economy. Banks also offer a range of financial services, including
payment processing, investment banking, and wealth management.
Insurance Companies: Insurance companies play a vital role in
managing risk by offering protection against various uncertainties, such
as property damage, health emergencies, and liability claims. Through
underwriting and pooling of risks, insurance intermediaries provide
individuals and businesses with financial security and peace of mind.
Investment Funds: Investment funds, including mutual funds,
exchange-traded funds (ETFs), and pension funds, pool funds from
multiple investors and invest them in diversified portfolios of assets.
These funds enable individuals to access diversified investment
opportunities and benefit from professional asset management expertise.
Non-Bank Financial Institutions: Non-bank financial institutions, such
as finance companies, mortgage lenders, and asset management firms,
also play significant roles as intermediaries in the financial system. They
provide alternative sources of funding and investment opportunities,
contributing to market liquidity and efficiency.

The Creation of Money

What is Money?

Money is the medium of exchange used to facilitate trade and transactions in an economy. It
serves as a store of value, a unit of account, and a means of payment. Money can take various
forms, from physical cash to digital currencies and electronic payments.

The History of Money?song dynasty –HUIZI/JIAOZI-paper money

1.Barter Systems

Early civilizations relied on barter, directly exchanging goods and services without a common
medium of exchange

2.Commodity Money

Precious metals, such as gold and silver, became widely used as a form of money due to their
scarcity and inherent value.

3.Fiat Currency

Modern money is fiat currency, where the value is not tied to a physical commodity but is
backed by the issuing government or central bank.

How is Money Created?

Central Bank

Central banks have the power to create and distribute new money, often through the purchase of
government bonds and other financial assets.

Commercial Banks

Commercial banks can also create money by lending out more than they have in deposits, a
process known as fractional reserve banking.

Digital Currencies

The emergence of cryptocurrencies and other digital forms of money has introduced new ways of
creating and distributing money outside of traditional banking system
The Role of Central Banks
Monetary Policy

Central banks use various monetary policy tools, such as interest rates and open market
operations, to influence the money supply and achieve economic stability.

Financial Stability

Central banks monitor and regulate the financial system to ensure its stability, mitigate risks, and
protect consumers.

Economic Growth

Central banks aim to foster sustainable economic growth by maintaining price stability,
promoting employment, and supporting financial market development.

Fractional Reserve Banking

Deposits

Customers deposit money into their bank accounts.

Lending

Banks lend out a portion of the deposited funds to borrowers, while keeping a fraction as
reserves.

Money Creation

This process of lending out a portion of deposits allows banks to create new money, multiplying
the initial deposit.

The Future of Money

Cryptocurrencies

The rise of digital currencies, like Bitcoin, is transforming the way we think about money and
payments.

Mobile Payments

The increasing use of smartphones and digital wallets is making transactions more convenient
and accessible.
Central Bank Digital Currencies

Many central banks are exploring the development of their own digital currencies to keep up
with the evolving financial landscape.

Banking
Banking is essential for managing and safeguarding money. Financial institutions, like banks and credit unions,
gather deposits from individuals. They then lend these to those in need, acting as intermediaries. Banks offer many
financial services that help people save, manage and invest money. These services benefit both individuals and
businesses.
The proper handling of bills and money encompasses various legal principles and guidelines. While specific laws
and regulations may vary depending on the jurisdiction, there are common practices and legal considerations
that apply to the handling of bills and money. Here are some general points to keep in mind
1. Counterfeit Money RA 10951
It is illegal to knowingly pass counterfeit currency or engage in any activity related to counterfeit money. It is
important to be cautious and familiarize yourself with security features to detect counterfeit bills.
2. Fraud and Forgery
Any form of fraudulent activity or forgery involving bills or money is illegal. This includes activities such as
altering bills, engaging in identity theft to acquire money, or manipulating financial transactions.
3. Money Laundering:RA 9160
Money laundering involves disguising the illegal origins of money to make it appear legitimate. Laws related to
money laundering aim to prevent the use of funds derived from illegal activities, such as drug trafficking or
corruption. Any involvement in money laundering activities is strictly prohibited.
4. Tax Evasion RA 7642
Individuals and businesses are required to accurately report their income and pay the appropriate taxes. Attempts to
hide or manipulate financial transactions to evade taxes can result in legal consequences.
5. Record-Keeping
Depending on the jurisdiction, businesses may be required to maintain appropriate records of financial transactions.
Proper record-keeping helps ensure transparency and enables accurate reporting to tax authorities, if necessary.
6. Currency Exchange
If you are involved in currency exchange activities, there may be specific laws and regulations governing this
process to prevent money laundering and illicit activities. It is important to comply with any licensing or reporting
requirements associated with currency exchange. It is crucial to consult the specific laws and regulations that apply
to your jurisdiction to understand the precise legal requirements for handling bills and money. Seeking legal advice
or engaging with professional accountants can help ensure compliance with relevant laws and regulations.

