+ HT1: 40 - 50 MCQs

+ HT2: 30 MCQs + 2 Essays

Prepared by Trần Đức Thành – TA Macroeconomics

CHAPTER 10. MEASURING A NATION’S INCOME GDP

Microeconomics: the study of how households and firms make decisions and how they
interact in markets.
Macroeconomics: the study of economy-wide phenomena, including inflation,
unemployment, and economic growth.
Ø GROSS DOMESTIC PRODUCT (GDP): Xe: $20,000: Income: Seller
-$20,000: Expenditure: Buyer
+ Measures total income.
+ Measures total expenditures.
For economy as a whole, INCOME MUST EQUAL EXPENDITURE.
Xe: $20,000: Income: Seller
● $1 spent by a buyer is $1 income of a seller. -$20,000: Expenditure: Buyer
Nhà: $50,000: Income: Seller
Ex: You will be hired to mow a lawn for $100. -$50,000: Expenditure: Buyer
=> GDP=$70,000=$70,000
=> Expenditure on the lawn service (Người thuê bạn) = Income earned from the
production of the lawn service (Bạn) ($100).
● Ngoài ra để chứng minh INCOME = EXPENDITURE ta có thể sử dụng Circular-
Flow Diagram Tham khảo
GDP = Total Income= Total expenditure

● The Diagram omits:

o The government: collects taxes, buys goods & services.
o The financial system: matched savers’ supply of funds with
borrowers’ demand for loans.
Prepared by Trần Đức Thành – TA Macroeconomics

o The foreign sector: trades goods and services, financial assets, and
currencies with the country’s residents.
THE MEASUREMENT OF GDP GDP = Total income = Total Expenditure=Định nghĩa

Gross domestic product (GDP) is the market value of all final goods and services
produced within a country in a given period of time. Papple = $5
Porange = $10
● GDP is the market value: transactions => Produce 10 apple, 5 orange
=> GDP= 5x10+ 10x5=$100
○ To add together different items.
[Ex: Có thể tính Táo và Cam cùng lúc vào GDP,
Papple=2Porange=>GDPapple=2GDPorange]
○ By using market prices.
[Quy về giá chung như dollars in US, VND in VN,...]
○ Note: Things having no market value will exclude GDP
[Ex: Tự dọn nhà mình => Không có tốn tiền thuê, không nhận
được lương=> Expenditure, Income không thay đổi=>không được
tính trong GDP].
● Of All:
○ GDP includes all items produced and sold legally in the economy.
○ Example: apples and oranges, books and movies, haircuts and
healthcare, housing services (rent housing)
[rent housing nếu chủ tự thuê => vẫn add vào GDP vì imputed
rent (giá trị thuê căn nhà) is included both homeowner’s
expenditure and income],…
○ GDP excludes items produced and sold illicitly
[Ex: illegal drugs, vegetables grown in the garden not to sell,
marriage]. Ppaper=$1 (intermediate)
paper=> viết=> final goods Pcard=$3 (final)
● Final: => GDP = $3

o The paper (intermediate good) ---<process>--- the card (final good).

o GDP includes only the value of final goods.
o Exception: when an intermediate good produced is added to a
firm’s inventory of goods for use or sale at a later date.
● Goods and services:
o GDP includes tangible goods and intangible services.
Include GDP: o Ex:
+ Market value
+ Legal ▪ Tangible goods: food, clothing, cars.
+ Final
+ New goods ▪ Intangible services: haircuts, housecleaning, doctor visits.
+ Inventory
Exclude GDP: ● Produced:
+ No market value
+ Illegal: drugs o GDP includes goods and services currently produced.
+ Marriage 2020: I bought a laptop, P= $2,000=> GDP(2020) =$2,000
+ Intermediate 2021: I sold a 2020 laptop (P=$1,000), bought a new laptop (P=$2,500)
+ Old goods => GDP (2021)= $2,500
Prepared by Trần Đức Thành – TA Macroeconomics

o Ex: used cars -> not added to GDP.

