PRINCIPLES OF MACROECONOMICS

CHAPTER 1: INTRODUCTION TO MACROECONOMICS

1. The fundamental economic problem

2. Microeconomics vs Macroeconomics
3. Major Macroeconomic issues
4. Macroeconomic Policies

1. The fundamental economic problem

- Unlimited wants >< Limited resources (labor, tools, land, raw materials…)

- Society does not have enough resources to produce all things people would like
to have -> SCARCITY

- Scarcity -> every society must make choice (how to use its resources)

+ What to produce
+ How to produce
+ For whom to produce

2. Microeconomics vs Macroeconomics.
- Economics is the study of how humans make decisions in the face of scarcity.

- Economics = Microeconomics + Macroeconomics

+ Micro: Study of how individuals and firms make decisions and interact
in markets.
+ Macro: Study of economy as a whole.

3. Major Macroeconomic Issues.

- Economic growth:
+ the increase in the amount of the goods and services by an
economy over time. -> LONG TERMS
+ measured = Real Gross Domestic Product (GDP)

- Inflation/Deflation:
+ Inflation: the prices of most goods and services are rising over
time.
+ Deflation: the fall in the average level of prices

- Unemployment:

Measured = unemployment rate (= number of unemployed individuals /

all individuals currently in the labor force)

- Open economy:
an economy which has trading and financial relationships with other
national economies.

+ Net exports = exports - imports

+ Net capital outflow = the purchase of foreign assets (by domestic
residents) - the purchase of domestic assets (by foreigner)

4. Macroeconomic Policies

- Goals = Low unemployment, Low inflation, Increasing productivity.

- 2 types of policies = fiscal policy + monetary policy.

+ Fiscal policy: the use of Government expenditures and Taxes to

influence economic performance (G + T = tools)
 + Monetary policy: the process by which the Central Bank controls
the money supply and interest rates to influence economic
performance. (tools = reserve requirements, the discount rate, and
open market operations)

QUESTIONS: TRUE OR FALSE

1. Economic phenomena such as the rate of unemployment and inflation are

studied in Microeconomics -> False. They are studied in Macroeconomics.

2. During a recession, the economy often has higher rates of unemployment,

whereas during a boom, the economy often has higher rates of inflation.
-> True

3. The government should use monetary policy to boost aggregate demand during
a recession. -> False because Governments should focus on keeping the money
supply steady, even in a recession when unemployment was high.
(Monetary policy attempts to increase aggregate demand during recession by
increasing the growth of the money supply)

CHAPTER 2: MEASURING MACROECONOMIC VARIABLES.

1. Gross Domestic Product (GDP)

1.1. Definition.
- Market value of all final goods and services.
- Produced within a country
- In a given period of time.

Lưu ý:
+ Items are sold legally in the markets (excludes illegally; produced and
consumed at home)
+ Không tính intermediate goods, chỉ tính final goods.
Eg: Chỉ tính xe hơi vào GDP, không tính lốp xe, bánh xe… -> tránh double
counting.
 + Chỉ cần sản xuất trong nước, bất kể quốc tịch người sản xuất, đều tính vào GDP
quốc gia đó,
+ Được sản xuất vào kì nào năm nào thì tính vào GDP kì đó năm đó.

Ngoại lệ:
- Intermediate goods nhưng tính trong GDP: Inventory và Exported goods.
NHƯNG HÀNG NHẬP KHẨU KO TÍNH VÀO GDP, CHỈ TÍNH TRONG
CPI. VÌ GDP PHẢI ĐƯỢC SX TRONG NƯỚC

- Final goods nhưng không tính trong GDP:

Hàng phi pháp, buôn lậu
Hàng được sản xuất và tiêu thụ tại nhà.

1. 2. Measurement of GDP:
- Assumptions:
All goods and services bought by households.
Households spend all of their income.

-
 - For an economy as a whole:

GDP = THE TOTAL INCOME of sellers (in the economy) = THE TOTAL
EXPENDITURE of buyers on the economy’s output of goods and services.

1.3 Components of GDP

Y = C + I + G + NX

Y= GDP

C = CONSUMPTION Spending by households on goods and services

Exception: purchases of new housing.

I = INVESTMENT - Spending on capital equipment, inventories and

structures.
- Including purchases of new housing.
- Inventory accumulation (Hàng tồn kho)

G = GOVERNMENT - Spending on goods and services by local, state and

PURCHASES federal government.
- Not include transfer payments
(eg: trợ cấp, phụ cấp,...)

NX = NET EXPORTS = Exports - Imports.

Lưu ý:
1. Công ty sản xuất 100 chiếc máy tính:
- Bán 99 chiếc -> Tính vào Consumption
- Tồn kho 1 chiếc -> Tính vào Investment
2. Cổ phiếu/ Trái phiếu (Bonds/Stocks): không phải thành phần và không được
tính trong GDP.
3. Hộ gia đình sử dụng “transfer payments” để mua hàng hóa và dịch vụ -> Cũng
không được tính vào GDP,

VD: 2020, I bought a US car for $50,000. Are there any changes in GDP of VN 2020?

NO.
ΔNX = - $50,000
ΔC= $50,000

1.4. Real and Nominal GDP.

 GDP = ∑ P.Q

P↑ / Q↑ / P and Q ↑ => GDP ↑

a. Real GDP:
- Valued at constant prices.
- Keep one year as a base year.
- Not affected by changes in prices.

GDPreal = ∑Po.Qt

b. Nominal GDP (GDP danh nghĩa)

- Valued at current prices.
- For the base year (Po=Pt): Nominal GDP = Real GDP.

