CRUZ, DIANNE MAE SABALLA

BSMA 2-1
ECONOMIC DEVELOPMENT (ECON 40163)
MIDTERM LONG EXAM, 1ST SEMESTER

1. What do we learn from Table 1 about GDP growth experiences in the 2014–2019 period? What are
some of the ways that economic growth can be achieved and sustained?
Based on my observations, table 1 about GDP growth experiences in the 2014-2019 period shows
a lot of shifts of economic growth; downwards, upwards. It really is hard to predict. Like how most of
the country experienced economic downturn in the year 2019. The reason of lots of countries’ economic
downturn is the coronavirus pandemic (COVID-19). The global economy and capital markets were
significantly affected by the pandemic. Large wage decreases, increasing unemployment and
disturbances in the sectors of shipping, service and manufacturing took place. Aside from that, we can
also see that, South Asia accumulated more growth compare to the other part of the continent.
There are several measures that indicate economic growth: good job levels, wage growth, stable
inflation, rising interest rates, high retail sales and higher industrial performance which is a positive
indicator of a strong economy, as production data provide valuable details on the economic performance
of a country. All the people inside the nation who are experiencing growth will benefit. Even if inequality
grows with prosperity, it is not inherently the case that poor people will not gain – just that they will
benefit less from growth than other households. Because we cannot deny that there's a wide gap between
the rich and poor, and by that those who are privileged are the one who can be reached easily. Sustained
economic growth is necessary for every nation that wishes to lift its standard of living and to ensure
greater well-being for everyone. Many economists agree that the most important factor in economic
growth is the quality of labor inputs, the skills, expertise, and discipline of the labor force. We can say
that education should be viewed as an investment in human resources that allows skills to be developed,
increases the ability to collect knowledge and information, and enhances the use of knowledge and/or
information to improve productivity. Productivity is one of the most closely tracked indicators of long-
term economic outlook. Increasing productivity is the way of making a sustainable improvement in the
standard of living possible. Government must allocate resources properly. People of the nation need
transparency where their contributions on society allocated. The Government must be conscious that
there is a far greater need to concentrate on numerous factors, such as growing underprivileged parts of
society, promoting financial inclusion, alleviating regional disparity, enhancing security capabilities, and
providing proper educational facilities and also health assistance for all. A well-planned budget is
therefore of the utmost importance for any government to ensure economic stability and development.
One country though cannot attain growth even we have a lot of resources if we have officials who doesn’t
have integrity. In addition, Technological innovation is important for economic growth and development,
and the more advanced the technology available, the rapid growth of living standards there will be on
local and global economy. With technology things become convenient for most people and can also
improve productivity.
2. Read the following papers that provides narratives of economic growth. What is said about the roles
that internet, pandemic, financial institutions, and entrepreneurship played in shaping economic growth
performance? What lessons do you think these narratives yield regarding how to encourage good growth
performance in the Philippines? (1)The Cointegration Relationship and Causal Link of Internet
Penetration and Broadband Subscription on Economic Growth: Evidence from ASEAN Countries,
(2)The Effect of COVID-19 Pandemic on the Philippine Stock Exchange, Peso-Dollar Rate and Retail
Price of Diesel, (3)The Dynamic Relationship of Domestic Credit and Stock Market Liquidity on the
Economic Growth of the Philippines, (4) Estimating the Nature of Relationship of Entrepreneurship and
Business Confidence on Youth Unemployment in the Philippines.
Economic growth refers to a rise in the size of a country's economy over time. Usually, the size
of the economy is determined by the net output of products in the economy, which is termed the gross
domestic product (GDP). As the thought goes, the growth of the Gross Domestic Product (GDP), which
measures goods and services generated in an economy every year, is important to the sustainability and
prosperity of a country. There are a lot of factors affecting economic growth of a country; some of these
are internet, pandemic, financial institutions, and entrepreneurship.
Technology, for economists, is something that allows us make things easier, better or cheaper.
When you think of technology, you have a fair chance of thinking about physical objects like huge
machines or fast computers. However, when economists talk about technology, they thought more about
new ways to do stuff. In this context, processes such as assembly line manufacturing or the creation of a
medical vaccines are technologies as they considered. The industrial evolution in paving the way in
blurring the lines between the physical, digital, and biological spheres of global production systems
(World Economic Forum). With the present advancements in our technology, the production of goods
and other services were made easy. It is said that Internet accounts for 21 percent of GDP growth. While
big companies and national economies have earned huge benefits from this technological transition,
