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Part III
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Introduction to Macroeconomics

Most Essential Learning Outcomes

After reading this section, you should be able to:

1. Understand the role of the government

2. Learn about production possibilities
3. Identify reasons for economic growth
4. Appreciate the circular flow model
5. Comprehend important concepts and definitions

Indicative Contents (Weeks 13-15)

• The Role of Government

• The Production Possibilities Frontier
• The Five Goals of Macroeconomics Policy
• Reasons for Economic Growth
• The Circular Flow Model
• Important Concepts and Definitions

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Chapter VII – Macroeconomic Fundamentals

Learning Objectives: This chapter is all about macroeconomic fundamentals. After

reading this chapter, you will be able to: understand the role of the government, learn about
production possibilities, identify reasons for economic growth, appreciate the circular flow
model and comprehend important concepts and definitions.

The Role of Government

The Philippines is a mixed economy with a substantial amount of government
involvement in the form of direct government spending, taxation, regulation, and monetary
policies. Economic conditions were not always like this, though changes in economic policies
happen every now and then, depending on the economic situation brought about by national
and international economics conditions.
After the Philippines gained her independence after World War II from the United
States in 1945, the country experiences a dramatic change economic belief about the role of
the private and the government. Subsequently, the role of the government in our country (as
well as in many other countries of the world) has increased considerably at the end of the war.
These roles are:
• Central bank in particular took control of the monetary system
• Labor unions supported by government legislations gained more influence
• Social programs such as social security and health insurance were deemed
necessary
• New deals types of government spending (to artificially create jobs when the
economy is slowing down) became commonplace
• Taxes on income, goods, and services skyrocketed, to fund growing government
expenses and the exponentially growing number of government employees
• Public borrowings (both domestic and foreign) became the in thing among
developing and developed countries who could not meet target revenues need to
support government spending.

The Production Possibilities Frontier

Since scarcity is a fact in economic life, we need to use our scarce productive resources
as efficiently as possible. If we succeed, we can say that we are operating at full economic
capacity since all resources are utilized in the production of goods and services needed by the
people, usually there is some economic slack, but every so often we do manage to operate at
peak efficiently. When this happens, we say we are operating on our production possibilities
frontier (or production possibilities curve).
The production possibilities frontier represents the outcome, or the production
combination, that can be produced with a given amount of resources.

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 Figure Production Possibilities Curve

The Five Goals of Macroeconomic Policy

1. Sustained economic growth
2. Price stability
3. Full employment
4. Trade balance
5. Redistribution of income

Reasons for Economic Growth

Increasing a country’s capital stock and advances in technology lead to economic
growth. How does country achieve significant increases in capital and advances in technology?
Capital goods (like machinery, equipment, factories, etc.) are produced just like any
other consumer goods such as cars, television, and food. At one point in time (that is, given
fixed amounts of resources and technology), assuming full-employment condition, more
capital goods can be produced only at the expense of producing fewer of other goods.
Advances in technology occur because of inventions and innovations in producing
goods and services. Inventions and innovations take place when entrepreneurs have incentives
to produce more efficiently and maximize their costs. When lower costs lead to higher profits
and greater rewards, entrepreneurs are motivated to continue improve the production process.
In any case, the economy will experience growth and its production possibility curve
will shift outward. For as long as more new capital goods are produce and/or new technology
is/are utilized in the production of goods and services, then the expansion of the economy will
continue. On the other hand, the economy will not grow if capital goods and/or technology
is/are lacking.

The Circular Flow Model

The dynamic market economy creates a continuous, repetitive flow of goods and
services, resources, and money. The circular flow diagram, shown in Figure 7.2 illustrates the
flow of resources and output from households to businesses, and vice versa. Observe that in

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the diagram we group private decision makers into businesses and households and group
markets into the resource and production market.

The upper half of the circular flow diagram represents the resource market: the place
where resources or the services of resource suppliers are bought and sold. In the resource
market, households sell resources (e.i., land, labor, capital) and business buy and use them in
the production of goods and services. This is represented by the inner arrow from the household
sector going to the business sector. The funds that businesses pay for resources arc costs for
businesses but are flows of income in the form of wage, rent, interest, and profit for the
households. This is represented by the outer arrow from the business sector going to the
household sector. Productive resources therefore flow from households to businesses and
money flows from businesses to households.
The lower half of the model represents the product market: the place where goods and
services produced by businesses are bought by and sold to the households. In the product
market, businesses combine the resources owned by the households (i.e., land, labor. capital)
to produce and sell goods and services. This is represented by the inner arrow from the business
sector going to the household sector. In return, the households receive income from selling
their resources to the businesses. Consequently, the households use the (limited) income they
received from the sale of resources to buy goods and services that the businesses produced, in
the form of consumption expenditure. This is represented by the outer arrow from the
household sector going to the business sector. The monetary flow of consumer (household)
spending on goods and services yields sales revenues for business.
The circular flow model depicts a complex, interrelated web of decision making and
economic activity involving businesses and households. It is the circle of life for the economy.
Businesses and households are both buyers and sellers. Businesses buy resources and sell
products. Households buy products and sell resources. As shown in Figure 7.2, there a
counterclockwise real flow of economic resources and finished goods and services, and a
clockwise money flow of income and consumption expenditures.

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IMPORTANT CONCEPTS AND DEFINITIONS

It is helpful at this point to clarity a few concepts which are important in our economic
analysis later in the course.

Nominal versus real values. When we refer to nominal values, such as nominal prices,
earnings, wages, or interest rates, we refer to the peso value of the prices, earnings, wages, or
the absolute value of the interest rates. A person earning P385.00 a day is said to be earning a
nominal wage of P385.00. An interest rate at 12 percent per annum charged by banks on loans
is considered the nominal cost of borrowing money annually.

Real values, on the other hand, are always values in comparison, or relative, to other
related economic variables. Thus, a person earning a nominal wage of P385.00 in 2008 may
only be earning a real wage of P192.50 relative to today's doubled prices, since, say 1998.
Applying the concept of interest rates, a 12 percent nominal interest rate is only 2 percent real
interest rate if prices are rising by 10 percent.

Positive versus normative. As we have discussed in Chapter 1 of this book, positive

economic statements are facts or relationships which can be proven or disproven. A normative
economic statement is someone's opinion or value judgment about an economic issue. Such a
statement can never be proven. A normative statement is one which people commonly argue
about. This is not to say that a positive statement does not have to be a true statement; the
statement could be disproven and be a false positive statement. Also, keep in mind that
predictions such as The Lakers should win the NBA this season', or 'Ginebra San Miguel will
win again this PBA season' are not considered normative statements, but only as predictions or
hopes (or wishful thinking) unrelated to facts or value judgments.