● Within a country:
o GDP includes items produced domestically, regardless of the
Include GDP: nationality of the producer.
+ Market value o Ex:
+ Legal
+ Final ▪ A Japanese citizen work temporarily in the VN -> added to
+ New goods VN GDP.
+ Inventory
+ Domestic ▪ An Japanese citizen owns a factory in VN -> not added to
Exclude GDP:
+ No market value Japan GDP. > Add GDP VN
+ Illegal: drugs ● In a given period of time:
+ Marriage
+ Intermediate o The usual interval of time used to measure GDP is a quarter (three
+ Old goods months).
+ Produce abroad o When the government reports GDP, the data are generally reported
+ Mortgage payment
on an annual basis.
+ Stocks and bonds
+ Transfer payment o Data are generally adjusted for regular seasonal changes [Ex:
+ Imported goods Christmas).
THE COMPONENTS OF GDP GDP= Total Income = Total expenditure
= Định nghĩa (Include/Exclude)
GDP business trade = C+I+G+NX
● Y=C+I+G+NX. => GDP Deflator, Nominal GDP, Real GDP
individuals government
● Consumption: (liên quan đến individuals)
o Spending by households on goods and services, with the exception
KHÔNG ĐƯỢC ADD VÀO C: of purchases of new housing.
+ House purchase
+ Mortgage payment (thế chấp nhà)
[Housing Cost: Người thuê => C là tiền thuê nhà. Chủ nhà => C
là giá trị cho thuê căn nhà, không phải là tiền mua nhà hoặc các
Renting house for living?=> Consumption khoản thanh toán thế chấp nhà (mortgage payment)] Inventory = $40
=> Investment=$40
o Ex: => GDP=$40 (Ban đầu)
▪ Durable goods (automobiles and appliances). => Consumption=$40
=> Investment=-$40
▪ Nondurable goods (food and clothing). => GDP=$40+$40-$40=$40

A buys a laptop ($2,000),

▪ Intangible items (haircuts and medical care).
spends $5,000 on renting land for a restaurant
=> GDP=Y= $7,000 ▪ Household spending on education.
Y=C+I+G+NX
= 2,000 (C)+5,000 (I)+…
● Investment: (liên quan đến business)
o Spending on capital equipment, inventories, and structures
KHÔNG ĐƯỢC ADD VÀO I: (including household purchases of new housing). [Không phải là
+ Stocks and bonds mua bonds hoặc stocks]
o Ex:
▪ Structures: expenditure on new housing.
Prepared by Trần Đức Thành – TA Macroeconomics

▪ Inventories: Apple produces a computer -> add to inventory

to use.
VN Government hires a new policy advisor in England
to work at VN with income $2000 ▪ Capital equipment
=> G= $2,000
=> M = $2,000 ▪ Inventory accumulations (Hàng tồn)
=> C,I,G,NX?
=> Y=C+I+G+(X-M)
=> Y UNCHANGE ● Government purchases: (liên quan đến chính phủ)
o Spending on goods and services by local, state and federal
KHÔNG ĐƯỢC ADD VÀO G: governments.
+ Transfer payment o Excluded transfer payment [Bảo hiểm xã hội, bảo hiểm thất nghiệp].
VN- US o Ex:
An American buys a shirt made in VN $100
=> Y = C+I+G+(X-M) ▪ The salaries of government workers or a schoolteacher.
X=$100=> Y increase $100

▪ Expenditures on public works.

Vingroup in VN buys 10 workstations from the US at total $1m
M=$1m=> Y decrease by $1m ● Net exports: (liên quan đến xuất nhập khẩu) NX
I=$1m=> Y increase by $1m NX =Export (X) - Import (M)= X -M
=> Y UNCHANGE o Export - Import.
o Buy a good or service from abroad->reduce net export & increase C,
I or G ->not affect GDP.
REAL VERSUS NOMINAL GDP
o Nominal GDP: the production of goods and services valued at
current prices.
o Real GDP: the production of goods and services valued at
constant prices.
IS GDP A GOOD MEASURE OF ECONOMIC WELL-BEING?
o GDP does not value:
▪ The quality of the environment.

▪ Leisure time.

▪ Non-market activity, such as the childcare a parent provides

his or her child at home.
▪ An equitable distribution of income.
- Cách tính Nominal GDP: Tính bình thường nhân P với Q.
Nominal GDP in base year = P1 x Q1 + P2 x Q2+...+Pn x Qn. Nominal GDP in
year t = P1’ x Q1’+P2’ x Q2’+...+Pn’ x Qn’

- Cách tính real GDP: Fixed P.

Real GDP in base year = P1 x Q1 + P2 x Q2 + …+ Pn x Qn.
Real GDP in year t = P1 x Q1’ + P2 x Q2’ + …+ Pn x Qn’
- Cách tính GDP Deflator:
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
𝐺𝐷𝑃 𝐷𝑒𝑓𝑙𝑎𝑡𝑜𝑟 = × 100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
Prepared by Trần Đức Thành – TA Macroeconomics
- Cách tính Inflation rate:
𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒 𝑦𝑒𝑎𝑟 2
𝐺𝐷𝑃 𝑑𝑒𝑓𝑙𝑎𝑡𝑜𝑟 𝑦𝑒𝑎𝑟 2 − 𝐺𝐷𝑃 𝑑𝑒𝑓𝑙𝑎𝑡𝑜𝑟 𝑦𝑒𝑎𝑟 1
= × 100
𝐺𝐷𝑃 𝑑𝑒𝑓𝑙𝑎𝑡𝑜𝑟 𝑦𝑒𝑎𝑟 1
Example: Growth rate (sau)= (sau-trước)/ trước x 100
The table is given below:
a. Calculate GDP Deflator of each year.
b. Calculate Percentage change in nominal GDP, real GDP, and inflation in 2014 and
Tính theo CPI:
2015. TCOB(2013)= 1x100+2x50=200=TCOB(base)
TCOB(2014)=1x100+2x50=200
TCOB (2015)=2x100+4x50=400

base year CPI(2013)=TCOB(2013)/TCOB(base) x100=100

CPI(2014)=TCOB(2014)/TCOB(base)x100=200/200 x100=100
CPI(2015)=TCOB (2015)/TCOB(base) x 100 = 400/200 x 100=200

