Peng Kungkea

1. Chapter I: Economic Context
1.1 Introduction
• Starting the experience of savings, growth, stability,
employment and equity, economics is scientifically the
norm of leadership and solving problems of cross
cutting issues.
• Prof. Adam Smith (1723-90) said economics is one of
important social sciences indicating individuals and
society in their selections, and using scarce resources
to satisfy the human unlimited wants.
• Prof. Mc. Connell said economics is the study of
human behaviour in producing, distributing and using
scarce resources.

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3. Adam Smith
(Classical Economists)
Mc. Connell
(Neo Classical Economists)
Selection Behaviour
Satisfy wants Producing and Distributing
Scarcity Scarcity
Demand Analysis vs Supply Analysis
Microeconomics is the study of consumers and
firms’ behaviour and interaction towards their
decision making
Macroeconomics is the study of whole economy
such as GDP, unemployment, inflation, International
Trade…

4. Adam Smith
(Classical Economists)
Mc. Connell
(Neo Classical Economists)
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5. 1.2 Economic Systems
• Economic system = Allocated ways of distributing
resources and products based on national policy or
ideology or doctrines. It influences on forms of governing,
market structures, distribution and social norms. It passes
through:
– Traditional Economics is the processes of economic
management in early century to 16th century where industrial
revolution began.
– Modern Economics is the processes of economic management
covered the period of industrial revolution to the present. It
passes through:
• Planned Economies: states owned, managed and targeted markets
• Mixed System: government and private shared ownership,
responsibility and profit.
• Free Market Economies: privatization and competition

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7. 1.3 Foundation of Macroeconomics
Macroeconomics lies within growing and stabilizing
economy, circulating flows of economy, governing
roles in economy, developing economy, trading
internationally, and globalizing economy.
F1: Economic Growth and Productivity
- Economic growth is the result of productivity
growth, economic roles of citizen (human capital),
and creative and effective resource uses towards
social and environmental harmonization. It can be
measured by Gross Domestic Product.

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9. • The Production Possibility Frontier (PPF Curve)
indicates the all forms of goods and services can be
produces based on the existing resources and
technology (Explain in the Class).
• The PPF can be positively signaled by an increase in
demand, production efficiencies, and enabling
business environment.
• Sustainable Economic Growth is considered to be a
significantly dedicated effort made by the leading
government roles to deliver the positive economic
outcomes to their citizen and society as a whole to be
free from negative impacts of the high tights of
economic fluctuations.
• Prof. Pilzane Paulzer, New York University said the
next millionaires are Nutritionists and Technologists

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11. F2: Stabilizing Macroeconomics
Macroeconomic stabilization can be achieved via the
stability of financial markets, balance of trade, and
social stability.
• Financial market stability reflects the government
efforts to stabilize the exchange rate, regularly
progress in financial investment, minimizing the
fluctuation of interest and inflation rates.
• Balance of trade is the efforts to gain equilibrium in
the export and import of goods and services among
the trade partners.
• Social stability is a collective social equity in terms of
employment, industrial relations, growing social
investment and social safety nets.

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13. Discussion
• Why the government does attempt to reduce
inflation?
– Minimizing the effect of trade and business transaction
– Reducing on the heavy burden of expenditure on
consumption
– Minimizing the negative impact on production costs and
levels of unemployment
– Others……..
• Why the Central Bank do minimize the interest rates
on loan?
– Initial capital for investment
– Business expansion
– Increase in job creation
– Strengthening competition

14. Discussion
The poverty is our real enemy due to
- Poor of landlessness and wealth
- Poor of Unemployment
- Poor of inequality
Improvement of industrial relations will reduce
second and third poverty?
- Employability and Decent Working Conditions
- Wages and bargaining system

15. F3: Circular Flow of Economy
Circular flow of economy is a currently transferable
economic activity between agencies and institutions
which is necessary creating wealth and cash flows
through the demand and supply units.
• Private sectors represent an important partnership in
the free market economy such as enterprises,
institutions, firms, families in which there are
demanding production factors and supplying goods
and services.
• Public sectors are the major forces to foster the
economic flows through demanding goods and
services, collecting taxes and coordinating all
economic activities.