GDPn = ∑ Pt.Qt

c. The GDP deflator (Chỉ số điều chỉnh GDP)

CÓ THỂ SỬ DỤNG ĐỂ TÍNH ĐỘ LẠM PHÁT

- Measure of the price level

- Ratio of nominal GDP to real GDP times 100
- Base year = 100

𝐺𝐷𝑃𝑛𝑜𝑚𝑖𝑛𝑎𝑙
Dgdp = 𝐺𝐷𝑃𝑟𝑒𝑎𝑙
* 100
(là chỉ số, không có %)

d. Inflation rate.
 𝐺𝐷𝑃 𝑑𝑒𝑓𝑙𝑎𝑡𝑜𝑟 𝑖𝑛 𝑦𝑒𝑎𝑟 2 − 𝐺𝐷𝑃 𝑑𝑒𝑓𝑙𝑎𝑡𝑜𝑟 𝑖𝑛 𝑦𝑒𝑎𝑟 1
Inflation in year 2 = 𝐺𝐷𝑃 𝑑𝑒𝑓𝑙𝑎𝑡𝑜𝑟 𝑖𝑛 𝑦𝑒𝑎𝑟 1
*100%

1.5. GDP - a good measure of Economic well-being or not?

Good measure Not perfect measure

Better healthcare Not include economical damages

(destruction of nature caused by
economic growth)

Better educational systems Some events that do not contribute to

human welfare raise GDP
(vd: ly hôn thì tạo việc làm cho luật sư
-> tăng GDP)

2. Consumer Price Index - CPI (Chỉ số giá tiêu dùng)

2.1 Definition:
- Measure of the price level of goods and services,
- Bought by a typical consumer.
2.2. How to calculate
1. Fixed basket.
2. Find the prices
3. Compute the basket’s cost.
4. Choose a base year (optional) and compute CPI.

KEEP THE QUANTITY CONSTANT = FIXED BASKETT

𝐶𝑜𝑠𝑡 𝑜𝑓 𝑏𝑎𝑠𝑘𝑒𝑡 𝑖𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑒𝑎𝑟
CPI = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑏𝑎𝑠𝑘𝑒𝑡 𝑖𝑛 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟
*100

𝐶𝑃𝐼2 − 𝐶𝑃𝐼1
INFLATION RATE = 𝐶𝑃𝐼1
*1OO%

2.3. The GDP deflator vs CPI

- GDP deflator:
Compare the price of goods and services in the current year to the price of
the same goods and services in the base year.

- CPI:
 Compare the price of the basket in the current year to the price of the basket
in the base year.

VD: Nền kinh tế Mỹ

A. Starbucks raises the price of Frappuccinos.
Bought by typical US consumers -> CPI tăng
Produced in US -> Dgdp tăng

B. Caterpillar raises the price of the industrial tractors (máy kéo công nghiệp) it
manufactures at its Illinois factory
- Included in investment -> Dgdp tăng
- Not bought by typical -> CPI không ảnh hưởng

C. Armani raises the price of the Italian jeans it sells in the US.
Bought by typical consumers -> CPI tăng
Imported goods -> not included in GDP -> Dgdp không đổi.

2.4. Correcting variables for inflation

a. Comparing values of money for different times.

Inflation makes it harder to compare dollar amounts from different times,

=> Sử dụng CPI chuyển giá trị tiền về cùng một thời điểm và so sánh.

AMOUNT IN TODAY’S DOLLARS

𝑃𝑅𝐼𝐶𝐸 𝐿𝐸𝑉𝐸𝐿 𝑇𝑂𝐷𝐴𝑌
= AMOUNT IN YEAR T’S DOLLARS * ( 𝑃𝑅𝐼𝐶𝐸 𝐿𝐸𝑉𝐸𝐿 𝐼𝑁 𝑌𝐸𝐴𝑅 𝑇 )

b. Real and nominal interest rates

- Nominal interest rate (i) - lãi suất danh nghĩa
Không tính đến tác động của lạm phát hoặc thuế

- Real interest rate ® -> quan trọng hơn

Tính đến tác động của lạm phát => Quan trọng hơn để đánh giá giá trị thực của
khoản vay/ khoản đầu tư.

REAL INTEREST RATE = NOMINAL INTEREST RATE - INFLATION

RATE.
CHAPTER 3: AGGREGATE DEMAND AND FISCAL POLICY (market for
goods and services)

1. Aggregate demand (Tổng cầu)

2. Short-run effects of fiscal policy on aggregate demand
3. Fiscal policy and Automatic stabilizers (Cơ chế tự ổn định)

I. Aggregate Demand (AD)

1. Definition of AD curve: Shows the quantity of all goods and services
demanded in the economy at any given price level.

-> Negative relationship between P and D.

2. The components of AD:

AD = C + I + G + NX
(just demand, not sell to final users -> khác GDP)

NOTE:
- Consumption changes: movements in Income, taxes.
- Investment changes: its expected profitability, interest rates, the price of key
inputs, tax incentives for investment.
 - Government spending and taxes: determined by political considerations.
- Net exports changes: exchange rates, trade policy of the importing and
exporting countries, incomes of the nations.

3. WHY THE AD CURVE SLOPES DOWNWARD:

P TĂNG -> Y GIẢM (Y GỒM C, I, NX)

Chứng minh 3 mối quan hệ tỉ lệ nghịch.

a. The wealth effect: (P and C)

Suppose that P rises -> The dollars people hold buy fewer goods and services ->
Value of money decreases -> People feel poorer -> C falls.

Suppose that P falls -> The dollars people hold buy more goods and services ->
Value of money increases -> People feel richer -> C rises.

b. The Interest-Rate effect: (P and I - Investment)

Suppose only one type of interest rate

Suppose P rises -> Buy goods and services require more dollars -> To get these
dollars, people sell financial assets -> To attract người mua, they increase interest rate
-> Cost of borrowing money for Investment increases -> I falls.

