The Basic Principles of Macroeconomics

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In this generation we are living, Economics has greatly shaped the way society operates in terms of providing goods and services to the people. For our country to develop, we must focus not only on the individual consumers and producers but also to the economic growth nationally and internationally. GDP or Gross Domestic Product measures a country’s economic performance. As of September of the current year, it has been measured that 10% of the Philippines' GDP comes from OFW or Overseas Filipino Workers. Data from Bangko Sentral ng Pilipinas (BSP) showed that cash remittances from OFW jumped from 7.5% to $2.581 billion in July from $2.401 billion a year ago, and by 12.71% from June’s $2.290 billion. The most pressing concern regarding macroeconomics that has greatly affected me and my family is the exchange rate. My mother has been working in the U.S for about 17 years already and she has been sending money back here in the Philippines. She sends money for our household consumption and sometimes when it's our birthdays. This is where the exchange rate concern comes in. She sends her money through Western Union and when we get the money there are times when the remittance center has no dollars so instead I get my cash in the Philippines currency. The amount I get from my previous transactions would differ because of the change in currency, sometimes I would get PHP 52.00 in exchange for $1 or PHP 47.

We use the money to buy things for the house and we a lot a certain amount for me and my sister to be placed in our bank accounts. There are days wherein our dollar earns more while there are also days when it is lower compared to the previous transaction; this affects are consumption budget. The balance of trade influences the changes in the exchange rate through the effect of supply and demand on foreign exchange. If a country’s trade account does not equal to zero this means that imports are more than exports so there is more supply or demand of the country’s currency making that currency change on the world market. The more a country exports its products to other places would create a high demand for its goods also its currency. Due to the increase in demand, there would be an appreciation of the currency. The trade deficit of the US went to USD 47.2 billion in October of 2019 from 51.1B in the previous month and it went below the market expectations of USD 48.7 billion. Since May of 2018, this is the lowest trade gap. The import section slumped at 1.7% to the lowest value in two years despite the falling purchases of pharmaceutical preparations, auto parts, vehicles, and cell phones. Exports went down to 0.2%. The goods trade deficit with China went to 1.1% to USD 31.3 billion. Imports fell by 0.2% and exports rose to 3.3%. With the data showed, there has been a reduction of trade deficit meaning the US is exporting more and importing fewer products of other countries. If it would continue to move in this direction, the demand for its currency would increase and appreciating its value.

Another factor that causes fluctuations in the exchange rate between foreign and domestic currencies is the balance of payments. The BOP is a statement of all transactions between entities in a certain country and to the rest of the world over a defined period of time. However, the BOP does not affect the exchange rate in a fixed-system because the central bank adjusts currency to offset the international exchange of funds. For example, the Philippines wants to purchase goods from the US but the companies in the US do not accept pesos as payment. The Philippines has to purchase US dollars to be able to buy goods. But most of the exchanges are now automated with an intermediary so the customers won’t have to enter into the forex market. After the transaction is made it is recorded in the current account of the balance of payments. Data gathered from BSP showed that the Philippines has a BOP surplus of $163 million at the end of October, it is a reversal on the $458 million deficit in the same month. The surplus is greatly due to the remittances coming from OFWs and foreign direct investments in the country. The BOP surplus supports the local currency against the US dollar. The final gross of the international reserve level is $85.83 million billion which represents more than ample liquidity on imports of goods, primary income, and services. To solve my macroeconomic problem, whenever my mom sends dollars I would make sure that the remittance center has the capacity to give the money in its original currency. Another solution would be to ask my mother to send the dollars right through our bank accounts to prevent dealing with low price exchange rates. In case we would want to change dollars to peso it would be best to exchange it when the price of the dollar is high to have more buying power.

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