Examples of positive economic statements related to macroeconomics are:

1. The national deficit this past year breached the P280 billion mark.
2. When the value of the dollar falls, the Philippine products imported into the United
States become more expensive.
3. Legalizing drugs will lower the prices of drugs and reduce the crime rate among
drug users.

Examples of normative economic statements related to macroeconomics are:

1. The government should raise taxes and lower government spending to reduce the
budget deficit.
2. We need to try to lower the value of the peso in order to discourage importation of
Japanese goods into this country.
3. Our government should legalize the use of drugs in the country.

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 Exercise 7: Macroeconomic Fundamentals

Name: _____________________________________________ Score: _______________

Course/Year/Section: _________________________________ Date: ________________

Part I. Right or Wrong

Direction: Write the RIGHT if the statement is positive and the word WRONG if the statement
is normative on the space provided.

_______________ 1. Free trade policy raises the wages of most Filipinos.

_______________ 2. The government should subsidize and regulate the cost of higher
education.

_______________ 3. There is a 100% impact of computers on productivity.

_______________ 4. Medical benefits to the elderly under Medicare should be available only
those with income below threshold.

_______________ 5. Number of hours determines the wage rate for unskilled workers.

_______________ 6. Philippines should allow importers to sell-foreign goods that compete

with locally produced products.

_______________ 7. We should reduce or eliminate inheritance taxes.

_______________ 8. Abolishing corporate tax will not help the government to raise its
revenue.

_______________ 9. Majority of Batch 2008 graduates do not have permanent work.

_______________ 10. The national deficit this past year breached the P 280 billion mark
according to NEDA.

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Chapter VIII – Gross Domestic Product

Most Essential Learning Outcomes

After reading this section, you should be able to:

6. Differentiate gross domestic product from gross national product

7. Understand the different approaches in measuring GDP
8. Identify the various GDP shortcomings
9. Compare nominal or current GDP versus real GPD

Indicative Contents (Weeks 12-15)

• Gross Domestic Product and Gross National Product

• Approaches in Measuring GDP
• GDP Shortcomings

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Gross Domestic Product and Gross National Product

The most widely used measure of economic performance throughout the world is the
gross domestic product (GDP). GDP is the total market or money value of all final goods
and services produced in an economy over a period of one year. Given this definition, GDP
excludes production by Philippine businesses abroad. Gross national product (GNP), on the
other hand, is the total market or money value of all final goods and services produce by a
nation’s residents (e.g. Filipinos), no matter where they are located. For example, GNP
includes SMC earnings on its foreign operations, but GDP does not.

There are three important points that we need to understand when we talk about GDP:
(1) that it is measured in market or money value, (2) that it only counts new domestic
production, and (3) that it only includes final goods and services.

APPROACHES IN MEASURING GDP

There are three ways to measure GDP: (1) the expenditure approach, (2) the income approach,
and (3) the industrial origin approach.

The Expenditure Approach

The expenditure approach measures GDP by adding all the spending for final goods
during a period of one year. Thus, we can say that GDP is equals to:

GDP = C + I + G + (X -M)

where: C is personal consumption expenditure, I is gross private domestic investment, G is

government consumption expenditure and gross investment, and (X – M) is net exports.

Personal Consumption Expenditures (C) comprises total spending made by

households for durable goods, nondurable goods, and services. Durable goods are consumer
goods such as automobiles, appliances, and furniture, which are used up over relatively long
periods of time rather than immediately. Food items, soap, gasoline, cell phone loads are
examples of nondurable goods, because they are used up in a single time period rather that over
a relatively long time period.
Gross Private Domestic Investment (I) is the sum of two components: (1) fixed
capital, which includes construction, durable equipment, and breeding stock and orchard
development; and (2) changes in stock, which is the net change in spending for unsold finished
goods.
Government Consumption Expenditure and Gross Investment (G) it includes the
value of goods and services the government at all level’s purchases, measured by their cost.
For example, spending for police and public-school teachers enters the GDP accounts at the
prices the government paus for them. In addition, the government spends for investment
additions to its stocks for capital, such as schools, highways, bridges, hospitals, ports, airports,
and government buildings.
Net Exports (X – M) is the last component of GDP under the expenditure account is
net exports, expressed as (X – M). Exports (X) are expenditures by foreigners for Philippine
goods produced domestically. Imports (M) are the dollar amount of the Philippines’ purchase

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of Japanese and American products like automobiles, oil products from Saudi Arabia, and other
goods produced abroad.

The Income Approach

The second, but somewhat more complex approach to measuring GDP is the income
approach. The income approach measure GDP by adding all the incomes earned by household
in exchange for the factors of production during a period of time. Both the income and
expenditure approach yield identical GDP calculations. Using the income approach, GDP is
obtained as follows:

GDP = compensation of employees + rents + profits + net interest + indirect taxes +

depreciation

Compensation of Employees (W). Employees compensation is the largest of the

national income accounts. It comprises mainly of income earned from wages, salaries and
certain supplements paid by firms and government to suppliers of labor.
Rental Income of Persons (R). Another source of income is for rent and royalties
received by property owners who permit others to use their assets during a period of time.
Profits (P). Profits include those earn by self-employed proprietorships and
partnerships that fund their businesses and at the same time, pay themselves for labor services
rendered to their own firms.
Net Interest (i). Household both received and pay interest. Persons who take out loans
to businesses earn interest. Households also receive income from savings and time deposits
accounts, and other certificates of deposits. Conversely, households borrow money and pay
interest on, for example housing loans, car loans, credit cards, and personal loans.
Indirect Business Taxes (IBT). Indirect business taxes are levied as percentage of the
prices of goods and services sold, and therefore become part of the revenue received by the
firms. These taxes include the value added tax (VAT), excise taxes on certain goods, and
custom duties.
Depreciation (D). Depreciation is an allowance for the portion of capital worn out in
producing the GDP. Over time, capital goods, such as buildings, machines, and equipment,
wear out and become less valuable or obsolete.