Counterfeit money
Is currency produced outside of the legal sanction of a state or government, usually in a deliberate attempt to
imitate that currency and so as to deceive its recipient. Producing or using counterfeit money is a form of fraud or
forgery, and is illegal in all jurisdictions of the world. The business of counterfeiting money is nearly as old as
money itself: plated copies (known as Fourrées) have been found of Lydian coins, which are thought to be among
the first Western coins.[1] Before the introduction of paper money, the most prevalent method of counterfeiting
involved mixing base metals with pure gold or silver. Another form of counterfeiting is the production of documents
by legitimate printers in response to fraudulent instructions. During World War II, the Nazis forged British pounds
and American dollars. Today, some of the finest counterfeit banknotes are called Superdollars because of their high
quality and imitation of the real US dollar. There has been significant counterfeiting of Euro banknotes and coins
since the launch of the currency in 2002, but considerably less than that of the US dollar.
How to know fake money in the Philippines?
Here are some tips on how to detect counterfeit money:
1.Feel the paper: Genuine currency is printed on specific types of paper that have a unique texture. Counterfeit
bills may feel different, either too smooth or too rough.
2.Look for watermarks: Hold the bill up to the light and look for a watermark, which is a faint image of the portrait
on the bill. The watermark should be visible from both sides of the bill.
3.Check for security threads: Genuine currency has a thin, embedded security thread running vertically through
the bill. Hold the bill up to the light, and you should see a continuous line with text that matches the denomination
of the bill.
4.Examine the printing quality: Genuine bills have sharp, distinct lines and clear printing. Counterfeit bills may
have blurred text or images, uneven borders, or smudged ink.
5.Inspect the color-shifting ink: Some denominations, like the US $100 bill, have color-shifting ink. Tilt the bill back
and forth, and the color should shift from copper to green or vice versa.
6.Look for microprinting: Genuine bills often have tiny, intricate text that is difficult to replicate. Use a magnifying
glass to check for microprinting, usually found around the portrait, on the security thread, or on the edge of the
bill.
7.Check the security features for your specific currency: Different currencies have unique security features, such
as holograms, raised printing, or special inks. Familiarize yourself with the specific security features of your
country's currency.
8.Compare with a genuine bill: If you have a genuine bill of the same denomination, compare it side by side with
the bill you suspect to be counterfeit. Look for any noticeable differences in color, texture, and security features.
If you suspect a bill to be counterfeit, do not confront the person who gave it to you. Instead, contact your local
law enforcement or the relevant authority responsible for handling counterfeit money.

T‌ rade in economics refers to the exchange of goods and services between individuals,
businesses, or countries. It allows people to obtain the things they need or want, even if they
cannot produce them themselves. Trade can take place within a country (domestic trade) or
between different countries (international trade).

E‌ xport refers to goods or services that are produced in one country and sold to another
country. In simple terms, it means selling products to people or businesses in a different nation.
Exporting in economics means selling goods or services produced in one country to buyers in
another country, which helps the exporting country generate income and contribute to its
economic growth.

I‌ mport refers to goods or services that are produced in one country and bought from another
country. In simple terms, it means bringing products into a country from somewhere else. In
summary, imports in economics mean bringing goods or services into a country from another
country to meet the needs and wants of its people. It allows countries to access products that
they don't produce themselves and provide their citizens with a wider range of choices.

I‌ nternational trade refers to the buying and selling of goods and services between different
countries. It helps countries get things they need but don't produce themselves and allow them
to sell what they have in excess. It's like a big marketplace where countries trade with each
other. Governments make rules to make trade easier or protect their own industries.
International trade helps countries grow their economies and gives people access to more
choices.