Suppose P falls -> Buy goods and services require less dollars -> People hold financial
assets and want to buy financial assets -> Người bán assets để có lợi cho họ thì giảm
interest rates -> Cost giảm -> Investment tăng.

Lưu ý: Interest rate phản ánh cả return của financial assets và cả cost of borrowing
money for investment.

c. The exchange-rate effect (P and NX)

Suppose P rises -> Interest rate rises (interest-rate effect) -> Foreign investors desire
more domestic bonds -> Higher demand for dollars in foreign exchange market ->
Value of US dollars increases -> Dollars people hold can buy more goods and services
-> E becomes expensive to people abroad, I becomes cheaper to US residents. -> E
decreases, I increases.
NX = E - I => NX falls.
Suppose P falls -> Interest rate falls -> Lower demand for dollars in the exchange
market -> Value of dollars decreases -> Export increases, Import decreases.
NX rises.

1.4. Why the AD curve might shift.

LƯU Ý: CHANGE IN P LÀ YẾU TỐ NỘI SINH -> CHỈ DẪN TỚI
MOVEMENT (TRƯỢT DỌC), KHÔNG DẪN TỚI SHIFT.

Any event that changes C, I, G, or NX - except a change in P - will shift the AD

curve.

Eg: A stock market boom makes households feel richer -> consumption rises -> AD
curve shifts to the right.

Bùng nổ kinh tế (Boom) là khái niệm dùng để chỉ thời kì gia tăng mạnh mẽ của hoạt
động kinh tế. Hoạt động nổi bật trong thời kì này là đầu cơ (tích lũy hàng tồn kho dưới
dạng nguyên liệu, bán thành phẩm và thành phẩm với hi vọng bán được giá cao trong
tương lai)

Question: Following events will have effects on aggregate demand or not.

a. Households decide to save a large share of the income

-> Save money -> Buy less goods and services -> Consumption decreases ->
Ad curve shifts to the left

b. An increase in the price level

Cause movement, not shift.
c. Expectations of a growing economy lift business confidence and investment
Expect -> Invest more -> Investment increases -> AD curve shifts to the right.

II. Fiscal policy and Aggregate demand.

1. Fiscal policy:

TOOLS = TAXES and GOVERNMENT EXPENDITURES,

- Expansionary fiscal policy:

An increase in G and/or decrease in T (thuế thu nhập cá nhân/ thuế đánh vào
doanh nghiệp)
 Shift the AD curve to the RIGHT.

- Contractionary fiscal policy:

A decrease in G and/or increase in T
Shift the AD curve to the LEFT.

2. Effects of fiscal policy on aggregate demand.

a. The multiplier effect: Tác động số nhân.

G tăng -> AD curve dịch phải -> Income tăng -> C tăng -> AD dịch phải ->
Income tăng -> C tăng -> …

Extra consumption causes further increases in Aggregate demand.

VD: Nếu G tăng $20 -> Shift > $20.

- Marginal propensity to consume (MPC): Xu hướng tiêu dùng cận biên.

-> the fraction of extra income that households consume rather than
save.

MPC = 0.75 means Y tăng 1 đô thì C tăng 0.75 đô, 0.25 đô dành tiết
kiệm

Δ𝐶
MPC = Δ𝑌
(0<MPC<1)

Lưu ý: I and NX do not change

ΔY= ΔC + ΔG
ΔY= MPC*ΔY + ΔG

1
ΔY = 1 − 𝑀𝑃𝐶
* ΔG

1
=> THE MULTIPLIER = 1−𝑀𝑃𝐶
(always >1 because 0<MPC<1)
Lưu ý:
A bigger MPC means changes in Y cause bigger changes in C, which in turn cause
bigger changes in Y.

b. The Crowding-Out effect (Hiệu ứng lấn át -> Hoạt động trong thị trường tiền tệ
Money market)

- Fiscal expansion: Y tăng -> more goods and services trao đổi -> money demand tăng
-> Bán assets để hold money -> Interest rate tăng -> investment giảm
=> reduces the net increase in agg demand
=> the size of AD shift may be smaller than the initial fiscal expansion

Crowding-out effect: The reduction in agg demand that results when a fiscal
expansion raises the interest rate.

III. Fiscal policy and Automatic stabilizers.

1.
The gov should use policy to reduce economic fluctuations:
- Use an expansionary policy to prevent or reduce a recession
- Use a contractionary policy to prevent or reduce an expansion.

2. Case không nên sử dụng fiscal policy:

Fiscal policy works with a long lag (độ trễ lớn)

- Changes in G and T requires acts of congress
- The process can take months or years.

3. Automatic stabilizers.
- The tax system: in recession, taxes fall automatically
Recession -> Y auto giảm -> T auto giảm -> Consumption + Investment auto
tăng -> AD auto tăng -> Y auto tăng -> tự cân bằng trở lại.

- Transfer payment (TR):

In recession, more people apply for public assistance (welfare, unemployment
insurance)

TR auto tăng -> Consumption auto tăng (dân có tiền để mua goods n services)
-> AD auto tăng -> Y auto tăng

EXERCISES:
 The economy is in recession. Shifting the AD curve rightward by $200b
would end the recession
a. If MPC = 0.8 and there is no crowding out, how much should
Congress increase G to end the recession.

b. If there is crowding out, will Congress need to increase G more or

less than this amount?

Solution:
a.
MPC=0.8
1
-> Multiplier = 1−𝑀𝑃𝐶
=5
Delta Y = Multiplier * Delta G
=> 200 = 5*Delta G
=> Delta G= 40
=> Increase G by 40

b.