Inflation rate (2014)= (100-100)/100 x 100=0%

Inflation rate (2015)= (200-100)/100 x 100= 100%

Nominal GDP=> current P

Real GDP=> constant P

GDP Deflator=> estimate inflation

DIFFERENCE BETWEEN GNP AND GDP:

Gross national product (GNP) is the total income earned by a nation’s permanent residents.
GNP includes our citizens working from abroad and excludes foreigners working here.
GDP includes foreigners working here and excludes our citizens working from abroad.
Example: 1 người Việt Nam làm ở Mỹ=> Add vô GDP Mỹ và GNP VN.
Prepared by Trần Đức Thành – TA Macroeconomics
QUICK QUIZ
1. If the price of a hot dog is $2 and the price of a ham- burger is $4, then 30 hot dogs
contribute as much to GDP as _____ hamburgers.
$2/hd=>GDP=2x30=60
a. 5 $4/hm=>60=4xhm
b. 15 =>hm=60/4=15

c. 30
d. 60
2. Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two
sweaters, each of which has a market price of $40. Collette buys one of them, while the
other remains on the shelf of Barna- by’s store to be sold later. What is GDP here?
a. $40 Pwool=$20 (intermediate)
Psweaters=$40=> Q=1 sold to C=> Q=1 sold later (inventory)
b. $60
c. $80
d. $100
3. Which of the following does NOT add to U.S. GDP? C,I,G,NX
a. Air France buys a plane from Boeing, the U.S. air-craft manufacturer.=> X(US) increase=> Y increase
US
b. General Motors builds a new auto factory in North Carolina. I
c. The city of New York pays a salary to a policeman. G
Transfer payment
d. The federal government sends a Social Security check to your grandmother.
4. An American buys a pair of shoes made in Italy. How do the U.S. national income
accounts treat the transaction? Imported goods=> GDP unchange
a. Net exports and GDP both rise. M increase=> Y decrease
C increase=> Y increase
b. Net exports and GDP both fall. => Y unchange
c. Net exports fall, while GDP is unchanged.
d. Net exports are unchanged, while GDP rises.
5. Which is the largest component of GDP?
a. consumption
b. investment
c. government purchases d. net exports
6. If all quantities produced rise by 10 percent and all prices fall by 10 percent, which of
the following occurs?
a. Real GDP rises by 10 percent, while nominal GDP falls by 10 percent.
b. Real GDP rises by 10 percent, while nominal GDP is unchanged.
c. Real GDP is unchanged, while nominal GDP rises by 10 percent.
d. Real GDP is unchanged, while nominal GDP falls by 10 percent.
Prepared by Trần Đức Thành – TA Macroeconomics

CHAPTER 11. MEASURING THE COST OF LIVING

• Consumer Price Index (CPI): a measure of the overall cost of the goods and services
bought by a typical consumer.
● Producer price index: a measure of the cost of a basket of goods and services bought
by firms.
HOW THE CPI IS CALCULATED

● Fix the basket Fix Q

● Find the price

● Compute the basket’s cost

● Choose a base year and compute the index

● Compute the inflation rate

CPI (X) = TCOB(X)/TCOB (base) x 100

Inflation rate sau=> GDP Deflator, CPI=> (sau-trước)/trước x 100

PROBLEMS

● Substitution bias: Overtime, some prices rise faster than others and consumers
substitute toward goods that have become relatively less expensive => CPI ignores the
possibility of consumer substitution=> overstate the increase in the cost of living from
one year to the next.
o Ex: Apples and pears [Assumed CPI fixed the basket: Qapples> Qpears. Ban
đầu Papple rẻ hơn Ppears=> mua nhiều apple hơn. Tuy nhiên, năm sau Papple
đắt hơn Ppears=> mua nhiều pears hơn nhưng CPI vẫn tính là Qapples>
Qpears => CPI overstate the increase in the cost of living]
2020: Qapple=10, Qpears=5 (Papple<Ppears) (Basket)
2021: (Papple>Ppears)=> Qapple<Qpears