I‌ nternational trade policy refers to the set of rules and regulations established by governments
to govern and regulate international trade activities. These policies are designed to shape a
country's approach to international trade, protect domestic industries, and promote economic
growth and development. Here are some key elements of international trade policy:

1. Tariffs: Tariffs are taxes imposed on imported goods. They can be used to protect domestic
industries by making imported goods more expensive and less competitive.

2. Import and Export Regulations: Governments establish rules and regulations regarding the
import and export of goods and services. These regulations may include licensing requirements,
quality standards, labeling requirements, and restrictions on certain products.

3. Trade Agreements: Countries often negotiate and enter into trade agreements with each
other. These agreements establish preferential trade terms, such as reduced tariffs or
elimination of trade barriers, between participating countries. Examples include free trade
agreements (FTAs) and regional trade blocs.

4. Trade Barriers: Trade barriers are obstacles that restrict or impede the flow of goods and
services between countries. They can include tariffs, quotas (limits on the quantity of imports),
subsidies (financial assistance to domestic industries), and technical barriers to trade
(regulations and standards that make it difficult for foreign products to enter a market).

5. Trade Remedies: Trade remedies are measures that countries can take to address unfair
trade practices, such as dumping (selling goods below cost) or subsidization by foreign
governments. These remedies include anti-dumping duties and countervailing duties to protect
domestic industries from unfair competition.

6. Intellectual Property Protection: International trade policy also includes provisions for
protecting intellectual property rights, such as patents, copyrights, and trademarks. These
protections ensure that innovators and creators are rewarded for their work and encourage
innovation and creativity.

7. Trade Promotion: Governments often have policies and initiatives in place to promote
exports and support domestic industries in international markets. These can include export
subsidies, trade missions, trade fairs, and financial assistance programs.

International trade policy is formulated and implemented by government bodies such as trade
ministries, trade commissions, and customs agencies, in consultation with domestic industries
and stakeholders. The objective is to strike a balance between protecting domestic interests
and promoting international trade and economic cooperation.

‌ ne example of an international trade policy is the establishment of a free trade agreement

O
(FTA) between two or more countries. Free trade agreements eliminate or reduce barriers to
trade, such as tariffs and quotas, between participating countries. These agreements aim to
promote economic integration and cooperation by facilitating the exchange of goods and
services.
For instance, the North American Free Trade Agreement (NAFTA) was a trade agreement
between the United States, Canada, and Mexico. It eliminated most tariffs on goods traded
between the three countries and established rules for investment, intellectual property
protection, and dispute resolution. NAFTA encouraged trade and investment flows among the
member countries, leading to increased economic integration and the creation of regional
supply chains.

Another example is the Comprehensive and Progressive Agreement for Trans-Pacific

Partnership (CPTPP). It is a trade agreement between 11 countries in the Asia-Pacific region,
including Japan, Canada, Australia, Vietnam, and others. The CPTPP reduces trade barriers,
protects intellectual property rights, and establishes common rules for trade among the
participating countries. By doing so, it promotes trade and economic cooperation among the
member nations.

Capitalism and communism

The Cold War was a battle of ideologies between the East and the West. At the heart of the conflict were two
distinct political philosophies: capitalism and communism.
Capitalism is an economic system based on private ownership of the means of production and the pursuit of profit.
It is driven by competition and the free market, and its success is measured by economic growth.