Crowding out reduces the impact of G on AD.

To offset this, Congress should increase G by a larger amount.

Kết luận:

- Hiệu ứng số nhân có xu hướng khuếch đại ảnh hưởng của chính sách tài khóa
lên tổng cầu
- Hiệu ứng lấn án có xu hướng làm giảm tác động của chính sách tài khóa lên
tổng cầu,
- Các nhà kinh tế tranh cãi: một số cho rằng CP nên sử dụng fiscal policy để
chống lại các biến động gây mất ổn định về sản lượng và việc làm. Một số cho
rằng chính sách tài khóa sẽ gây bất ổn cho nền kinh tế vì chính sách hoạt động
với độ trễ dài
CHAPTER 4: MONEY AND MONETARY POLICY

Chapter objectives:

1. Money
2. Banks and the money supply
3. Money market
4. Monetary policy

I. Money
1. Definition:
- Set of assets in an economy
- People regularly use to buy goods and services from other people
2. Functions of money:
- Medium of exchange: phương tiện trao đổi

Items that buyers give to sellers when they want to purchase goods and
services.

- Unit of account: đơn vị hạch toán - một thước đo quy ước để ấn định giá
cả

- Store of value: phương tiện cất giữ - tiền có thể được rút khỏi lưu thông
và đi vào cất trữ (eg: tiền tiết kiệm)

=> Muốn kiểm tra một loại asset của phải money không, phải kiểm tra xem có thỏa
mãn 3 functions không.

II. Banks and the money supply

The money supply (MS): the quantity of money available in the economy

MS = C + D

C (currency): paper bills and coins (trong tay công chúng)

D (Demand deposits: tài khoản tiền gửi không kì hạn, có thể rút bất kì lúc nào, thường
không có lãi suất): balances in bank accounts.

*Reserves: khoản dự trữ - là khoản tiền gửi mà ngân hàng nhận nhưng không cho vay.

● Reserve ratio (rr)

𝑅(𝑟𝑒𝑠𝑒𝑟𝑣𝑒)
rr = 𝐷(𝑑𝑒𝑝𝑜𝑠𝑖𝑡𝑠)

● T account: báo cáo tài chính ghi lại tài sản (dự trữ) (trái) và nợ (tiền gửi của
công chúng) (bên phải). Cuối kì kết toán, tổng tài sản có phải bằng tổng tài
sản nợ.

1. 100% Reserve Banking: banks hold all deposits as reserves.

After the deposit, MS remains unchanged

=> 100% reserves Banking has no impact on the size of the money supply.

2. Fractional-Reserve Banking:

Banks hold only a fraction of deposits in reserve.

Banks create MONEY, but not create WEALTH -> Chỉ có sự gia tăng của
MEDIUM OF CHANGE
1
MS = original deposit * 𝑟𝑟
 3. A model of the money supply
- Monetary Base: B = C+R (Currency + Reserves) controlled by the central
bank. (tổng số lượng tiền tệ được lưu thông chung trong tay công chúng hoặc
dưới dạng tiền gửi ngân hàng thương mại được giữ trong dự trữ của ngân hàng
trung ương.)
- Reserve ratio phụ thuộc vào:

Regulation (reserve requirement - bắt buộc và do ngân hàng trung ương quyết
định)

Bank policies (Excess reserves - do ngân hàng thương mại tự quyết định dựa
trên tình hình hoạt động và mục tiêu thực tế)

- Currency-deposit ratio (cr = C/D), tỉ lệ tiền giữ/tiền gửi -> phụ thuộc vào
public’s preferences.

MONEY MULTIPLIER (m)

𝑀𝑆 𝑐𝑟+1 1
m= 𝐵
= 𝑐𝑟+𝑟𝑟
(rr<1 -> m>1) = 𝑟𝑒𝑠𝑒𝑟𝑣𝑒 𝑟𝑎𝑡𝑖𝑜

Delta MS = m*DeltaB

Ý nghĩa: m là phần tăng của MS phát sinh từ 1 đô tăng lên của B (monetary
base)

Lưu ý: Banks có thể control MS nhưng không thể control perfectly vì Currency phụ
thuộc vào ý thích của công chúng

4. Central banks and tools for monetary control

Central banks: kiểm soát hệ thống ngân hàng và điều tiết cung tiền.

*TOOLS: Tác động lên m và B để điều chỉnh MS

a. Open market operations: tác động lên B

- Increase MS -> The central banks buy gov bonds (để bơm tiền vào lưu thông)
- Reduce MS -> The central banks sell gov bonds.
-
b. Reserve requirements -> tác động lên m
 - Regulations on minimum amount of reserves
- Giảm MS -> Tăng reserve requirement
- Tăng MS -> Giảm reserve requirement

c. The discount rate: tác động lên cả 2 nhưng chủ yếu là m

- Là lãi suất khi ngân hàng trung ương cho ngân hàng con vay để
tăng dự trữ (cần tăng dự trữ để dự phòng công chúng rút tiền ồ ạt /
đáp ứng reserve requirement)
- Tăng discount rate -> banks vay được ít -> banks tự tăng reserves
từ các khoản deposits -> cho vay ít -> m giảm vì R/D tăng -> MS
giảm.
- Giảm discount rate -> MS tăng

•The Fed must wrestle with two problems that arise due to fractional-reserve
banking.
•The Fed does not control the amount of money that households choose to hold as
deposits in banks.
•The Fed does not control the amount of money that bankers choose to lend.
•Commodity money is money that has intrinsic value.