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17. 17
Consumption Purchases
Goods and Services
Business SectorHousehold
Sector
Factor Services (Land, Labor,
Capital & Enterprise)
Factor Income (Rent, Wages, Interest
& Profit
Flow Chart 3.1

18. F4: Roles of Governments in Economy
Good public institution governances and economic
functions of the nation are important to accelerate
economic growth, and create jobs and social equity
as stated in the government policy.
• Developing legal and policy frameworks are the
core value for managing national economy, society,
and protecting the best interest of the people.
• Strengthening competiveness is an institutional
capacity building and promoting skill development
of the nation to produce better goods and services
for growing trade and economic activities.

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20. • Resource allocation and income redistribution
are a systematic management of revenues and
expenditure to promote social equity and to
reduce vulnerability through:
– Transfer payment to poor and vulnerable persons for
their rehabilitation
– Market intervention to promote working conditions
and social harmonization
– Taxing on taxable persons or tax bearers, introducing
new types of tax, removing trade barriers, retargeting
tax for social justice and integrating globalization
– Taking actions on externality either market failure or
public goods to be free from the issues of negative
effects on environment, free-riding horse concept,
unfair business practices.

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22. • Negative impacts of externality can be removed via
law enforcement and special taxes.
• Provisions of subsidies to consumers, producers and
state providers can also reduce the negative impacts
of externalities. These can encourage an increase in
demand and supply both public and private sectors.
• Income redistribution is the practice of turn-over
wealth and revenues from private to public sectors to
be aimed at reducing the gap between rich and poor,
unemployment and inflation.
Discussion: Ordering tax on commodities that can have
negative effect on environment, and luxury goods.
Note that although governments need votes from their
people in the democratic regime, their intervention
might be surplus or deficit or nepotism.

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24. F5: Economic Development
Economic development is an application of economic
theories and methods to deal with development issues.
This can be done if we have discovered the challenges,
sources, and strategies of developing economy.
• Challenges in development are:
– Poverty and low income of citizen,
– Low education and skill,
– Weak in health, nutrition, and infant mortality rate
protection,
– Inadequate infrastructure
– Corruption and regime
– Socio-economic and investment conditions

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RbPBénkarGPivDÆRbeTs nigyuT§saRsþén
karGPivDÆrbs;RbCaCati ¬Prof. Micheal P. Todaro, New York
University¦.
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– ehtßarcnasm<½n§

26. • Sources of Development are:
– Human Capital
– Social Investment and Expenditure
– Resources and Environment
– Foreign Aid and Efforts to Be Financial Independent
State
• Development Strategies are:
– Promoting the Agricultural Development
– Fostering the Industrial Development and Forming
the New-Economic Streams
– Developing Export Opportunity and Import
Substitution
– Moving towards the System of Transparency,
Accountability and Purity

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28. F6: International Business Environment
IBE refers to the management of cross-border business
operations or transactions under the competitive and
globalized environment.
• Major forces to challenges over globalization:
– Accelerating export promotion and trade balance,
– Promoting competitiveness and creative citizen,
– Strengthening legal and negotiation frameworks ,
– Entering the global and regional integration,
– Improving international trade policy, and
– Complying as UN member state and trade dispute

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30. 1.4 Importance of Economics
• Economic theory can support analytical methods and right
decision making whether it is normative for economic
reasoning or positive for economic policies to grow,
stabilize, create jobs, and be social safety and equity.
• Economics is more larger scope for preparing learners to
be consultant, researcher, manager and economist or be
able to apply economic methodology (Indicators,
Modeling, and recommendation) contributing to expand
market sizes and trade, create more jobs, produce
agricultural and industrial products, establish rural society
productivity, flow investment, and promote development,
business law, property right and environmental
conservation.

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¬sucnkrmU:EdlnigGnusasn_¦ cUlrYmBRgIkTIpSar

32. 1.5 Economic Targets
• Analysis of Gross Domestic Product and Circular
Flow of Economy
• Unemployment and Labour Management
• Inflation and Financial Market Stability
• Economic Policy for Growth, Employment and
Equity
• Perspective Economic Policy, Foreign Policy and
International Trade Policy

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