Communism, on the other hand, is a system of government in which the state owns the means of production and
distributes resources according to need. It is based on the principle of collective ownership and the idea that all
people should have access to the same basic resources.
The two systems were in direct opposition to each other and many saw them as mutually exclusive candidates for
defining the new world order.
Conflicting values
In the West, the United States and its allies sought to promote the idea of democracy and capitalism, while the
Soviet Union and the Eastern Bloc sought to promote communism. To this end, both sides employed propaganda
campaigns to spread their message.
In the West, the United States used a variety of methods to promote their ideology, such as radio broadcasts,
television programs, and films.
These were used to spread the message of democracy and capitalism, and to paint the Soviet Union and its allies in
a negative light. One station, known as ‘Radio Free Europe’ was broadcasted into the Soviet bloc to try to win
supporters and create a pro-Western fifth column.
The Soviet Union also employed propaganda campaigns, using posters, newspapers, and radio broadcasts to
promote communism and to criticize the West.
Both sides used these campaigns to try to win the hearts and minds of the people, and to gain support for their
respective ideologies.
Tensions over trade
The Marshall Plan, launched by the United States in 1948, aimed to rebuild Western Europe after the devastation
of World War II.
Trade was a central aspect of the plan, as the U.S. believed that increasing the flow of goods, services, and capital
would help revive the economies of its European allies.
However, these trade policies were also influenced by the ideological goals of the U.S., particularly the desire to
contain the spread of communism and promote free trade.
As a result, the Marshall Plan promoted the idea of open markets and the reduction of tariffs and other trade
barriers. This approach proved successful, as trade between the U.S. and Western European countries increased
significantly. Between 1948 and 1952, the U.S. exported $13.3 billion in goods to these countries.
By promoting trade and working to improve the economies of Western European countries, the U.S. hoped to
prevent the Soviet Union from gaining influence in the region.
Nikita Krushchev
The death of Stalin in 1953 marked a turning point in Soviet ideology. The new leader, Nikita Khrushchev, initiated
a process of de-Stalinisation, which aimed to move away from the oppressive and authoritarian rule of the former
leader.
This included the introduction of a more open and tolerant attitude towards the arts, literature and culture. This
new approach was reflected in the ‘thaw’ period, in which writers and artists were allowed to express themselves
more freely, leading to tensions decreasing.
The de-Stalinisation process also saw a shift in the Soviet Union’s foreign policy.
Khrushchev’s ‘peaceful coexistence’ was a move away from the aggressive stance of the Stalin era, and sought to
reduce tensions between the East and West.
This was reflected in the signing of the Nuclear Test Ban Treaty in 1963, which was a major step towards reducing
the threat of nuclear war.
The Space Race
The Space Race was a key moment in the development of the Cold War, as it saw both the United States and the
Soviet Union competing to be the first to reach the stars.
This competition was driven by a desire to prove technological superiority and demonstrate the power of each
nation’s respective ideologies. The Space Race was a major factor in the Cold War, as it provided an opportunity
for both sides to show off their technological achievements and gain international recognition.
*“We choose to go to the moon in this decade and do those other things not because it is easy but because it is
hard.” – John .F Kennedy, in a speech at Rice University*
The Space Race also provided an opportunity for each side to prove their ideological superiority, as the first nation
to reach the stars would be seen as the most powerful.
This competition was a major factor in the development of the Cold War, as it pushed both sides to develop new
technologies and spurred them on to greater heights.
Key events in the Space Race
The Space Race was a unique and exhilarating time in human history. The Soviet Union surprised the world in 1957
with the launch of Sputnik I, a satellite that circled the Earth for three months, transmitting signals from space. This
set the stage for an intense rivalry between the two superpowers.

The Soviets made another breakthrough with the launch of Vostok 1, which carried Yuri Gagarin into space.
Gagarin’s journey was a major achievement, but the United States was determined to catch up. The Apollo
program, which began in 1961, aimed to put a man on the Moon before the decade was out. The Apollo 11
mission was a defining moment in the Space Race.
It was a culmination of years of effort, and when Neil Armstrong stepped onto the lunar surface and famously said,
“That’s one small step for a man, one giant leap for mankind,” the world took notice. It was a moment of triumph
for the United States, and it helped to secure its status as a world leader in space exploration.
The Domino Theory
The Domino Theory was a key ideological belief that informed U.S. foreign policy during the Cold War. It was based
on the idea that if one country fell to communism, then its neighbors would soon follow. This theory was used to
justify U.S. intervention in countries such as Vietnam, Cambodia, and Laos.
The U.S. believed that if communism was not contained, then it would spread like a virus and eventually reach the
United States.
The Domino Theory was a product of the Cold War and the ideological divide between East and West. It was a fear-
based belief that was used to justify U.S. intervention in other countries.
The U.S. believed that if communism was not contained, then it would eventually reach the United States. This fear
of communism was a driving force behind U.S. foreign policy during the Cold War and was a major factor in the
U.S.’s decision to intervene in other countries.