=> CPI tính sai=> overstate the cost of living

Prepared by Trần Đức Thành – TA Macroeconomics
Basket: 10 apples, 5 pears
Introduce iPod
=> CPI => overstate the increase in the cost of living
● Introduction of new goods: Consumers have more variety from new introduced
goods to choose=>reduce the cost of maintaining the same level of economic well-
being=>each dollar is worth more. CPI does not reflect the increase in the value of the
dollar that arises from the introduction of new goods.
o Example: The iPod. [Ipod mới ra=> consumers chọn mua ipod vì tiện dụng, dễ
mang đi=>tiền ngoài dùng để chi cho g&s nay lại chi thêm sản phẩm mới thực
sẽ làm giảm cost of living tuy nhiên ipod chưa trong basket of g&s=> CPI
stays the same]
Basket: 10 apples, 5 pears, iPhone 13
=>iPhone 14: upgrade of iP 13
● Unmeasured the quality change: => CPI tính sai do ko tính được độ thay đổi chất lượng

o The quality of a good can deteriorate from one year to the next while its price
remains the same=>the value of a dollar falls.
o The quality rises=> the value of a dollar rises.
GDP DEFLATOR VS. CPI estimate inflation

GDP DEFLATOR CPI

Imported consumer goods excluded included

Capital goods included excluded

business investment

Baskets currently produced goods & fixed

services

Different Prices Different amounts Different amounts

Real GDP=> Constant/Fixed P

CORRECTING ECONOMIC VARIABLES FOR THE EFFECTS OF INFLATION

DOLLAR FIGURES FROM DIFFERENT TIMES

T (past)/CPI(past)=T(today)/CPI(today)

T(Today)=T(Past) x CPI (Today)/CPI(Past)

Example: How much is Mr.Koi’s salary in 2021 VND if his salary in 1999 is 800,000 VND?
Known that CPI in 2021 is 195 and CPI in 1999 is 15.2
Answer:
Salary in 2021 VND= Salary in 1999 VND × (price level in 2021/price level 1999)
Salary in 2021 VND = 800,000 × (195/15.2).
Salary in 2021 VND = VND10,263,157.
Prepared by Trần Đức Thành – TA Macroeconomics

INDEXATION
● Indexation: the automatic correction by law or contract of a dollar amount for the
effects of inflation.
● Example: many long – term contracts between firms and unions include partial or
complete indexation of the wage to the CPI=> a cost-of-living allowance=> raises the
2021: 10tr=> r = 10% (nominal)=> 2022: 11tr
wage when the CPI rises. 2021: 10tr=> 100 tô bún bò=> 2022: r=5%(real)=>105 tô bún bò
inflation =5%=> nominal interest rate = real interest rate + inflation rate
REAL AND NOMINAL INTEREST RATE

● Nominal interest rate: the interest rate as usually reported without a correction for
the effects of inflation.
● Real interest rate: the interest rate corrected for the effects of inflation.

● Real interest rate = nominal interest rate – Inflation rate.

● Example: Deposit 10,000,000 VND for one year. Nominal interest rate is 9%. The
inflation during that year is 3.5%. What is changing in the purchasing power of
10,000,000 VND deposit?
Real interest rate = Nominal interest rate - Inflation = 0.09-0.035=0.055 The
purchasing power of the 10,000,000 VND has grown 5.5%
QUICK QUIZ
1. The CPI measures approximately the same economic phenomenon as
a. nominal GDP.
b. real GDP.
c. the GDP deflator.
d. the unemployment rate.
2. The largest component in the basket of goods and services used to compute the CPI is
a. food and beverages.
b. housing.
c. medical care.
d. apparel. government spending

3. If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army,
increase
its price hikes will increase Y=C+I+G+NX
CPI: the cost of living of the basket by a typical consumer
a. both the CPI and the GDP deflator.
GDP Deflator = Nominal GDP/Real GDP x 100
b. neither the CPI nor the GDP deflator. CPI X= TCOB (X)/TCOB (Base) x 100 PxQ

c. the CPI but not the GDP deflator.

d. the GDP deflator but not the CPI.
4. Because consumers can sometimes substitute cheaper goods for those that have risen
in price,
Prepared by Trần Đức Thành – TA Macroeconomics
a. the CPI overstates inflation.
b. the CPI understates inflation.
c. the GDP deflator overstates inflation.
d. the GDP deflator understates inflation.
5. If the CPI is 200 in year 1980 and 300 today, then $600 in 1980 has the same
purchasing power as ________ today.
a. $400
b. $500
c. $700
d. $900
6. You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile,
trước sau
the CPI rises from 200 to 204. In this case, the nominal interest rate is _____ percent,
lãi suất ngân hàng
and the real interest rate is _____ percent.
purchasing power inflation rate = (sau - trước)/trước x 100=(204-200)/200 x 100
a. 1, 5 nominal interest rate = real interest rate + inflation rate
= 2%
=> real = 3%
b. 3, 5
Inflation rate: nominal interest rate = (sau - trước)/trước x 100=(2100-2000)/2000 x 100
c. 5, 1 + CPI =5%
+ GDP Deflator
d. 5, 3
7. In 2010, Thanh decided to buy a new Recording System (Mic, Soundcard, License for
Music editing software, …) at the Tech HiFi store. However, he is told by the salesman
that Tech HiFi has invented a new model of “Homing Recording- HR - 10” which
produces concert hall sound in your living room. After a while, Thanh buys a set of “HR
-10”. This purchase illustrates which of the problems in the construction of the CPI?
a. substitution bias
b. introduction of new goods
c. unmeasured quality change Substitution bias: Q1, Q2=> P change
Introduction of new goods: Q1=>Q2 new
d. Both a and b are correct Unmeasured quality change: Q1=> upgrade/deteriorate of Q1: Q2