individual customers and small start-up entrepreneurs have become some of the main beneficiaries of the
powerful influence of the Internet. Jobs are being created in the Internet environment itself, as Internet
companies employ staff from engineers to sales and service personnel who develop and distribute
Internet goods and/or services. The Internet has effectively enabled buyers, especially now we’re in a
midst of pandemic where we cannot go outside most of the time if it’s not really important. It allows us,
customers to compare prices, find instant deals, and locate specific makes of cars or enticing rental homes
without the use of brokers and dealers. It may provide directions on the road or health information. It
saves a lot of time for shoppers, improves market transparency and allows customers access to goods
that are difficult to find. With all these shifts from traditional to modernized ways which is convenient
for all people, Philippines should more invest to better Internet and broadband subscription. In that way
we can increase production abruptly and help to boost the economy fast as it should.
A ripple effect all through the economy is inevitable, with billions of people across the world in
a virtual lockdown. The global outbreak of disease-novel coronavirus (COVID-19) has done a lot of
harm to people. But such pandemics have other severe impacts, including those on economies and
businesses. Inequalities has deepened by the pandemic around the world hitting the poorest and those
who doesn't have the capability to provide for their families without their only jobs that eventually
affected by the pandemic. Thus, unemployment has significantly affected by the crisis we’re
experiencing. With that, it is evident that the income gap is widening at increasing rate. There is no equal
allocation of the effects of diseases and epidemics in the economy. Such industries still have profit;
potential beneficiaries are pharmaceutical businesses that manufacture vaccines, antibiotics, or other
products needed for a pandemic response. Whereas others struggle disproportionately, The Philippine
Stock Exchange's PSEi index has fallen abruptly from the start of 2020. In response to COVID-19, they needed
to ensure the safety of its employees and traders. Even though the PSE facilitates over the counter market
trading, with the help of the internet; where people who are willing to invest may lend their money, still
people cannot say the risks that they may face if they do still invest in the midst of pandemic. The fact
that a lot of companies closed and were affected by COVID-19 because they need to follow protocols
given by the government and for their own safety – no doubt that PSEi index will eventually fall. COVID-
19 daily infections cause changes also in the peso-dollar exchange rate in the short run. But it actually
has no causal link with retail pump price of diesel. With this unexpected phenomenon we are
experiencing should be a lesson for us, especially for the government to have concrete plans for our
economy to be ready. We must have back-up plans for all, like what we’ll do next if this happens? Or
that? Because if not, it will take a lot of time again from us to gain what we’ve lost.
Financial market development also contributed on one's nation economic growth. The stock
market is a market where producers and consumers trade commodities, financial instruments, foreign
exchange as well as other freely exchangeable items and value derivatives at transaction costs and at
rates determined by market forces. Establishment of the financial sector in developed countries and
emerging markets is part of the private sector development strategy to promote economic growth and
reduce poverty. The financial sector is made up of institutions, instruments and markets. Also it provides
a legal and regulatory system that enables transfers to be carried out through the extension of credit.
Another thing is that financial institutions encourages people to invest. It contributes to the share capital,
and the quantity of capital available to the economy is a primary determinant of its productivity.
Investment therefore leads to economic growth. With financial markets or institutions, Philippines must
maintain implementations of policies or if ever needed should be enhanced for better and safe trading
and investments of Filipinos.
Small firms are the heroes of modern capitalism. The owners of small businesses are the noble
drivers, the producers of jobs and the plucky entrepreneurs that fuel the economy. Small companies make
an enormous contribution to national development and enable every person to have a source of income.
Because of the pandemic, as a result of governmental constraints, some entrepreneurs had to temporarily
close their businesses; others had to take the necessary precautions and run their activities to a reduced
extent. But after some time to adjust to the new normal, entrepreneurs find ways to continue their
businesses. Actually a lot of people do online business just to have a source of income for their family –
in such way they still contribute in the economic growth of the economy even in the middle of pandemic.
In fact, compared to other Southeast Asian nations, such as Singapore or Malaysia, the Philippines ranked
poor in e-commerce before the pandemic. We weren't as experienced as our South East Asian peers about
e-commerce. Yet our transition to the internet economy was exacerbated by the pandemic. In this trying
times, we Filipinos were very resilient that we won’t stop until we find ways on how we will gain what
we’ve lost. And e-commerce is what really helped us a lot in this pandemic. How funny it is that we got
to experience pandemic first before we discovered how online selling can help us and help for the growth
of our economy.