The Industrial Origin or Gross Value-Added Approach

The third approach to GDP calculation is the industrial origin or gross value-added
approach. Under this approach, the economy is divided into three sectors composed of
industries as follows: (1) agriculture (A), fishery, and forestry sectors; (2) industry sector (I);
and (3) service sector (S). The gross value added is the domestic product of goods and services
produced by industries within the country. Thus, we can say that GDP is equals to:

GDP = A +I + S or GVA (Gross Value Added)

GDP SHORTCOMINGS

The GDP omits certain measures of overall economic well-being for certain reasons.
The GDP is the basis of government economic policies, so there is concern that the GDP may

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be giving us a false impression of the nation’s material well-being. We should remember that
the GDP is a less-than-perfect measure of our nation’s economic pulse because it excludes the
following factors:

Nonmarket Transactions. Since the GDP only counts market transactions, it excludes
certain unpaid activities, such as homemade production, child care, and homemade services
like repairs and maintenance.
Distribution, Kind and Quality of Products. GDP is blind to whether a small fraction
of the population consumers most of a country’s GDP or if consumption is evenly divided.
Neglect or Leisure Time. In general, the wealthier a nation becomes, the more leisure
time its citizens can afford. Thus, rather than working longer hours, workers often choose to
increase their time for recreation and travel.
The Underground Economy. Illegal gambling, prostitution, illegal drugs, illegal guns,
loan-sharking and lending, and small-time trading are goods and services that meet all the
requirements of GDP. They are final products with a value determined in markets, yet the GDP
does not include unreported illegal activities.
Economics Bads. More production means larger GDP, regardless of the level of
pollution created in the process. Air water, and noise pollution are economic bads that impose
costs on society and the environment, but these are not reflected in private market prices and
in quantities bought and sold.

NOMINAL OR CURRENT GDP VERSUS REAL GDP

The GDP has been expressed in nominal or current value. Nominal or current GDP is
the value of all final goods and services based on the prices existing during the time period of
production. Nominal GDP is also referred to as the current market price of goods and services
produced in a given time period. Nominal GDP grows in three ways: First, output rises and
prices remain unchanged. Second, prices rise and output is constant. Third, both output and
prices rise.

Measuring the difference between changes in output and changes in the price level
involves makes an important distinction between the nominal and real GDP. Real GDP is the
value of all final goods and services produced during a given time period, based on the prices
existing in a selected base year. The Philippines uses 1985 as the base year.

We can therefore convert nominal GDP to real GDP by using the following formula:

Nominal GDP
Real GDP = X 100
GDP Deflator

Suppose GDP rises from Php20 trillion in 2000 to Php35 trillion in 2009. If the GDP
deflator is 125 in 2009, what is the real GDP in 2009? To convert the current GDP, we simply
substitute the values in our formula.

35,000
Real GDP 2009 = X 100 = 28,000
125

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 Exercise 8: Gross Domestic Product

Name: _____________________________________________ Score: _______________

Course/Year/Section: _________________________________ Date: ________________

Matching Type

Direction: Choose your answer from the box, and write the letter of your choice on the space
provided.

X. The Expenditure Approach

Y. The Income Approach
Z. The Industrial Origin Approach

___________ 1. Personal Consumption Expenditure

___________ 2. Agriculture, Fishery and Forestry Industry
___________ 3. Compensation of Employees
___________ 4. Trade Industry
___________ 5. Net Exports
___________ 6. Rental Income of Persons
___________ 7. Service Sector
___________ 8. Profits
___________ 9. Gross Private Domestic Investment
___________ 10. Net Interest
___________ 11. Imports
___________ 12. Mining and Quarrying Industry
___________ 13. Indirect Business Taxes
___________ 14. Government Consumption Expenditure & Gross Investment
___________ 15. Industry Sector
___________ 16. Construction Industry
___________ 17. Transport and Commerce Industry
___________ 18. Exports
___________ 19. Manufacturing Industry
___________ 20. Depreciation

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Chapter IX – Economic Fluctuations, Unemployment, and Inflation

Most Essential Learning Outcomes

In this chapter, your will learn about:

1. The four phases of business cycle

2. The four types of unemployment
3. Definition of inflation
4. Theories on the cause of inflation

Indicative Contents (Weeks 12-15)

• The Business Cycle

• Unemployment
• Inflation

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THE BUSINESS CYCLE

A central concern in macroeconomics is the amount of upswings and downswings in the level
of real output or economic fluctuations called the business cycle. The business cycle shows the
fluctuations in the level of economic activity alternating between the periods of depression and
boom conditions. In other words, it consists of alternating periods of economic growth and
contraction. Generally, business cycles are innate to market economies. A key indicator of
cycle is the rise and fall in real GDP, which mirrors changes in employment and other key
indicators of the macro economy.

The Four Phases of the Business Cycle

a. Peak - is the highest point between the end of an economic expansion and the start
of a contraction in a business cycle. The peak of the cycle refers to the last month
before several key economic indicators, such as employment and new housing
starts, begin to fall.
b. Recession - is a downturn in the business cycle during which real GDP declines,
business profits fall, the percentage of labor force without jobs rises, and production
capacity is underutilized resulting in a high unemployment rate.
c. Trough – is where the level of GDP will bottom out. At the trough, unemployment
and idle productive capacity are at their highest relative to recent years.
d. Recovery – is an upturn in the business cycle during the real GDP rises, during the
recovery phase of the cycle, profits generally improve, investment rises, real GDP
increases, and employment moves toward full employment, and thus a reduction in
unemployment.

UNEMPLOYMENT

One of the main goals of every economy is to achieve a high level of employment. We
noted in our discussion of the production possibilities frontier that an economy is at full
employment if it is operating at its production possibilities curve. This means that all available
resources of the economy are fully utilized in the production of goods and services. However,
if there are unused or idle resources, we say that there is unemployment. In such a case, is
operating inside its production possibilities frontier.
Unemployment, in a stricter sense, refers to the unemployed labor resource which is
measured by the unemployment rate during a particular period of time. The unemployment rate
is simply the percentage of people in the labor force who are without jobs and are actively
seeking jobs (Tucker 2008). The unemployment rate is computed using the following formula:

Numbers of Unemployed
Unemployment Rate =
Labor Force

Types of Unemployment

Frictional unemployment - occurs when workers moves from one job to another.
Structural unemployment - is caused by a mismatch between the jobs offered by
employees and potential workers.
Cyclical unemployment – as you already know, our economy has its ups and downs,
a set of fluctuations due to the business cycle. Cyclical unemployment gets its name because it

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varies with the business cycle. This type of unemployment occurs when there is not enough
aggregate demand in the economy.
Seasonal unemployment – at any given time in a year, a couple hundred thousand
people may be out of work because of a ‘slow season’.