e. Both b and c are correct

GDP: national income
CPI: the cost of living Prepared by Trần Đức Thành – TA Macroeconomics
GDP per capita/Productivity/ GDP per person: economic growth
Inflation: GDP Deflator/ CPI
CHAPTER 12. PRODUCTION AND GROWTH
ECONOMIC GROWTH AROUND THE WORLD
Since growth rates vary, the country rankings can change over time:

● Poor countries are not necessarily doomed to poverty forever

[Ex: Singapore, incomes were low in 1960 and are quite high now].
● Rich countries can’t take their status for granted: they may be overtaken by poorer but
faster-growing countries.
Ø PRODUCTIVITY: ITS ROLE AND DETERMINANTS.

● Productivity is the key determinant of living standards and that growth in

productivity is the key determinant of growth in living standards.
● Y = real GDP= quantity of output produced.

● L = quantity of labor

● Productivity= Y/L (output per worker)

DETERMINANTS
● Physical Capital per worker: Physical capital is the stock of equipment and
structures that are used to produce goods and services.
o K/L=capital per worker

Y/L=AF(1,K/L,H/L,N/L)=>Productivity=> living standards=>economic growth

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o K/L increases => Y/L increases

[Ex: Ông A sẽ có nhiều cá nếu có nhiều cần câu cá]
● Human Capital per worker: the knowledge and skills that workers acquire through
education, training and experience.
o H/L= the average worker’s human capital. o H/L increases=>Y/L increases.
[Ex: Ông A sẽ có nhiều cá nếu ông có nhiều kỹ năng câu cá]
● Natural resources per worker: the inputs into production of goods and services that
are provided by nature, such as land, rivers, and mineral deposits. o N/L = natural
resources per worker.
o N/L increases => Y/L increases.
[Ex: Ông A sẽ có nhiều may mắn hơn trong việc câu cá khi có sông, hồ nhiều để câu]
● Technological knowledge:
o It means any advance in knowledge that boost productivity (allows society to
get more output from its resources).
o Ex: Henry Ford and the assembly line.
o A: the level of technology.
[Ex: Ông A sẽ câu được nhiều cá hơn nếu ông tạo ra được mồi câu mà cá thích ăn
hơn]
● Tech Vs Human capital
o Technological knowledge refers to society’s understanding of how to produce
goods and services.
o Human capital results from the effort people expend to acquire this knowledge.
o Both are important for productivity.
L: Labors (nhân công) N: Natural resources (tài nguyên)
● The production function: A: Technological advancement
K: physical capital (trang thiết bị)
Y=A (1/2 L+3K+…) o Y= A F(L, K, H, N) H: Human capital (trình độ lao động)

o The production function has the property constant returns to scale: Changing
all inputs by the same percentage causes output to change by that percentage
causing output to change by that percentage. capital equipment 10%=> Y increase 10%
o Y/L=AF(1,K/L,H/L,N/L) Productivity
Ø ECONOMIC GROWTH AND PUBLIC POLICY

The ways public policy can affect long-run growth in productivity and living
standards:
Public policy=>Y/L=AF(1,K/L,H/L,N/L)=>Productivity=> living standards=>economic growth

SAVING AND INVESTMENT

● Boost productivity by increasing K (investment).

● Trade-off: since resources scare, producing more capital requires producing fewer

Public policy:
+ Savings and investment=> Increase K/L => Increase Y/L

Budget=consumption + savings

10tr 5tr 5tr

2tr 8tr
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consumption goods.
● Reducing consumption=increasing saving.

DIMINISHING RETURNS AND CATCH-UP EFFECT

● Diminishing returns: the property whereby the benefit from an extra unit of an input
declines as the quantity of the input increases. (K sẽ tăng đến một số lượng nào đó thì
productivity sẽ không tăng nhiều như lúc đầu).

