Economics Answer Note #93

Question 1 Make a short summary of the topic in Tagalog: "MANILA, Philippines — Filipinos who spend a little more than P21.3 per meal are not considered food poor, according to the government’s current metrics to measure poverty. During the Development Budget Coordination Committee’s (DBCC) briefing at the Senate on Tuesday, Sen. Nancy Binay asked the National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan what the threshold was for food poverty. Balisacan said that accounting for inflation, the threshold is P64 a day for three meals, or roughly P21.3 per meal per person. The amount has already increased since 2021, which was then at P55 a day. “The basket has not been changed for some time, your honor,” Balisacan said. "When you compute poverty thresholds with an old number which is not, obviously not workable anymore, P20 per meal, hindi totoo yung poverty forecast niyo (your poverty forecast is not true),” Sen. Grace Poe said. The NEDA secretary admitted that the number was outdated, as it was set more than a decade ago. However, he explained that it was not NEDA that determined that basket. According to Balisacan, the computation for the basket was from the recommended food items from the Department of Health and the Food and Nutrition Research Institute. NEDA merely gave the numbers. However, the NEDA chief acknowledged that high rice inflation alone exceeds the meal. Binay said that the numbers do not match with what is needed for people to live beyond the minimum necessities. Balisacan agreed with this, saying that the numbers need to be revisited. Balisacan, however, maintained that the threshold needed to be set as a metric. He likened it to a ruler that should remain at a constant length. “Our interest, insofar as monitoring is concerned is to answer the question: are our policies, programs, strategies working insofar as reducing poverty is concerned?” he said. The NEDA chief said that even if the poverty threshold was adjusted by 20%, the trend of poverty reduction would still be the same. “So far as 2021, 2023 is concerned, yes the conclusion is the same, that poverty indeed decreased regardless of whatever reasonable poverty lines you employed,” Balisacan said. However, Balisacan said that the poverty threshold does not necessarily determine how much aid the government doles out to the public. He cited the Department of Social Welfare and Development's monitoring. “The numbers there that they use is different from what we use for poverty monitoring. The use of these lines is only for poverty monitoring so that we can guarantee that the programs, projects and policies that we deployed are getting the results that are expected,” Balisacan said" Answer Sa isang pagbubukas ng gusali sa Senado noong Martes, tinanong ni Senador Nancy Binay si NEDA Secretary Arsenio Balisacan kung ano ang threshold ng food poverty. Ayon kay Balisacan, ang halaga na kailangan para sa tatlong kain sa isang araw ay P64, kung saan bawat kain ay nagkakahalaga ng P21.3 bawat tao. Ito ay tumaas na mula noong 2021 na P55 lamang ang bawat araw na halaga. Gayunpaman, nagpahiwatig si NEDA Secretary na ang halagang ito ay luma na dahil noong ipinatupad ito ay mahigit isang dekada na ang nakararaan. Nagpaliwanag si Balisacan na hindi NEDA ang nagtakda ng basket ng pagkain kundi ito ay batay sa mga rekomendasyon ng Department of Health at Food and Nutrition Research Institute. Nagpapaliwanag lamang ang NEDA ng mga numero na ito. Bagaman, kinilala rin ni Secretary Balisacan na ito mga numero ay hindi na tumutugma sa mga pangangailangan ng tao upang mabuhay nang higit sa minimum na pangangailangan. Sumasang-ayon si Balisacan na kailangan pang repasuhin ang mga numero na ito. Gayunpaman, nanatili siyang komited na itakda ang threshold bilang isang benchmark. Binigyang halimbawa niya ito sa isang ruler na dapat manatiling pareho ang haba. Bilang NEDA Secretary, naniniwala si Balisacan na mahalaga na mabigyan ng kasagutan ang tanong na ito: Kumikilos ba sa tamang paraan ang ating mga polisiya, program at estratehiya sa pagpapababa ng kahirapan? Sa kanyang pahayag, sinabi rin ni Balisacan na kahit na baguhin pa ang poverty threshold ng 20%, pareho pa rin ang direksyon ng pagbawas ng kahirapan sa bansa. Gayunpaman, hindi nakasalalay sa kung gaano kalaki ang poverty threshold ang paglalaan ng tulong ng gobyerno sa publiko. Sinabi ni Secretary Balisacan na ang panibagong poverty threshold ay hindi sinusukat kung gaano karaming tulong ang ibibigay ng Department of Social Welfare and Development sa publiko. Ang paggamit ng mga numero na ito ay para lamang sa monitoring ng kahirapan upang masiguro na ang mga programa, proyekto at polisiya na itinataguyod ay nagbibigay ng inaasahan na resulta. Bilang mga mag-aaral, mahalaga na maging matalino at maalam sa mga isyu tulad ng kahirapan sa ating bansa. Upang mas maunawaan ang konsepto ng food poverty at ang kasalukuyang patakaran ng pamahalaan upang sukatin ito, narito ang ilang mga mapagkakatiwalaang sources na maaaring makatulong sa pagpapaliwanag sa topic na ito: Dahil sa mga nabanggit na sources, maaari nating maunawaan na ang food poverty ay isang kritikal na isyu sa ating bansa at mahalaga ang papel ng pamahalaan sa pagpapababa nito. Nawa ay maging handa tayong mga mag-aaral upang maunawaan at maisagawa ang mga hakbang na magdudulot ng tunay na pagpapabuti sa kalagayan ng mga Pilipino na nabibilang sa food poor. Question 2 Geometric interpretation of the Kuhn Tucker Conditions in Utility Maximisation Problem. Answer The Kuhn Tucker Conditions (KTC) are a set of optimality conditions used to find an optimal solution for a constrained optimization problem, such as the utility maximisation problem in microeconomics. This