Fiat money is money without intrinsic value

Bank runs: công chúng rút tiền ồ ạt -> complicate the control of the money supply

III. Money market:

1. Theory of liquidity preference: thuyết ưa thích thanh khoản: giải thích cho cả 2
rate nhưng chủ yếu là real interest rate (r = i - inflation rate => short run thì
inflation stable, coi như 1 hằng số => 2 rate move the same direction)

Interest rate thay đổi theo: BALANCE SUPPLY AND MONEY DEMAND

2. Money supply:

MS: fixed, vertical, KHÔNG PHỤ THUỘC VÀO INTEREST RATE (phải
phân biệt với khi sử dụng chính sách tiền tệ, khi sự thay đổi của MS ảnh
hưởng tới r)
 3. Money demand:

Interest rate là opportunity cost của việc holding money

MD (r là trục tung): downward sloping (quan hệ nghịch chiều)

4. Cơ chế điều chỉnh về điểm cân bằng

MS > MD -> surplus -> sử dụng tiền dư mua assets -> người bán assets giảm
rate để có lợi -> r giảm.

5. Monetary policy: chính sách tăng hoặc giảm MS bởi ngân hàng trung ương.
- Expansionary:

MS tăng -> MS shifts right -> trên thị trường tiền tệ thấy rate giảm -> I tăng ->
AD tăng -> AD curve dịch phải.

CÁC PHẦN NÂNG CAO, PHÁT TRIỂN, BỔ SUNG MỖI CHƯƠNG.

Chapter 1:

- Macro studies include: growth in income, changes in the overall level of

prices, the unemployment rate, inflation rate.
- Models with flexible prices - long run, models with sticky prices - short run
- Macroeconomic events and performance arise from many microeconomic
transactions -> mac uses many tools of micro.

Chapter 2:

- Expenditures equal income because every dollar spent by a buyer becomes

income to the seller.
- Cổ phiếu/trái phiếu không tính vào GDP
- Changes in real GDP can be only due to changes in quantities (vì giá chỉ
tính theo base year, fixed)

- The inflation rate: the percentage increase in the overall level of prices
●
 ● CPI and GDP deflator
- Prices of capital goods (nhà xưởng, equipments, tools):

Included in GDP deflator (if produced domestically)

Excluded in CPI

- Prices of imported goods (hàng nhập khẩu)

Included in CPI

Excluded in GDP deflator

- Baskets of goods

CPI: fixed

GDP deflator: changes every year

Chapter 3:

- MPC: the increase in C caused by a one-unit increase in disposable

income.
- The real interest rate adjusts to equate the demand and supply of:

Goods and services

Loanable funds

Chapter 4:

1. Suppose the interest rate tăng, Y and P unchanged. What happen to the
MD

r : opportunity cost of holding money

r tăng -> MD giảm vì people có xu hướng mua financial assets để sinh lời.

2. P tăng, Y and r unchanged. MD?

Y is unchanged -> People will want to buy the same amount of goods and
services. Giá cả tăng -> need more money to buy that amount -> MD tăng.
3. Congress tries to balance the budget by cutting the gov spending

-> reduce AD and output.

-> Central bank: increase MS, reduce r -> Investment tăng -> AD tăng.

4. A stock market boom increases household wealth:

AD tăng -> raising output above its natural rate.

-> Central bank: giảm MS, tăng r -> AD giảm.

5. War breaks out, causing oil prices to soar.

AS giảm vì đầu vào (raw material) cao -> output giảm

Central bank: increase MS, reduce R -> AD tăng.

 CHAPTER 5: AGGREGATE DEMAND AND AGGREGATE SUPPLY

Lưu ý thi cuối kì:

- Trắc nghiệm mô hình AS - AD

- Tự luận: Áp dụng mô hình để phân tích.
- SỰ ĐIỀU CHỈNH VỀ ĐIỂM CÂN BẰNG CỦA TẤT CẢ MÔ HÌNH.

1. Introduction

- Year to year: Economic activity is unstable.

- Chia làm 2 pha: Expansion and Recession.
- Short-run economic fluctuations = Business Cycle.

=> Fluctuations are studied by the model of AD and AS.

Recession: falling real incomes and rising unemployment

2. The model of Aggregate Demand and Aggregate Supply.

P = The price level (đo lường bằng CPI hoặc Dgdp)

Y = The value of output = Income (đo lường bằng Real GDP)
2.1. Aggregate demand curve (AD)

- Phản ánh về cầu của phía BUYERS = households, firms, governments,

foreigners.

- AD curve shows the quantity of all goods and services demanded in the
economy at any given price level.

- Slope downward for 3 reasons: (giả định G is constant by gov policy)

The wealth effect -> P and C
The interest-rate effect -> P and I
The exchange-rate effect -> P and NX.
 - Movement along AD curve: changes in P
- Shift of AD curve: changes in C, I, G, NX.

- Eg: A stock market boom makes households feel wealthier -> C rises -> the
AD curve shifts right.

Changes in C - Stock market boom/crash

- Preferences: consumption/saving tradeoff
- Tax hikes/cuts

Changes in I - Firms buy new computers, equipments, factories

- Expectations: Optimism/Pessimism
- Interest rates, monetary policies
- Investment tax credit or other tax incentives

Changes in G - Federal spending (eg: defense)

- State & Local spending: roads, schools…

Changes in NX - Booms/recessions in countries that buy our exports

- Appreciation/ Depreciation resulting from international
speculation in foreign exchange market.
 - 2.2. Aggregate supply curve (AS): shows the total quantity of goods and
services firms produce and sell at any given price level.

- In short run: upward sloping

- In long run: vertical.

a. The Long-run aggregate supply curve (LRAS): vertical (cắt trục hoành tại YN)

- Yn (the natural rate of output): the amount of output that an economy achieves
in the long run.
- Yn = potential output = full employment output.

