Week 2 - Scientific Approach

APPLIED
ECONOMICS 12
Learning Competency from the
MELC’s
Examine the utility and application of

applied economics to solve economic issues
and problems. (ABM_AE12-Ia-d-3)
Specific Objectives
a. Demonstrate how economy is measured

and show the extent of problems.
Let’s have an
activity!
Enumerate Me!
Enumerate the following general idea:
1. What are the basic economic problems

of society?
2. What are the economic systems?
Thank you! For your
answers….
Let’s have the
discussion!
SCIENTIFIC
APPROACH IN THE
EMPIRICAL TESTING
OF ECONOMIC
THEORY
Economics is a study that attempts to explain
how an economy operates and how the
consumer attempts to maximize his/her
wants within limited means. Using tools such
as logic, math, and statistics, you need to
approach the empirical testing of an economic
theory in a scientific manner. This scientific
approach involves the ff. steps:
1. State the propositions or condition that
are taken as given and do not need further
investigation, as the basic starting point of
investigation.
2. Observe facts in connection with the
activity that you want to theorize.
3. Apply the rules of logic to the observed

facts to determine causal relationships
between observed factors and to eliminate
facts that are unnecessary and irrelevant.
4. Establish a set of principles such that
formulated hypotheses may be tested as to
whether they are valid or not.
5. Use statistics and econometrics as

empirical proof in testing the
hypotheses.
POSITIVE
ECONOMICS VERSUS
NORMATIVE
ECONOMICS
Positive economics deals with “what is” -
things that are happening such as the current
inflation rate, the number of employed
laborers, and the level of the Gross National
Product (GNP). Positive economics is an
overview of what is happening in the
economy that is possibly far from what is
ideal.
Normative economics refers to “what
should be” – that which embodies the ideal
rate of population growth or the most
effective tax system. In other words, it
focuses on policy formulation that will help to
attain the ideal situation.
Example:
Positive:
“Taxes enable the government to
provide services to the people.
Normative:
“The government should levy more taxes
so it can provide more services to the
people.”
MEASURING THE
ECONOMY
Shaping the economy’s future is changing
past and present perspectives extended to
the future. Looking ahead is grounded on past
and present performance and the health of
the economy. The heart of the economy is a
production whose value measures both
resource input and output of people. The
interplay of resources and outputs tells how
well the economy has performed.
Gross Domestic Product (GDP) is the
total monetary or market value of all the
finished products produced with a country’s
borders within a period. As broad measure of
overall domestic production, it functions as a
comprehensive scorecard of a given country’s
economic health.
(https://www.investopedia.com/terms/g/gdp.
asp)
Gross National Product (GNP) is an estimate of
total value of all the final products and services
turned out in each period by means of production
owned by a country’s residents. It is commonly
calculated by taking the sum of personal consumption
expenditures, private domestic investment,
government expenditure, net exports, and any
income earned by residents from overseas
investments, minus income earned within the
domestic economy by foreign residents. Net exports
represent the difference between what a country
exports minus imports of goods and services.
(https://www.investopedia.com/terms/g/gnp.asp)
GNP/GDP: Expenditure Approach To
account GNP and classify its components, one
way is by end-use expenditure. Products are
final when they have reached the highest
levels of processing in the economy for
different uses in the given period.
They are:
 household and individual consumption
(C), and
 government expenditure on goods and
services including labor (G) and
 exports (X).
Products, regardless of production stages,
are also considered final when basically
stocked (unused) as capital goods and
inventories of raw materials and intermediate
products.
Classified as
 investments (I), they are stock of values
for future use and therefore, have reached
the highest possible production stages for
the given period.
 On the other hand, their import
components (M) are excluded since import
products are produced in other economies.
To restate the GNP equation:
GNP=C+I+G+(X-M)
Let’s apply the
formula!
GNP/GDP: Income Approach Another way to
account GNP and classify components is by
resource uses and contributions that make up
the production stages. As basic factors (e.g.,
leather) as processed into higher forms (e.g.,
shoes). If all payments for resource
contributions (rent, wage, interest, and profit)
went to resource owners, GNP would simple
(simply) be the sum of all factor payments
from the raw material to the final product
stage.
ECONOMICS AS AN
APPLIED SCIENCE
Applied Economics is the application of
economic theory and econometrics in specific
setting with the goal of analyzing potential
outcomes. We should be able to improve
human welfare among Filipinos by the
investigation and analysis of economic
problems in the real world. Applying economic
theory in our lives means trying to address
actual economic issues and do something
about it. The concept of scarcity and choices
should encourage us as individuals to help in
our little way to provide solutions to the
country’s economic problems.
THE PHILIPPINES'
BASIC ECONOMIC
PROBLEMS
The Philippine economy has grown
significantly during President Benigno Simeon
Aquino’s administration. With a growth rate of
the country’s GDP of 6.8% in 2012, improving
to 7.2% in 2013, and slowing down to 6.1%
in 2014, these rates are improved past rates
preceding President Aquino’s term. It is also
higher than its Asian neighbors such as
Malaysia, Thailand, south Korea, Hongkong,
India, and Indonesia (CIA World Factbook
2013)
Despite this admirable growth, people have
been complaining of non-inclusive growth.
Millions of Filipinos are claiming they still live
below the poverty level.
Unemployment is still a main problem of the
Philippine economy despite improvements
reported by the National Statistic office. In
July 2015, the Labor Force Survey (LFS)
released by the Philippine Statistic Authority
(PSA) showed the country’s unemployment
rate at 6.4% or an estimated 2.68 million
individuals.
Poverty is another a significant socio-
economic problem in the country. As reported
by the National Statistics Coordination Board,
in 2006, poverty incidence of the population
registered at 26.4%, 26.5% in 2009, 25.2%
in 2012, and 28.8% in the first semester of
2014.
Booming population growth in the
Philippines is undeniably another basic
economic problem that can be connected to
the issue of scarcity. When the population
becomes too big, economic resources may no
longer be enough to support the growing
population. According to the 2010 census, the
Philippine population stood at 92.3 million. As
of 2014 it has reached more than 100 million-
growing by 2% from the previous year and
one of the highest in Asia. The population of
the Philippines represents 1.3% of the world’s
total population.
Let’s have an
activity!
What have you
learned from the
lesson?

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APPLIED

Examine the utility and application of

a. Demonstrate how economy is measured

1. What are the basic economic problems

3. Apply the rules of logic to the observed

5. Use statistics and econometrics as

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