$10,000 $10,000

● Catch-up effect: the property whereby countries that start off poor tend to grow more
rapidly than countries that start off rich.
Y/L=> economic growth

$10,000
$10,000

INVESTMENT FROM ABROAD Public policy:

+ Savings and investment=> Increase K/L => Increase Y/L
● To raise K/L and hence productivity, wages, and living standards, the government can
also encourage
o Foreign direct investment: a capital investment (ex: factory) that is owned and
operated by a foreign entity. (Foreign investor mở công ty ở nước mình và
During the Covid pandemic, Vietnamese purchased stock in American companies that
used the funds to build a new factory and infrastructure related. The Vietnamese made
a. Foreign direct investments. Prepared by Trần Đức Thành – TA Macroeconomics
b. Foreign indirect investments. Vingroup open a Vinfast factory in the US=> FDI Vietnam
c. Foreign portfolio investments. Samsung open the factory in VN=> FDI Korea
d. Indirect domestic investments. Vietnamese people buy the Apple Inc stocks=>FPI Vietnam
stocks and bonds
trực tiếp tham gia vào các hoạt động và quyết định của công ty).
o Foreign portfolio investment: a capital investment financed with foreign
money but operated by domestic residents. (Foreign investor đầu tư cho công
ty chịu sự quản lý của người nước mình).
● Benefits:
o
Some benefits flow back to the foreign capital owners
o
Increase the economy’s stock of capital
o
Higher productivity and higher wages
o
State-of-the-art technologies developed in other countries
o
Especially good for poor countries that cannot generate enough saving to fund
investment projects themselves
EDUCATION
● Government can increase productivity by promoting education-investment in human
capital (H)
o Public schools, subsidized loans for college.
● But investing in H also involves a tradeoff between the present and future: spending a
year in school requires sacrificing a year’s wages now to have higher wages later
(wage forgon)
● Poor country: Brain drain.
HEALTH AND NUTRITION
● Vicious circle in poor countries: Poor<=>not healthy.
● Vicious circle: Policies=> economic growth⇔ healthy.
PROPERTY RIGHTS AND POLITICAL STABILITY
● Foster economic growth: protect PR and promote PS.

● Property rights: Prerequisite for the price system to work

● In many poor countries, the justice system doesn’t work very well:
Public policy:
○ Contracts aren’t always enforced + Savings and investment=> Increase K/L => Increase Y/L
+ Education=> H/L
+ Health and nutrition => H/L
○ Fraud, corruption often go unpunished + Politics/ property rights=> K/L, Y/L

○ In some, firms must bribe govt officials for permits

● Political instability (ex: frequent coups) creates uncertainty over whether property
rights will be protected in the future.
● When people fear their capital may be stolen by criminals or confiscated by a corrupt
govt, there is less investment, including from abroad, and the economy functions less
efficiently.
Result: lower living standards.
● Economic stability, efficiency, and healthy growth require law enforcement, effective
Prepared by Trần Đức Thành – TA Macroeconomics

courts, a stable constitution, and honest govt officials.

FREE TRADE
● Inward-oriented policies Triều Tiên

(ex: tariffs, limits on investment from abroad) aim to raise living standards by
avoiding interaction with other countries.
● Outward-oriented policies (ex: the elimination of restrictions on trade or foreign
investment) promote integration with the world economy.
● Countries with inward-oriented policies have generally failed to create growth. [Ex:
Argentina during the 20th century]
● Countries with outward-oriented policies have often succeeded.
[Ex: South Korea, Singapore, Taiwan after 1960]
RESEARCH AND DEVELOPMENT
● Technological progress.

● Knowledge is a public good: Ideas can be shared freely, increasing the productivity of
many.
● Policies to promote tech. progress:
Public policy=>Y/L=AF(1,K/L,H/L,N/L)=>Productivity=> living standards=>economic growth
○ Patent laws

○ Tax incentives or direct support for

Public policy:
private sector R&D + Savings and investment=> Increase K/L => Increase Y/L (Most important)
Grants for basic research at universities + Education=> H/L
+ Health and nutrition => H/L
POPULATION GROWTH + Politics/ property rights=> K/L, Y/L
+ Free trade=> Y/L
+ Research and development=> A
1. Stretching natural resources + Population growth:
2. Diluting the capital stock + K/L, N/L, H/L decrease
+ A increase
● Bigger population = higher L = lower K/L
Y/L=AF(1,K/L,H/L,N/L)
= lower productivity & living standards.
● This applies to H as well as K: fast pop. growth = more children
= greater strain on the educational system => lower educational attainment.
3. Promoting tech. progress
● More people
= more scientists, inventors, engineers = more frequent discoveries
= faster tech. progress & economic growth
● Evidence from Michael Kremer: Over the course of human history,
Prepared by Trần Đức Thành – TA Macroeconomics

○ growth rates increased as the world’s population increased

○ more populated regions grew faster than less populated ones.