- It is the output that an economy can produce when all its factors of production
are being fully utilized (toàn dụng nguồn lực)

- 4 factors of production = Labor + Capital + Natural resources + Technology

- Increase in P does not affect LRAS

WHY THE LRAS CURVE MIGHT SHIFT

Changes in L / natural rate of - Immigration / Emigration

unemployment - Baby-boomers retire
- Gov policies reduce natural rate of unemployment

Changes in K or H - Investment in factories/equipment

- More people get college degree
- Factories destroyed by a hurricane

Changes in natural resources - Discovery of new mineral deposits

- Reduction in supply of imported oil
- Changes in weather patterns that affect agricultural
production

Changes in technology - Productivity improvement from technological progress

b. Short run Aggregate Supply (SRAS) curve

UPWARD SLOPING: an increase in P causes an increase in the quantity of goods
and services supplied.
Why does the aggregate supply curve slope upward in the SHORT RUN?

3 theories:
- The sticky-Wage theory (tiền lương cứng nhắc)
- The sticky-price theory
- The misperceptions theory.

b1. The sticky-wage theory

- Nominal wages are “sticky” in the short run (vì kí hợp đồng)
- Firms and workers thỏa thuận trước nominal wage dựa vào Pe (expected price
level) (Có Pe bằng cách quan sát inflation rate -> CPI)
TH1:
P>Pe, tăng revenue but labor cost is fixed -> more profit -> firms increase output and
employment -> Y>Yn

TH2:
P<Pe, giảm revenue but labor cost is fixed -> less profit -> giảm sản xuất -> Y giảm.

=> P và Y là mối quan hệ tỉ lệ thuận => upward sloping.

SRAS

Y = Y𝑁 + a(P - Pe) (a>0)

Lưu ý:
1. 4 factors that shift LRAS shift SRAS too
2. Pe shifts SRAS (Pe tăng thì SRAS shifts to the left)

Exercise: Explain whether each of the following events shifts SRAS curve, LRAS
curve or AD curve.

a. A recession overseas causes foreigners to buy fewer U.S goods.

NX giảm -> AD curve shifts to the left.

b. A technological improvement raises productivity

LRAS and SRAS shift to the right

c . Increased job opportunities overseas cause many people to leave the country
Labour giảm -> LRAS and SRAS shift to the left.

d. The Federal Reserve sells bonds in the open market.

Sell bonds -> thu tiền về ngân hàng -> MS giảm -> interest rate răng -> Investment
giảm -> AD curve shifts to the left.

2.3. Equilibrium in the AS-AD model

a. The short-run equilibrium

Cơ chế điều chỉnh về điểm cân bằng:

TH1: P>P cân bằng -> Aggregate supply > Aggregate demand
=> Surplus
=> Ế, firms need to lower the price and adjust to Pe

TH2: P<P cân bằng => Shortage (deficit)

To maximize profit -> firms increase price to price cân bằng.

b. Long run equilibrium

Từ PT trong short-run:

Y = Yn + a(P-Pe)
Long run: P = Pe => Y = Yn -> Cân bằng trong dài hạn là giao 3 đường.
3. (Quan trọng) How the AS - AD model is used to analyze the economic fluctuations

Economic fluctuations: shifts in AD or SRAS (Assume: nền kinh tế đạt cân bằng
trong dài hạn)

4 steps to analyse:
1. Determine whether the events shifts AD or SRAS (left or right)
2. Use AS-AD diagram to see how the shift changes Y and P in the short run.
3. Use AS-AD diagram to see how policymakers take actions to stabilize the
economy
4. Use AD-AS diagram to see how economy moves from new short run
equilibrium to new long run equilibrium if the policymakers do nothing.

3.1. Demand shock

Analyze a stock market crash:

Step 1:
Affect wealth (decrease, people feel poorer). Consumption decreases, so the
AD curve shifts to the left.

Step 2:
Short run equilibrium at point B
P and Y are lower, unemployment rate is higher.

Step 3: Policymakers respond to a negative demand shock.

-> Implement fiscal policy / monetary policy (expansionary) -> adjust AD to
increase
Tối ưu nhất: AD2 -> AD1 (ban đầu)

Step 4: Overtime (in the long run), output decreases (compared to Yn) ->
Unemp rate increases
Unemployment causes wages to decrease -> cost of production giảm -> sx
nhiều hơn
SRAS shifts to the right until LR equilibrium at point C
Y and unemployment back at initial levels -> Price decreases.

3.2. The effects of a shift in AS (Supply shock) -> Focus on Negative supply
shock.

Event: Oil price rises.

Step 1:
Increase oil price -> increases cost of production (input) -> shifts SRAS to the
left
(Assume LRAS constant)

Step 2: Short run equilibrium at point B

Price is higher, Y is lower
Unemployment is higher (stagflation = inflation + recession)

Step 3: Policymakers respond to a negative supply shock

Policymakers have 2 choices (lựa chọn based on cái nào serious hơn và cần
deal with)
(1) Decrease AD -> shift AD to the left -> keep P unchanged but Y declines
further -> tackle inflation (but deeper recession)
(2) Increase AD (accommodating the AS shift) -> shift AD to the right ->
keep Y unchanged but Y rises further -> tackle recession (but higher
inflation)

Step 4: Higher unemployment causes wages to decrease, SRAS shifts to the

right, until Long run equilibrium at A
 CHAPTER 6: UNEMPLOYMENT - INFLATION

I. Unemployment
II. Inflation
III. The short-run tradeoff between inflation and unemployment.

I. Unemployment
1. Definitions and method of computation
- Adult population: the proportion of population that is within working-age
(includes labor force and non-labor force)
- Labor force: number of employed + number of unemployed.
- Employed: paid / work in their own business (boss)/ work unpaid but in family
business
- Unemployed: able + available + actively seeking work + not employed

Lưu ý: Học sinh sinh viên không phải đối tượng thất nghiệp vì không thuộc vào nhánh
Labor force.