INFLATION

Inflation is defined as a broadly-base rise in the price level. In other words, inflation is
the rise in the general level of prices of goods and services in an economy over a period of
time. If there is inflation, there is a general upward movement in the price of goods and services
in an economy. Inflation is usually measure by the Consumer Price Index (CPI).

CPI in current year – CPI in previous year

Percent increase in CPI = x 100
CPI in previous year

Theories of Inflation

Economists give us two theories on the cause of inflation. These are demand-pull
inflation and cost-push inflation.

Demand-pull inflation. The most popular type of inflation is demand-pull income,

which is a rise in the general price level resulting form an excess of aggregate demand (total
spending). Demand-pull inflation is often expressed as ‘too much money chasing too few
goods’.

Cost-push inflation. An excess of total spending is not the only possible explanation
for rising prices. As we have experienced, rising prices of crude oil in the world and domestic
markets results to rising prices of goods and services. Cost-push inflation is a rise in the
general level of prices resulting from an increase in the cost of production.

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 Exercise 9: Economic Fluctuations, Unemployment & Inflation

Name: _____________________________________________ Score: _______________

Course/Year/Section: _________________________________ Date: ________________

Essay (15points)

Direction: Answer the following questions briefly but thoroughly.

1. What are the positive and negative effects of inflation to the economy?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

2. Identify the group(s) who is (are) not considered part of the labor force. Explain.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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3. Briefly discuss the difference between cost-push and demand-pull inflation.

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Chapter X – Fiscal and Monetary Policies

Most Essential Learning Outcomes

In this chapter, your will learn about:

1. Differentiate fiscal policy from monetary policy

2. Distinguish expansionary from contractionary fiscal policy
3. Identify monetary policy instruments
4. Understand money supply

Indicative Contents (Weeks 16-18)

• Fiscal Policy
• Monetary Policy
• Monetary Policy

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FISCAL POLICY

What is fiscal policy? Simply defined, fiscal policy is the use of government spending and taxes
to influence the nation’s spending, employment and price level (Tucker 2008 p. 527). Fiscal
poicy is also defined as the manipulation of the national government budget to attain price
stability, relatively full employment, and a satisfactory rate of economic growth (Slavin 2005
p. 275). In other words, in order for government to attain these goals, it must manipulate public
spending and taxes. Fiscal policy is an instrument of demand management that seeks to
influence levels of economic activity by applying taxation and government spending control.

Discretionary Fiscal Policy

Discretionary fiscal policy defines as the deliberate use of change in government

spending or taxes to alter aggregate demand and stabilize the economy. Generally, economists
classify discretionary fiscal policy into two basic types: expansionary fiscal policy and
contractionary fiscal policy.

Two types of discretionary fiscal policy:

a.) Expansionary fiscal policy – the government can undertake any of the following
steps: increase government spending, decrease taxes, or increase government
spending and taxes equally.
b.) Contractionary fiscal policy – the government can do either of the following:
decrease government spending, increase taxes, or decrease government spending
and taxes equally.

MONETARY POLICY

The other type of public policy that government employs in stabilizing the economy is
monetary policy. Monetary policy is a macroeconomic policy that involves the regulation of
money supply, and credit and interest rates in order to control the level of spending in the
economy. In particular, it is a measure or action taken by the central bank (in the Philippines,
we refer to the Bangko Sentral ng Pilipinas or BSP) to influence the general price level and the
level of liquidity in the economy. The primary objective, therefore, of the BSP's monetary
policy is to promote low and stable inflation rate that is conducive to balanced and sustainable
economic growth. The adoption of inflation targeting framework by the BSP in January 2002
was aimed at achieving this objective. The monetary actions of the BSP are aimed at
influencing the timing, cost, availability of money and credit, as well as other financial
functions, with the main objective of stabilizing the price level (Source: www.bsp.gov.ph)

There are two basic types of monetary policy, similar to fiscal policy: expansionary monetary
policy and contractionary monetary policy.

Expansionary monetary policy refers to a monetary policy setting that intends to

increase the level of liquidity/money supply in the economy. This policy could result in a
relatively higher inflation path for the economy. Expansionary monetary policy tends to
encourage economic activity, because more funds are made available for lending by banks to
business investors. This in turn increases aggregate demand, which could eventually fuel

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inflationary pressures in the domestic economy. Expansionary monetary policy is usually
undertaken in order to counteract a slowdown in the economy.

Contractionary monetary policy, on the other hand, is a monetary policy setting that
intends to decrease the level of liquidity/money supply in the economy. Inversely, this could
also result in a relatively lower inflation path for the economy. Contractionary monetary
policies tend to limit economic activity because fewer funds are made available for lending by
banks to business investors.

MONETARY POLICY INSTRUMENTS

The various instruments used by the BSP to achieve the desired level of money supply
are referred to as monetary policy instruments. These include:

(1) Raising (reducing) the BSP's policy interest rates,

(2) Increasing (or decreasing) the reserve requirement,
(3) Encouraging (or discouraging) deposits in the special deposit account (SDA) facility
by banks and trust entities of BSP-supervised financial institutions,
(4) Increasing (or decreasing) its rediscount rate on loans extended to banking
institutions on a short-term basis, against eligible collaterals of banks' borrowers, and
(5) Outright sales (purchases) of the BSP's holdings of government securities.

The BSP's primary monetary policy instruments are the overnight reverse re-purchase
(borrowing) rate and the overnight repurchase (lending) rate

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 Exercise 10: Fiscal and Monetary Policies

Name: _____________________________________________ Score: _______________

Course/Year/Section: _________________________________ Date: ________________

Essay (15points)

Direction: Answer the following questions briefly but thoroughly.

1. What do you think is more important to the economy-fiscal or monetary policy?

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

2. What discretionary fiscal policy is more applicable to the Philippine economy?

________________________________________________________________________
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________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

3. What type of monetary policy has less restrictions and workable in any economies?
________________________________________________________________________
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________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Chapter XI – Principles of Taxation

Most Essential Learning Outcomes

In this chapter, your will learn about:

1. Relationship between taxes and the economy

2. Two different kinds of taxes
3. Basic principles of taxation, and
4. Approaches to taxation

Indicative Contents (Weeks 16-18)

• Taxes and the Economy

• Basic Principle of Taxation
• Approaches to Taxation
• Appendix: Income Tax

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TAXES AND THE ECONOMY

The government collects taxes from the people who have the capacity to earn more income and
accumulate wealth. In return, the government uses the tax revenues collected to construct
public works and highways, and provide social services like health and education, as well as
national defense and police protection, to the less fortunate members of society. This cycle of
wealth and income redistribution is a system that helps stabilize the economy.