problem involves maximizing a consumer's utility subject to a budget constraint, i.e. the consumer's income being limited by the prices of goods and services. The KTC provide a geometric interpretation of how the optimal solution is achieved in such a problem. This can be visualized by plotting the budget constraint and the consumer's indifference curves representing different levels of utility. The optimal solution lies at the point where the budget constraint is tangential to the highest possible indifference curve, as this point represents the highest level of utility attainable within the given budget. To achieve this optimal solution, the KTC require that the slope of the budget constraint (MRS) is equal to the slope of the highest indifference curve (MRT) at the point of tangency. Furthermore, the KTC also impose a non-negativity constraint on the Lagrange multiplier which represents the marginal utility of income. This geometric interpretation highlights the importance of the trade-off between consumption of different goods and services, as well as the role of marginal utilities in determining the optimal allocation of resources. Useful sources: 1) Microeconomic Theory: Basic Principles and Extensions by Walter Nicholson and Christopher Snyder. 2) Intermediate Microeconomics: A Modern Approach by Hal R. Varian. 3) Optimization: Insights and Applications by C. A. Floudas. 4) "Understanding the Kuhn-Tucker conditions" by Dr. Robert Pavcnik, International Monetary Fund website. Question 3 Consider the following statement in a standard utility maximisation probelem: "THe utility function is concave in x." The only pertinent information contained in this statement is that the utility function is quasi-concave in x. Do you agree? Explain. Answer The given statement implies that the utility function, denoted by U(x), is concave in x, which means that it is a downward-sloping function. In other words, as the quantity of x increases, the marginal utility (MU) of x decreases. This is a fundamental assumption in standard utility maximization problems, which are commonly used in microeconomic analysis. Now, the question asks whether the only pertinent information contained in this statement is that the utility function is quasi-concave in x, and if I agree with this statement, I need to provide an explanation. Quasi-concavity is a weaker form of concavity, where the function is either strictly concave or has a convex region followed by a concave one. In simpler terms, it can be thought of as a "bowl-shaped" function. I would agree with the statement that the only pertinent information provided is that the utility function is quasi-concave in x. This is because the property of quasi-concavity does not give any further information on the shape of the utility function, beyond what is already implied by the concavity assumption. Therefore, it does not affect the standard utility maximization problem and does not change the conclusions we draw from it. To understand this concept further, let us take the example of a Cobb-Douglas utility function, given by U(x,y)=x^αy^β, where α and β represent the preference for x and y, respectively. This function is both concave and quasi-concave in x. However, the utility function will be different if we change the values of α and β. Therefore, the shape of the utility function can vary even if it satisfies the condition of quasi-concavity. In conclusion, the statement does not provide any further information on the shape of the utility function and only indicates that it is quasi-concave in nature. Therefore, I agree with the statement and believe that the property of quasi-concavity is implied by the assumption of concavity. Question 4 make a detailed analysis of German GDP along with valid sources Answer Introduction: Gross Domestic Product (GDP) is a key indicator of a country's economic health and measures the total value of goods and services produced within its borders in a given period. In this analysis, we will examine the German GDP and its components to gain a better understanding of the country's economic performance. The data used in this analysis will be from the World Bank and the Federal Statistical Office of Germany. Overview of German GDP: According to the World Bank, Germany's GDP in 2019 was $3.86 trillion, making it the fourth-largest economy in the world. The country has experienced steady economic growth over the years, with an average annual GDP growth rate of 2.4% from 2000 to 2019. However, like many other countries, the COVID-19 pandemic has had a significant impact on Germany's economy, with a 5% decrease in GDP in 2020. Components of German GDP: To gain a comprehensive understanding of the German GDP, we must examine its four main components: household consumption, government spending, investment, and net exports. 1. Household Consumption: As the largest component of GDP, household consumption accounts for around 53% of Germany's GDP (World Bank, 2021). This indicates that consumer spending plays a crucial role in driving the country's economic growth. The Federal Statistical Office of Germany reported a decrease in household consumption by 10.9% in 2020 due to the pandemic. However, with the easing of restrictions and the government's stimulus packages, we can expect a rebound in consumer spending in the coming years. 2. Government Spending: Government spending accounts for around 20% of Germany's GDP, with investments in infrastructure, education, and healthcare. In response to the pandemic, the German government launched a massive stimulus package of €130 billion, which is equivalent to 3.9% of the country's GDP (OECD, 2020). This significant increase in government spending is expected to support the economy and drive a swift recovery from the pandemic-induced recession. 