1.2. Method of computation

- Unemployment rate:

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑
Unemployment rate = 𝐿𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒
* 100%

- Labor-force participation rate:

𝐿𝐴𝐵𝑂𝑅 𝐹𝑂𝑅𝐶𝐸
Labor-force participation rate = 𝐴𝐷𝑈𝐿𝑇 𝑃𝑂𝑃𝑈𝐿𝐴𝑇𝐼𝑂𝑁
*100%
 2. Unemployment classification

Ex: Type of unemployment?

1. Fred was laid off from the Quarry because the nation is suffering from a
recession -> Cyclical unemp
2. Ronald, who just graduated from Clown School, is looking to find his first real
job -> Frictional unemp
3. Mickey Mouse voluntarily quit his job at Disney and has decided that he will
seek a job as a truck driver -> Frictional unemp (switching among jobs)
4. Peter Pan was fired from his job at the Peanut Butter factory because he is
being replaced by RoboCop (a highly efficient peanut butter machine) ->
Structural unemp
 3. Policies to reduce unemployment

3.1. Demand - side policies = Fiscal policies + Monetary policies

Về phía cầu, khi trong recession, Aggregate demand giảm -> Y giảm -> lay off more
workers -> unemployment rate tăng

- Expansionary fiscal policy -> increase AD -> unemployment decreases.

- Monetary policy -> MS increases -> r decreases -> kích thích vay tiền
để đầu tư -> I tăng -> AD tăng -> u giảm

3.2. Supply-side policies = aims to overcome imperfections in the labor market (khắc
phục khuyết tật thị trường lao động) and reduce unemployment.

Government-run Give out information Nhằm giải quyết

employment agencies about job vacancies to Frictional unemployment
match workers and job
more quickly

Public training programs Ease the transition of Nhằm giải quyết

workers from declining to Structural unemployment
growing industries
(mismatch)

Reduce the power of labor Nhằm giải quyết Classical

unions unemployment

II. Inflation:

1. Definition
- Is a sustained increase in the general price level of goods and services in an
economy over a period of time.
- Hoặc: is a sustained decrease in the purchasing power of money

2. Causes of inflation.

2.1. Demand - pull inflation: occurs when overall prices rise due to increases in
aggregate demand in the economy.

AD increases (or AD curve shifts to the right) due to increases in C/I/G/NX.

2.2. Cost-push inflation: occurs when overall prices rise due to increases in
production costs (SRAS SHIFTS TO THE LEFT), such as raw materials and
wages.

2.3. Inflation and Money supply growth (Quantity theory of money): a simple
theory linking the inflation rate to the growth rate of the money supply.

- Definition of velocity (tốc độ chu chuyển tiền): the number of times the
average dollar changes hands in a given time period.

Eg: 500b in transactions ; money supply = 100b

-> Velocity: V = 500/100 = 5

𝐺𝐷𝑃𝑛 𝑃*𝐺𝐷𝑃𝑟𝑒𝑎𝑙 𝑃*𝑌

(Velocity) V = 𝑀
= 𝑀
= 𝑀

P = price level (đo bằng GDP deflator)

Y = real GDP = output

M = quantity of money

%P = %M - %Y (mà Y thay đổi phụ thuộc vào factors of production chứ không phụ
thuộc vào các yếu tố khác -> thể hiện mối quan hệ giữa M và P)

=> Increase in Money supply (M) leads to INFLATION.

THE QUANTITY THEORY OF MONEY IMPLIES:

Countries with higher money growth rates should have higher inflation rates => So,
the central bank, which controls the money supply, HAVE ULTIMATE
CONTROL over the rate of inflation.
4. Policies to deal with inflation

- Demand - side policies:

+ Contractionary monetary policies: Higher interest rates -> Increase the
cost of borrowing -> giảm I -> lower economic growth -> lower
inflation.
+ Contractionary fiscal policy -> Higher income tax and/or lower gov
spending -> AD giảm -> lower growth -> less demand-pull inflation.
- Supply - side policies: concerned with shifting the aggregate supply curve to
the right to reduce cost-push inflation.
+ By reducing the power of trade unions (giảm salary -> giảm cost of
production)
+ By encouraging increases in productivity through the retraining of labor,
or by tax incentives…

SRAS tăng -> Price level giảm.

III.The short-run tradeoff between Inflation and Unemployment (THI)

1. Short-run Phillips Curve (SRPC): shows the short-run trade-off between

inflation and unemployment. (negative association)
2. The SRPC and AS-AD model
- Phillips curve:

Combinations of inflation and unemployment that arises in the short run

Movement in SRPC ⇔ Shifts in the AD curve

THI - The link between AS-AD model and Phillips curve

- From A to B: Aggregate demand increases (AD curve shifts to the right)

-> P increases -> Inflation rate increases

Y increases -> unemployment rate decreases

⇔ UPWARD MOVEMENT along Phillips curve

 CHAPTER 7: ECONOMIC GROWTH

1. Definition and computing methods

2. Economic growth and Productivity
3. Theory of economic growth
4. Economic growth and Public policy

1. Definition and computing methods

Economic growth is the increase in the market value of the goods and services
produced by an economy overtime. (phản ánh bởi Real GDP)
Được tính bằng Real GDP hoặc Real GDP per capita (=Real GDP / population)

*Economic Growth results in quantitative changes, but Economic Development brings

both quantitative and qualitative changes. (qualitative changes ⇔ improve the quality
of life such as health, environment, education)