The act of levying a tax to raise income and to defray the necessary expenses of the
government is referred to as taxation. A sovereign, via its law-making body, initiates this
process. Taxation is the inherent power of the state to demand enforced contributions from
its people for public purposes. Hence, a tax is a levy imposed by a government on the income,
wealth, and capital gains of persons or businesses on their spending on goods, services, and
properties.

Taxes are used by the government for a variety of purposes, including:

(1) to raise revenues for the government to cover its own expenditures for the provision
of social services, such as education, health, public infrastructures, etc., as well as the salaries
and benefits of public servants;
(2) to act as an instrument of fiscal policy in regulating the level of total spending (or
aggregate demand) in the economy so as to stabilize the economy;
(3) to alter the distribution of income and wealth (redistribution of income and wealth);
and
(4) to control the volume of imports (and sometimes exports of certain goods) into the
country,

TYPES OF TAXES

There are two major divisions of taxes to discuss. First, we differentiate between direct
and indirect taxes, then we take up a discussion on progressive, proportional, and regressive
taxes.

Direct taxes are taxes levied by the government on the income and wealth received by
households and businesses in order to raise government revenue and are used as instruments
of fiscal policy. Taxes levied on households and on particular persons are called individual
income taxes. You must pay these taxes if you earn a certain amount of money,

Taxes on businesses are called corporate income tax. Take note that corporations are
legal entities that assume an independent personality. Thus, if a corporation earns profit, it
must pay a corporate income tax, and this is a direct tax.

Indirect taxes, on the other hand, are taxes levied by government on goods and services
in order to raise revenue, and as an instrument of fiscal policy. Observe that these are not taxes
on people, but on the goods and services that we purchase and consume. Taxes on goods and
services include the Value Added Tax (VAT) and excise taxes on certain products.

Why is it indirect? These taxes can be shifted or passed on to consumers by the

producers (who are supposed to pay the tax) through the price of the good or service being
produced and sold. Ultimately, the final payer of the tax is the final consumer.

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 And then there are the progressive, proportional, and regressive taxes.

Progressive taxes are taxes that place a greater burden on those best able to pay, and
little or no burden on the poor. The best example of a progressive tax is the individual income
tax. Most taxpayers today pay a higher percentage tax for a higher income. In terms of the
average tax rate, people in higher income brackets pay a substantially higher average tax rate
than those in the lower brackets.

Proportional taxes are taxes that place an equal burden on the rich, the middle class,
and the poor. In other words, taxes are levied at a constant rate as one's income rises. Let's say,
a tax is applied on 10 percent of each increment of income as income rises. This form of
taxation takes the same proportion of tax from the low-income taxpayer as from a high-income
taxpayer.

Regressive taxes are taxes that fall heavily on the poor than on the rich. Stated in
another way, it is a tax structure in which taxes are levied at a decreasing rate as income rises.
This form of taxation takes a greater proportion of tax from the low-income taxpayer than from
the high-income taxpayer. Indirect taxes such as the Value Added Tax or excise taxes on certain
products are regressive when taken as a proportion of total net income.

BASIC PRINCIPLES OF TAXATION

When we mention the basic principles of taxation, we refer to the basic concepts by
which a government is guided in designing and implementing an equitable taxation regime.
These basic principles are generally referred to as Adam Smith's Canons of Taxation. These
include:
(1) Adequacy, that taxes should be just enough to generate revenue required for
provision of essential public services like health, education, and national defense and police
protection;
(2) Broadbasing, that taxes should be spread as wide as possible to all sectors of the
population or economy so as to minimize individual tax burden;
(3) Compatibility, that taxes should be coordinated to ensure tax neutrality and overall
objectives of good governance;
(4) Convenience, that taxes should be enforced in a manner that facilitates voluntary
compliance to the maximum extent;
(5) Earmarking, that tax revenue from a specific source should be dedicated to a
specific purpose only when there is a direct cost-and-benefit link between the tax source and
the expenditure, such as use of motor users' tax for road maintenance;
(6) Efficiency, that tax collection efforts of government should not take up an
inordinately high percentage of tax revenues;
(7) Equity, that taxes should equally burden all individuals and entities in similar
economic circumstances;
(8) Neutrality, that taxes should not favor any one group or sector over another, and
should not be designed to interfere with or influence individual decision making;
(9) Predictability, that the collection of taxes should reinforce their inevitability and
regularity;
(10) Restricted exemptions, that tax exemptions must be for specific purposes (such
as to encourage investment) and for a limited period only;
(11) Simplicity, that tax assessment and determination should be easy to understand by
an average taxpayer.

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APPROACHES TO TAXATION
There are several approaches to taxation. We will discuss them one by one in this
section.
The ability to pay principle states that taxation should be levied according to an
individual's ability to pay. This approach to taxation is usually the basis for progressive
taxation.
The benefit approach proposes that taxation should be levied broadly in relation to the
benefits that people receive in public services. The major problem with this approach is that
while taxes are paid individually, public services are only provided collectively, and thus the
public service a taxpayer uses is not necessarily equal to the tax (s)he pays.
The tax incident approach proposes that the major duty of a tax system is to analyze
the effect of a particular tax on the distribution of tax welfare. When we say tax welfare, this
refers to the ultimate payers of a tax. This approach was proposed mainly by the Physiocrats.

APPENDIX: INCOME TAX

GENERAL DESCRIPTION

Income tax is a tax on a person's income, emoluments, profits arising from property,
practice of profession, conduct of trade or business or on the pertinent items of gross income
specified in the Tax Code of 1997 less the deductions and/or personal and additional
exemptions, if any, authorized for such types of income, by the Tax Code or other special laws.