3. Investment: Investments in fixed assets, such as machinery, equipment, and construction, account for approximately 20% of Germany's GDP. The country's high level of technological advancements and skilled workforce has attracted significant foreign direct investments, contributing to its economic growth. However, like most countries, Germany has seen a decline in investments due to the pandemic, with a 3.5% decrease in 2020 (World Bank, 2021). Nevertheless, with the government's stimulus packages and the country's strong economic fundamentals, we can expect a rebound in investments in the future. 4. Net Exports: Net exports, or the difference between exports and imports, account for around 8% of Germany's GDP. Germany is the third-largest exporting country in the world, with a strong focus on the automotive and machinery industries. However, due to the pandemicinduced global recession, the country experienced a 2.9% decline in exports and a 4.5% decline in imports in 2020 (Federal Statistical Office of Germany, 2021). This resulted in a positive impact on the country's trade balance, contributing to a slightly higher GDP growth rate than initially anticipated. Conclusion: In conclusion, German GDP has been resilient in the face of the COVID-19 pandemic. The country's strong economic fundamentals, along with the government's stimulus packages, have contributed to its economic recovery. However, it is essential to continue monitoring the country's economic performance, as uncertainties such as the pandemic and trade tensions can have a significant impact. Question 5 Given a closed economy and GDP measuring in current prices. Find which is correct: a. The export is larger than the import b. The import is larger than the export c. The net payment to foreign production factors (the payments to foreign production factors operating in the economy minus the payments to domestic production factors operating abroad) is positive d. The net payment to foreign production factors (the payments to foreign production factors operating in the economy minus the payments to domestic production factors operating abroad) is negative e. The economy was closed and opened only recently for import Answer Given a closed economy and GDP measuring in current prices, it is incorrect to assume that the export is always larger than the import. A closed economy refers to an economy that does not engage in international trade, meaning that there are no imports or exports taking place. In such an economy, all goods and services are produced and consumed domestically. To determine which option is correct in this scenario, we must first understand the concept of net exports. Net exports, also known as the trade balance, is calculated by subtracting the value of imports from the value of exports. A positive net export indicates that the value of exports is greater than the value of imports, while a negative net export indicates the opposite. Based on this definition, it is evident that neither option a nor option b is correct. In a closed economy, there are no imports or exports, therefore the net export is always equal to zero. Moving on to options c and d, they refer to the net payments to foreign production factors. This refers to the payments made to foreign entities for their contributions to the domestic economy, such as foreign labor or capital. Similarly, the payments made to domestic entities for their contributions to foreign economies are subtracted from this amount. In a closed economy, there are no such payments being made, as there is no international trade or movement of production factors. Therefore, the correct answer would be option c - the net payment to foreign production factors is positive. This is because in a closed economy, all production factors are domestic and there are no payments being made to foreign factors. Further information on this topic can be found in academic sources such as "International Economics" by Robert Feenstra and Alan Taylor, and "Macroeconomics" by Gregory Mankiw. In addition, if calculations were required to determine the correct answer, the steps would be as follows: 1. Calculate the value of exports and imports in the closed economy by using GDP in current prices, which includes all goods and services produced. 2. Subtract the value of imports from the value of exports to determine the net export. 3. Since the economy is closed, the net export will always be equal to zero. 4. Calculate the net payments to foreign production factors by using the formula: Net payments to foreign production factors = Payments to foreign production factors operating in the economy - Payments to domestic production factors operating abroad. 5. Since the economy is closed, there are no payments being made to foreign production factors, therefore the net payment to foreign production factors is equal to the payments to domestic production factors operating abroad. 6. Based on the definition of a closed economy, all production factors are domestic, therefore the payments to domestic production factors operating abroad would also be equal to zero. 7. Thus, the net payment to foreign production factors is calculated as 0 - 0 = 0, and it can be concluded that the net payment to foreign production factors is positive in a closed economy. In conclusion, in a closed economy, the net export is always equal to zero and the net payment to foreign production factors is positive. This highlights the importance of considering the specific economic context before making assumptions or calculations, and reinforces the relevance of academic sources in providing accurate and comprehensive information on economic topics.