COMPUTING METHODS:

Annual growth rate gt=

𝑌𝑡 − 𝑌𝑡−1
* 100% (Y là Real
𝑌𝑡−1
GDP hoặc Real GDP per capita)
Average growth rate 𝑛 𝑌𝑛
ga= ( 𝑌𝑜
− 1) * 100%

Chứng minh công thức ga:

Y1 = Yo + Yo*ga= Yo*(1+ga)^1
Y2 = Yo*(1+ga)^2
…
Yn = Yo * (1+ga)^n

2. Productivity: is the quantity of goods and services produced from each unit of
labor input.
𝑌
Productivity = 𝐿
-> Productivity tăng -> Y tăng / income tăng -> growth tăng / living
standard tăng.
 3. Theory of economic growth.
*Neoclassical theory - Solow model.
- Assumption:
+ Closed economy (No import/export)
+ The economy produces one type of goods by using 2 inputs capital (K)
and Labor (L) , total output is denoted by Y.
+ The production function Y = F (K,L) exhibits constant returns to scale
and diminishing marginal returns of capital. (Hàm sản xuất có hiệu
suất không đổi theo quy mô và có năng suất cận biên giảm dần)

Constant returns to scale:

m*Y = F(m*L,m*K)
Setting m=1/L
Y/L = F(1,K/L)
y= f(k)
Where: y = Y/L = output per worker
k=K/L = physical capital per worker

Diminishing marginal returns of capital: While holding the other inputs fixed, as
the stocks of capital rises, the extra output produced from an additional unit of capital
falls.
At first: Increase K -> Increase Y
Long run: Increase K -> Y increases with a small rate/ at a slower pace.

TWO KEY QUESTIONS:

1. Why does the output growth at a slower pace in the long run?
Y = f(k), output depends on capital but based on assumption, the capital returns are
diminishing.

2. How does the economy continue growing in the long run?

Technological advance.

Technological advance shifts up the production function

As a result of improvement in technology, the production function shifts upward
overtime. Hence, improvements in technology combine with capital accumulation
to raise output in the long run.
Lưu ý: Chỉ vẽ hàm sản xuất thoải chứ không vẽ cụp xuống

Implications of Solow model:

1. In the short run, capital is the key determinant of economic growth.
2. In the long run: technology is the key determinant of economic growth.

4. Economic growth and Public policy

- Saving and investment -> promote economic growth.
Save more of current income to invest more current resources in the production
of capital. (Investment hiểu là không phải mua financial assets mà là đầu tư cơ
sở vật chất/trang thiết bị)

Trade-off: Devote fewer resources to produce goods and services for current
consumption.

LONG RUN: higher savings rate will not lead to higher growth rate.

Tăng saving -> tăng investment (tăng physical capital) -> tăng K -> tăng
economic growth / productivity
CHAPTER 8: SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM.
(Thị trường số 3: Market for loanable funds. Sau thị trường: goods and services
và monetary)

1. Financial system
2. Saving & investment in National Income accounts
3. The market for Loanable funds
4. Effects of Government policies on the market for Loanable funds.

*****************************

1. Financial system: group of institutions in the economy that help match one
person’s saving with another person’s investment (gửi vào ngân hàng rồi
ngân hàng tự cho vay)

Financial markets: Financial institutions that savers can directly provide funds to
borrowers.
Financial intermediaries: Savers can indirectly provide funds to borrowers

2. Saving and Investment in National Income Accounts.

GDP -> Total income/Total expenditure

Y = C + I + G + NX
Y= Gross Domestic Product GDP

Assumption: Closed economy: NX = 0

Y=C+I+G

S = NATIONAL SAVING

Saving = Private saving + Public saving (gov budget)

= (Y - T - C) + (T - G )

Có 3 trường hợp về Gov butget T-G

- If T>G (surplus): gov runs a budget surplus because it receives more
money than it spends
- If G> T (deficit/shortage): it spends more money than it receives in tax
revenue.
 - If G=T -> balance

Lưu ý:
For the economy AS A WHOLE, saving and investment are equal
Điều đó không phải luôn đúng cho every individual household or firm

3. The market for Loanable Funds (CHẮC CHẮN THI PHẦN SHORT ANS)

Assumption:
- One financial market: the market for loanable funds.
All savers go to this market to deposit their saving
All borrowers go to this market to take out their loans

- One type of interest rate (reflect return of saving and cost of borrowing)

● Supply and demand of loanable funds

SUPPLY = SAVING
DEMAND = INVESTMENT

Real interest rate adjust supply and demand of loanable funds.

Interest rate tăng -> return of saving tăng -> saving tăng (gửi tiết kiệm/ngân
hàng nhiều hơn) => quantity supplied tăng

Nhưng cost of borrowing tăng nên giảm quantity demanded (giảm vay tiền để
đầu tư)
=> Demand curve: slope downward
=> Supply curve: slope upward
 4. Effects of government policies on the Market for Loanable funds

Cơ chế điều chỉnh điểm cân bằng?

…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………

● Policy 1: Saving incentives = encourage more saving

-> Increase in supply -> Supply curve shifts right -> New eql
=> Lower interest rate ; Higher quantity of loanable funds

● Policy 2: Investment incentives = encourage investment

Demand curve shifts right
=> New equil => Higher interest rate; Higher quantity of loanable funds

● Policy 3: Government budget deficits and surpluses

TH1: ban đầu balance, sau đó dần deficit
-> Saving giảm -> supply giảm
=> Higher interest rate ; smaller quantity of loanable funds

TH2: Ban đầu T=G balance, sau đó surplus

-> Saving tăng -> supply tăng
=> Lower interest rate ; higher quantity of loanable funds