The Individual Income Tax

The following are required to pay the individual income tax:

1. Resident citizens receiving income from sources within or outside the Philippines.
They are (a) individuals deriving compensation income from 2 or more employers,
concurrently or successively at any time during the taxable year; (b) employees
deriving compensation income regardless of the amount whether from a single or
several employers during the calendar year, the income tax of which has not been
withheld correctly (i.e., tax due is not equal to the tax withheld) resulting to
collectible or refundable return; (c) employees whose monthly gross compensation
income does not exceed P5,000 or the statutory minimum wage, whichever is
higher, and opted for non-withholding of tax on said income; (d) individuals
deriving other non-business, non-professional related income in addition to
compensation income not otherwise subject to a final tax; and (e) individuals
receiving purely compensation income from a single employer, although the
income of which has been correctly withheld, but whose spouse is not entitled to
substituted filing.
2. Non-resident citizens receiving income from sources within the Philippines
3. Citizens working abroad receiving income from sources within the Philippines
4. Aliens, whether resident or not, receiving income from sources within the Philippines

Procedures

1. Fill-up BIR Form 1700 in triplicate

2. If there is payment:

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 * Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District
Office where you are registered and present the duly accomplished BIR form 1700,
together with the required attachments and your payment.
* In places where there are no AABs, proceed to the Revenue Collection Officer
or duly authorized City or Municipal Treasurer located within the Revenue District
Office where you are registered and present the duly accomplished BIR Form 1700,
together with the required attachments and your payment.
* Receive your copy of the duly stamped and validated form from the teller of
the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. For refundable returns and for tax returns with second installment:
* Proceed to the Revenue District Office where you are registered or to any Tax
Filing Center established by the BIR and present the duly accomplished BIR Form
1700, together with the required attachments.
* Receive your copy of the duly stamped and validated form from the RDO/Tax
Filing Center representative

DEADLINE

On or before the 15th day of April of each year covering income for the preceding taxable
year.

TAX RATE

Republic Act No. 10963, otherwise known as the "Tax Reform for Acceleration and Inclusion
(TRAIN) Law" was enacted December 19, 2017, which introduced amendments to the National
Internal Revenue Code (NIRC) of 1997.

FEATURES OF REPUBLIC ACT 10963 OR THE TRAIN LAW

1. Provides adjustment of the tax rates to present economic situation wherein inflation has
eroded significant amount of revenues.
2. There is now a lower income tax rate for the lower income brackets and much higher
rate for the highest bracket
3. Increased excise tax rates for petroleum products, tobacco, automobile, etc..
4. Limits the grant of special privileges and VAT exemptions to plug revenue leakages.
5. Collects revenues from other sources and influence behavior:
a. Impose tax on sugar-sweetened beverages to control consumption for health purposes
(avoid diabetes, obesity, etc)
b. Impose tax on cosmetic surgery
6. Revenue collection from the TRAIN law is intended to fund the build, build, build
project of the Duterte administration which is to build more infrastructure in order to
attract more investment in the country.

COMPUTING ANNUAL INCOME TAXES

For individuals earning purely compensation income and individuals engaged in business and
practice of profession, the following tax schedule is followed beginning January 1, 2018 until
December 31, 2022:

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 Net Taxable Income Tax rate
Not over P250,000 0
Over P250,000 but not over P400,000 20% of the excess over P250,000
Over P400,000 but not over P800,000 P30,000+25% of the excess over P400,000
Over P800,000 but not over P2,000,000 P130,000+30% of the excess over P800,000
Over P2,000,000 but not over P8,000,000 P490,000+32% of the excess over P2,000,000
Over P8,000,000 P2,410,000+35% of the excess over P8,000,000

However, a new tax schedule will be once again effective come January 1, 2023 onwards:

Net Taxable Income Tax rate

Not over P250,000 0
Over P250,000 but not over P400,000 15% of the excess over P250,000
Over P400,000 but not over P800,000 P22,500+20% of the excess over P400,000
Over P800,000 but not over P2,000,000 P102,500+25% of the excess over P800,000
Over P2,000,000 but not over P8,000,000 P402,500+30% of the excess over P2,000,000
Over P8,000,000 P2,202,500+35% of the excess over P8,000,000

For corporations, the fixed corporate income tax rate is 30%

TAX TABLE (SAMPLE COMPUTATION)

SAMPLE COMPUTATION: SIMPLE CASES

Case #1. Mr. Castro is a full-time professor and married with four children who are all in
elementary. He is receiving a monthly salary of Php20,000. His monthly contribution to the
SSS is Php300; Philhealth-100 and Pag-ibig -200. His monthly withholding tax is Php3,250.
Compute his annual income tax due.

Solution
Step 1. Determine the annual salary
Given: Monthly salary = P30,000
Solution:
Annual salary
= Monthly salary 12
= P30,000 x 12
= P360,000
Step 2. Determine the annual gross income
Given: Monthly salary = P30,000
Solution:
13th Month pay = Monthly salary
= P30,000
Annual gross income = Annual salary + 13th Month Pay
= P360,000 + P30,000
= P390,000
Step 3. Determine the non-taxable 13th month pay
(Maximum of P90,000 under the TRAIN Law)
Given: 13th Month pay = P30,000

Note: Since the 13th month of less than the maximum amount of non-taxable 13th month pay of
P90,000, then the whole amount of P 30,000.00 is also the amount of the non-taxable 13th month
pay.

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Step 4. Determine the annual mandatory contribution
(SSS, Philhealth, PAG-IBIG)
Given: Monthly SSS contribution = P300
Monthly Philhealth contribution = P100
Monthly PAG-IBIG contribution = P200
Solution:
Annual mandatory contribution = (Monthly SSS contribution +
monthly Philhealth contribution +
monthly pag-ibig contribution) x 12
= P7,200
Step 5. Determine the annual taxable income
Given: Annual gross income = P390,000
Non-taxable 13th month pay = P30,000
Annual mandatory contribution = P7,200
Solution:
Annual Net Taxable income = Annual gross income - non-taxable
13th month - annual mandatory
contribution
= P390,000 - P30,000 - P7,200
= P352,800
Step 6. Compute the annual tax due
Given: In the approved tax reform law, the tax rates are as follows:

Net Taxable Income Tax rate

Not over P250,000 0
Over P250,000 but not over P400,000 20% of the excess over P250,000
Over P400,000 but not over P800,000 P30,000+25% of the excess over P400,000
Over P800,000 but not over P2,000,000 P130,000+30% of the excess over P800,000
Over P2,000,000 but not over P8,000,000 P490,000+32% of the excess over P2,000,000
Over P8,000,000 P2,410,000+35% of the excess over P8,000,000

Given the above, Mr. Castro's Net Taxable income is P352,800, this amount falls in the net
taxable income bracket of over P250,000 but not over P400,000. Now we compute for the annual tax
due.
Solution:
Annual Tax Due = 20%* (annual net taxable income - P250,000)
= 20% * (P352,800 - P250,000)
= P20,560

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 Exercise 11: Principle of Taxation

Name: _____________________________________________ Score: _______________

Course/Year/Section: _________________________________ Date: ________________

Essay (10points)

Direction: Answer the following questions briefly but thoroughly. Write your answers on the
space provided.