3. What is the intuition behind the assumption that production functions are characterized by diminishing
marginal returns? Discuss and illustrate.
Production is a process that involves the combination and transformation of inputs into a finished
products. A firm must buy or employ scarce inputs, which are its production factors, in order to
manufacture goods and services that can be distributed, and create sales and income. These factors can
be fixed or variable. Fixed input do not vary throughout the production process and cannot easily increase
nor decrease the number of it, e.g. Capital. On the other hand, Variable input vary throughout the
production process and can easily increase or decrease the number of it, e.g. raw materials and labor. The
functions of production are defined by diminishing marginal returns. We have this concept of
specialization; when you hire no worker you get no output, when you hire one worker he will do
everything on his own and do as many as he can, when you hire two workers – they can help each other
to produce whole lot more. But specialization has its limits, as we hire more and more workers or variable
inputs, eventually it will result to lesser output. Law of Diminishing Marginal Returns states that as
successive units of variable inputs are added to fixed inputs, total product increases at an increasing rate
(i), continuously increases at a decreasing rate (ii) and at a certain point total product declines (iii). In
here, assumes that technology is fixed and thus the techniques of production do not change. These are
the three stage of production: (I) The Stage of Increasing Marginal Returns, production level is not yet
efficient because this is a stage of underutilization of the fixed input. (II) The Stage of
Decreasing/Diminishing Marginal Returns, producer continuously employs more labor input to a fixed
land, total product continuously increases but at a decreasing rate ( increasing slowly) until it reaches the
maximum production level. And the last stage, (III) The Stage of Negative Marginal Returns, as labor
input increases, total product produced is now decreasing so contribution of the added labor input is
already negative. For illustration, to produce a pizza we have a one oven which is our fixed resource. At
first we still don’t have a worker, meaning we cannot produce a pizza. Then we hire one worker and it
produces 8 pizza in a day. Next is that we hire another one worker and by having one additional worker
we have an additional 9 pizzas. Another day we add again one worker, and by adding another one worker
we produce additional 6 pizzas. In this moment, we are now experiencing the law of diminishing returns
where production continuously increases but at a decreasing rate.

BONUS QUESTION: Identify and briefly discuss 3 emerging issues in economic development from a
present-day viewpoint.

1. Education is also referred to as a great equalizer: it will open the gates to work, opportunities and
skills that a family needs not only to thrive, but to succeed. Access to high-quality primary education
and the promotion of child well-being is an internationally recognized antidote to the poverty cycle.
No country can achieve sustainable economic growth without significant investment in human
resources. It plays a very important role in securing economic and social growth and improving
income distribution. Over 72 million children around the world remain uneducated as a result of
poverty and marginalization.

2. Corruption is one of the most serious economic issues in the world. It undermines trust, destabilizes
democracy, hinders economic growth and exacerbates inequalities, poverty, social division and the
environmental crisis. Corrupts are like carpenter ants, among other ants, the most troublesome. We
may create our beautiful homes from the sweat of our hard work, but still carpenter ants cause serious
property damage to homes and other buildings, such as the corrupt. We must put an end to the
injustice of corruption by fostering honesty, accountability and dignity.

3. Poverty is an economic condition in which people experience shortage or lack of certain resources
that are important for human life, not being able to access or provide a standard amount of food,
water and/or shelter or adequate housing. It is said to occur when people lack the resources to meet
their basic needs. With this, the recognition of the poor includes, first of all, a determination of what
constitutes basic needs.