1. Why are taxes important to an economy? Explain.

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

2. What tax approach is mostly utilized by the government? Why?

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

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Chapter XII – Agrarian Reform

Most Essential Learning Outcomes

In this chapter, your will learn about:

1. Distinguish the Agrarian Reform from the Land Reform

2. Comprehend the relationship between the Agrarian Reform and the Economy
3. Identify the measures of the Agrarian Reform
4. Understand the Importance of the Agrarian Reform Program
5. Review the Agrarian Reform history

Indicative Contents (Weeks 16-18)

• Agrarian Reform versus Land Reform

• Agrarian Reform and the Economy
• Measures of the Agrarian Reform
• The Importance of Agrarian Reform
• Agrarian Reform History
• Appendix: The Comprehensive Agrarian Reform Program

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AGRARIAN REFORM VS LAND REFORM

Before we go into the specifics regarding agrarian reform, let us first distinguish agrarian
reform and land reform.

Agrarian reform, is defined as the rectification of the whole system of agriculture. It

is normally the government who redistributes the agricultural lands among the farmers of the
country. Agrarian reform is concerned with the relationship between production and
distribution of land among the farmers. It is also concerned with the processing of raw materials
that are produced by farming the land from respective industries. Simply stated agrarian reform
comprises not only land reform, but also the reform and development of complimentary
institutional frameworks, rural education, and social welfare institutions (Omas-as 2008).

Land reform, on the other hand, refers to the full range of measures that may or should
be taken to improve or remedy the defect in the relations among men, with respect to their
rights in the use of land. In other words, it is a set of integrated measures designed to eliminate
obstacles to economic and social development arising out of defects in the agrarian structure.
(de Leon 1994).

AGRARIAN REFORM AND THE ECONOMY

1. On agricultural productivity. Agrarian reform may decrease agricultural

productivity if collectivization and land fragmentation are introduced. However,
productivity may be enhanced with the use of new inputs and technology in
agricultural processes.
2. On poverty. Agrarian reform can minimize the extent of poverty and also improve
the real per capita income of rural workers.
3. Income and living standards. Agrarian reform measures increase productivity, and
thus results in a rise in the income of rural farmers which will in turn improve the
living standard of rural folk.
4. Employment. Agrarian reform measures result in better employment. In some
cases, however, the introduction of a new technology may bring about displacement
of labor.
5. Investment and capital formation. Agrarian reform can change the labor-capital
ratio that is needed for any economic development.
6. Impartiality in rural population. Agrarian reform has a significant influence in the
economic and political structure of the rural areas. To bring about equity, land is
redistributed from the big landowners to the small and marginal farmers.

MEASURES OF THE AGRARIAN REFORM

1. public health provisions

2. family planning
3. education and trainings of farmers
4. reorganization of land reform agencies
5. application of labor laws to agricultural workers
6. construction of infrastructure facilities such as feeder roads, irrigation systems, etc.,
and the establishment of rural electrification
7. organization of various types of voluntary associations such as farmer associations,
farmers cooperatives, and many others

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 8. provide employment opportunities for underemployed or surplus rural labor such
as development of small and medium-scale industries, and
9. other services which are community development in nature. (Nolledo 2000).

THE IMPORTANCE OF THE AGRARIAN REFORM PROGRAM

Why is the agrarian reform program important? We already know that the Philippines
has an economy that is very rich in natural resources, but the country's agricultural sector needs
more attention. Farmers in this country generally live below the poverty line, as evidenced by
wide discrepancies in traditional, and sadly, outdated agricultural practices. Due to this
unfavorable condition, it is high time that the practice of share-tenancy must progress to
owner-cultivatorship.
Once the shift to owner-cultivatorship is realized, the true meaning of agrarian reform
will benefit farmers, setting them free from the bondage of soil that ultimately makes their lives
so difficult. This change will eventually improve the living conditions of both the farmers
and of those who are involved in the use of land as a means of living. As they themselves
become dynamic members of the society, they can take on a more active role in help build the
nation's social and economic progress.
What then, is an agrarian program? Farmers who seek to uplift their living conditions
can seek help from the agrarian reform program to secure capital investments for new
industries. This program primarily aims to improve the lives of farmers by increasing their
production, and that will further generate employment to the benefit of the ever-growing of
population of the country. The objective of the agrarian reform program is to create a stable
and secure society. The agrarian reform program therefore seeks to balance the society by
correcting the social structure of land laborers and salaried workers, dwellers of public
lands, and farmers who own family-size lands.

AGRARIAN REFORM HISTORY

• Agrarian Reform History: Pre-Spanish Period. Early Filipinos lived in a society

where stratified social classes existed. Rice was the medium of exchange. Spanish
Period. The concept of Royal Land Grants or the encomienda system was
introduced. The First Philippine Republic. General Emilio Aguinaldo, the President
of the first Philippine Republic established in 1899, declared in the Malolos
Constitution his intention to confiscate large estates, especially the so-called Friar
lands. American Period. During this regime, significant laws were enacted:
Philippine Bill of 1902, Land Registration Act of 1902 (Act No. 496), Public Land
Act of 1903 and Rice Share Tenancy Act of 1933 and Sugar Cane Tenancy
Contracts Act (Act Nos. 4054 and 413). Commonwealth Period, President Manuel
L. Quezon espoused the 'social justice' program to arrest the increasing social unrest
in Central Luzon. Japanese Period, HUKBALAHAP (or Hukbo ng Bayan Laban sa
Hapon) controlled the whole areas of Central Luzon and landlords who supported
the Japanese lost their lands to peasants while those who supported the Huks earned
fixed rentals in favor of the tenants.

• The Philippine Republic. President Manuel Roxas (1946 - 1948) enacted the
following laws: Rice Share Tenancy Act of 1946 (Republic Act No. 34). President
Elpidio Quirino (1948 - 1953) enacted Executive Order No. 355 issued on October
23, 1950, which replaced the National Land Settlement Administration with Land
Settlement Development Corporation (LASEDECO). President Ramon Magsaysay

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 (1953 - 1957), enacted the following laws: Republic Act No. 1160 of 1954, which
abolished the LASEDECO and established the National Resettlement and
Rehabilitation Administration (NARRA), Republic Act No. 1199 (Agricultural
Tenancy Act of 1954, Republic Act No. 1400 (Land Reform Act of 1955), and
Republic Act No. 821 (Creation of Agricultural Credit Cooperative Financing
Administration). President Carlos P. Garcia (1957 - 1961) continued the program
of President Ramon Magsaysay. President Diosdado Macapagal (1961 - 1965),
enacted the following laws: Republic Act No. 3844, (Agricultural Land Reform
Code, August 8, 1963). President Ferdinand Marcos (1965 - 1986), enacted the
following laws: Proclamation No. 1081 on September 21, 1972 ushered the period
of the New Society. Five days after the proclamation of Martial Law, the entire
country was proclaimed a land reform area and simultaneously the Agrarian Reform
Program was instituted. Republic Act No. 6389 (Code of Agrarian Reform) and
Republic Act No. 6390 of 1971 and Presidential Decree No. 2, September 26, 1972.
President Corazon C. Aquino (1986 - 1992). The 1987 Constitution ratified by the
Filipino people during the administration of President Corazon C. Aquino provides
under Section 21 under Article II that 'the State shall promote comprehensive rural
development and agrarian reform. June 10, 1988, former President Corazon C.
Aquino signed into law Republic Act No. 6657 or otherwise known as the
Comprehensive Agrarian Reform Law (CARL). The law became effective on June
15. 1988. President Fidel V. Ramos (1992 - 1998). President Ramos enacted the
following laws: Republic Act No. 7881, 1995, Republic Act No. 7905, 1995,
Executive Order No. 363, 1997, Republic Act No. 8435, 1997 (Agriculture and
Fisheries Modernization Act), and Republic Act No. 8532, 1988 (Agrarian Reform
Fund). President Joseph E. Estrada, initiated the enactment of Executive Order No.
151 (Farmers' Trust Fund), and launched the Magkabalikat Para sa Kaunlarang
Agraryo or MAGKASAKA. President Gloria M. Arroyo (2000 - 2010). The
agrarian reform program under the Arroyo administration is anchored on the vision
'to make the countryside economically viable for the Filipino family by building
partnership and promoting social equity and new economic opportunities towards
lasting peace and sustainable rural development. Under this are the following policy
objectives: Land Tenure Improvement - DAR will remain vigorous in implementing
land acquisition and distribution component of CARP. The DAT will improve land
tenure system through land distribution and leasehold, Provision of Support
Services, Infrastructure Projects and KALAHI ARZone.

APPENDIX: THE COMPREHENSIVE AGRARIAN REFORM PROGRAM

The Comprehensive Agrarian Reform Program was a response to the people's clamor
and expectations of a more effective land reform program that would supposedly correct the
many flaws that plagued the previous land reform programs.
Republic Act 6657 known as the Comprehensive Agrarian Reform Law of 1988
(CARL) under the Aquino Administration, is the act that instituted the Comprehensive
Agrarian Reform Program to promote social justice and industrialization, providing the
mechanism for its implementation, and for other purposes.

Major Features of RA 6657

• It provides for the coverage of all agricultural lands regardless of crops produced or
tenurial status of the tiller;

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 • It recognizes as beneficiaries of the program all workers in the land given that they
are landless and willing to till the land;
• It provides for the delivery of support services to program beneficiaries;
• It provides for arrangements that ensure the tenurial security of farmers and
farmworkers such as the leasehold arrangement, stock distribution option and
production and profit sharing; and
• It creates an adjudication body that will resolve agrarian disputes.

Components of CARP

Land Tenure Improvement

• Land Distribution - the main essence of the CARP.
• Leasehold Operation - a non-land transfer program that protects the tenurial status
of tenant-farmers in tenanted lands.
• Production and Profit Sharing - a temporary arrangement wherein corporate farms
(operating under a lease or management contract with more than P5 million gross
sales per annum) are to execute production and profit-sharing plans with their farm
workers.
• Stock Distribution Option - qualified beneficiaries are given the right to purchase
from the landowning corporation capital stocks that are equivalent to the value of
the land devoted by the company to agricultural activities. They are also entitled to
dividends, other financial benefits and representation in either the company's board
of directors, management or executive committee.
• Commercial Farms Deferment - under this arrangement, several agricultural lands
are listed for future acquisition and distribution.

Program Beneficiaries Development

These are support services that will complement land distribution such as credit
facilities, technology and infrastructure.
.
Agrarian Justice Delivery
• Agrarian Legal Assistance - provided by the CARP to its farmer-beneficiaries.
• Adjudication of Cases-the DAR is vested with quasi-judicial powers to determine
and adjudicate disputes, cases, controversies and matters involving the
implementation of RA 6657 and other related issuance.
.
How does the Department of Agrarian Reform (DAR) help the farmers?

1. Distribution of all agricultural lands regardless of tenurial arrangement and

commodities produced. For non-land distribution however, the DAR strengthens and
protects the farmers security of tenure in leasehold and stock distribution option.
2. Delivery of appropriate support services such as intensification of support services;
rural enterprise development, promotion of self-reliant livelihood programs, continuous
social marketing and advocacy campaigns.
3. Agrarian justice for agrarian-related cases (e.g. legal representation & adjudication
of cases)

Source: Department of Agrarian Reform, www.dar.gov.ph

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 Exercise 12: Agrarian Reform

Name: _____________________________________________ Score: _______________

Course/Year/Section: _________________________________ Date: ________________

Identification (20pts)

Direction: Identify at least two agrarian reform legislations enacted under the following
administrations. Write your answers on the space provided.

1. President Manuel A. Roxas

_______________________________________________________________________
_______________________________________________________________________

2. President Benigno Simeon C. Aquino III

_______________________________________________________________________
_______________________________________________________________________
3. President Gloria M. Arroyo
_______________________________________________________________________
_______________________________________________________________________
4. President Joseph E. Estrada
_______________________________________________________________________
_______________________________________________________________________
5. President Fidel V. Ramos
_______________________________________________________________________
_______________________________________________________________________
6. President Corazon C. Aquino
_______________________________________________________________________
_______________________________________________________________________
7. President Ferdinand Marcos
_______________________________________________________________________
_______________________________________________________________________
8. President Diosdado Macapagal
_______________________________________________________________________
_______________________________________________________________________
9. President Carlos P. Garcia
_______________________________________________________________________
_______________________________________________________________________
10. President Ramon Magsaysay
_______________________________________________________________________
_______________________________________________________________________

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