QUICK QUIZ

1. Over the past century, real GDP per person in the United States has grown about
_____ percent per year, which means it doubles about every _____ years.
a. 2, 14
b. 2, 35
c. 5, 14
d. 5, 35
2. The world’s rich countries, such as the United States and Germany, have income per
person that is about _____ times the income per person in the world’s poor countries,
such as Pakistan and India.
a. 2
b. 4
c. 10
d. 30
3. Most economists are ________ that natural resources will eventually limit economic
growth. As evidence, they note that the prices of most natural resources, adjusted for
overall inflation, have tended to ________ over time.
a. concerned, rise
b. concerned, fall
c. not concerned, rise
d. not concerned, fall
4. Because capital is subject to diminishing returns, higher saving and investment do not
lead to higher
a. income in the long run.
b. income in the short run.
c. growth in the long run. d. growth in the short run.
5. When the Japanese car maker Toyota expands one of its car factories in the United
States, what is the likely impact of this event on the gross domestic prod- uct and gross
national product of the United States?
a. GDP rises and GNP falls.
b. GNP rises and GDP falls.
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c. GDP shows a larger increase than GNP.
d. GNP shows a larger increase than GDP.
6. Thomas Robert Malthus believed that population growth would
a. put stress on the economy’s ability to produce food, dooming humans to remain in poverty.
b. spread the capital stock too thinly across the labor force, lowering each worker’s
productivity.
c. promote technological progress, because there would be more scientists and inventors.
d. eventually decline to sustainable levels, as birth control improved and people had smaller
families. Public policy:
+ Savings and investment=> Increase
7. To increase the living standards, government should not: K/L => Increase Y/L (Most
important)
a. Nationalize the important industry + Education=> H/L
+ Health and nutrition => H/L
b. Control the population growth + Politics/ property rights=> K/L, Y/
L
c. Promote the free trade between other countries + Free trade=> Y/L
+ Research and development=> A
d. Encourage the saving, investment and the research activities + Population growth:
+ K/L, N/L, H/L decrease
+ A increase

CHAPTER 13. SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM

Financial system: the group of institutions in the economy that help to match one
person’s saving with another person’s investment. savers <=> borrowers/investors

Ø FINANCIAL INSTITUTIONS IN THE U.S ECONOMY

budget = consumption + savings
FINANCIAL MARKETS
Shark Tank Start up
● Financial market: savers--<directly> funds-->borrowers. o The bond market:
government bonds: risk -free ▪ Bond: a certificate of indebtedness. o The stock market:
▪ Stock: a claim to partial ownership in a firm.
Individuals Intermediaries Business
● Financial intermediaries: savers--<indirectly> funds-->borrowers. o Examples:
Individuals=> Banks=> Business
▪ Banks. Hoa Phat Corporations
Individuals=> Mutual funds=> Business
▪ Mutual funds – institutions that sell shares to the public and use the
proceeds to buy portfolios of stocks and bonds.
ACCOUNT IDENTITIES
● GDP:Y=C+I+G+NX.
NX = 0
● Closed economy:
○ Y= C + I + G (NX=0). S= I
Y= C+I+G
○ Saving = Investment. Y-C-G=I
● National savings: S= Y-C-G
○ S=Y-C-G.
○ S= Private savings + Public savings
T: Taxes=> Government revenue

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○ = (Y - T - C) + (T - G). (Add Taxes and Subtract Taxes)
● Budget surplus: T - G > 0
● Budget deficits: T - G < 0.
● The meaning of Savings and Investment:
○ Private savings [tiền lương còn lại sau khi trả thuế và các khoản tiêu dùng].
■ Household use this saving to:
● Buy corporate bonds or equities.
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● Purchase a certificate of deposit at the bank

● Buy shares of a mutual fund
● Let accumulate in saving or checking accounts
○ Investment
■ Not a purchase of stocks or bonds.
■ Example:
● You spend 10 billion VND to build a new factory in Binh
Duong.
● You buy 30 million VND of Macbook for your business.
● Your parents spend 2 billion VND to have a new house built.
Ø THE MARKET FOR LOANABLE FUNDS
Market for loanable funds: the market in which those who want to save supply funds and
those who want to borrow to invest demand funds.

Savers/ national savings

8% Interest rate increase

=> savers lends more money
Equilibrium point => borrowers borrows less money

Borrowers / Business
borrowers savers

POLICY 1: SAVING INCENTIVES

Decrease tax on income

=> National savings increase
=> shift right
S3 savers
Income = Y
Sprivate = Y-T-C

Increase tax on income

=> National savings decrease
=> shift left
Income = Y
Sprivate = Y-T-C

business

POLICY 2: INVESTMENT INCENTIVES

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Decrease tax on production/investment

=> Investment increase
Spublic + Sprivate => Demand shift right

r S2
S1

r2
r1

borrowers/ investors/ business 50 60 $

Budget deficit: T - G<0=> Spublic decrease=> S left

Budget Deficit, Crowding out and Long run Growth:

Budget deficit increases=> Govt borrows to finance its deficit =>Investment [important
for long-run economic growth] falls (govt leaves less funds [crowding out]) => economy’s
growth rate and future standard of living decrease.
QUICK QUIZ
1. Elaine wants to buy and operate an ice-cream truck but doesn’t have the financial
resources to start the business. She borrows $10,000 from her friend George, to whom
she promises an interest rate of 7 percent, and gets another $20,000 from her friend
Jerry, to whom she promises a third of her profits. What best describes this situation?
a. George is a stockholder, and Elaine is a bondholder. Elaine: borrowers savers
Jerry: stocks borrowers
b. George is a stockholder, and Jerry is a bondholder. George: bonds
c. Jerry is a stockholder, and Elaine is a bondholder.
d. Jerry is a stockholder, and George is a bondholder. G
T
2. If the government collects more in tax revenue than it spends, and households
C S=I
consume more than they get in after-tax income, then S=Y-C-G = Private savings + Public savings
Y-T: After - tax income
a. private and public saving are both positive. = (Y-T-C)+(T-G)

b. private and public saving are both negative. T>G=> T-G >0=>Spublic>0
c. private saving is positive, but public saving is negative. C>Y-T=> Y-T-C<0=> Sprivate<0
d. private saving is negative, but public saving is positive.
3. A closed economy has income of $1,000, government spending of $200, taxes of $150,
and investment of $250. What is private saving?
a. $100
250=Sprivate + (150 -200)
b. $200 Sprivate = 300
c. $300
d. $400
4. If a popular TV show on personal finance convinces Americans to save more for
retirement, the ________ curve for loanable funds would shift, driving the equi- librium
interest rate ________. r S1 Sprivate + Spublic
S2

r1
r2
D Business/ Borrowers/Investors
$
Prepared by Trần Đức Thành – TA Macroeconomics
a. supply, up
b. supply, down
c. demand, up
d. demand, down
5. If the business community becomes more optimistic about the profitability of capital,
the ________ curve for loanable funds would shift, driving the equilibrium interest rate
________. r
S
a. supply, up
b. supply, down
c. demand, up D1
d. demand, down $
6. From 2008 to 2012, the ratio of government debt to GDP in the United States
a. increased markedly.
b. decreased markedly.
c. was stable at a historically high level.
d. was stable at a historically low lev
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CHAPTER 15. UNEMPLOYMENT

+ Employed: paid workers, self- employed (freelancer),
unpaid workers in a family business, part - time students

+ Unemployed: People not working who are looking for a job

previous 4 weeks, do commit to find job

+NLBF: do not commit to find work,

homemakers, full - time students, elderly, Down, etc

Population = Children + Adult population

Adult population = LBF+ NLBF
LBF = E + U
Labor force is defined as the total number of workers, including both the employed and the
unemployed.
Labor force = Number of employed + Number of unemployed Unemployment
rate: the percentage of the labor force that is unemployed.

Labor-force participation rate: The percentage of the adult population that is in the labor
force.

unemployment rate
employment rate> unemployment rate
Labor force = 139.9 + 14.3 = 154.2 millions
The unemployment rate: (14.3 / 154.2) x 100 = 9.3 percent.
Labor-force participation: (154.2 / 235.9 ) x 100 = 65.4 percent
power of union increase=> wages increase=> jobs< labors
Cyclical unemployment rate: short run ups and downs of the economy Union: 200 người
normal experience: 3 - 5% XH: ngoài + Union=100 người
unemployment
Natural rate includes frictional unemployment and structural unemployment.
Frictional unemployment (tạm thời) Structural unemployment (cấu trúc)
looking a job to fit the skills and tastes of the workers jobs < labors

+ job search: tìm kiếm việc làm=> F(U) increase + Minimum wages increase => S(U) increase
+ Unemployment insurance: + Union (công đoàn): tổ chức tiếng nói của công nhân, deal quyền lợi
=> secure uncertainty of income => power of union increase=> S(U) increase. Ngoài ra, công ty sẽ trao đổi
=> benefit is high, increases=>lazier=> F(U) increase và thuê công nhân ở trong Union=>khó có thể cạnh tranh lại với Union
+ Sectoral shift (chuyển công tác)=> F(U) increase + Efficiency wages increase=> S(U) increase
SHORT TERM LONG TERM
Quan tâm tới nhiều hơn (government)
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Prepared by Dr. Nguyễn Bá Trung’s Teaching Assistant - Đức Thành, Thế Hải

Frictional unemployement (thất nghiệp tạm thời): Unemployment that results because it
takes time for workers to search for the jobs that best suit their tastes and skills.

Stuctural unemployment (thất nghiệp cấu trúc): unemployment that results because the
number of job available in some labor markets is insufficient to provide a job for everyone
who wants one.
In short, stuctural unemployment occurs when there are not enough jobs to go around, or
when wage is kept above equilibrium

Minimun-Wage Laws: minimun-wage laws matter most for the least skilled and least
experienced members of the labor force, such as teenagers.
If the wage is kept above the equilibrium level for any reason, the result is unemployment.

4tr
labors
3tr
jobs=60 labors=90

2tr

1tr not binding => urate = 0%

jobs

60 70 90
unemployment rate = 0%

In this labor market, the wage at which supply and demand balance is W(e). At this
equilibrium wage, the quantity of labor supplied and the quantity of labor demanded both
equal L(e).

By contrast, if the wage is forced to remain above the equilibrium level, perhaps because of
the minimum-wage law, the quantity of labor supplied rises to L(s), and the quantity of labor
demanded falls to L(d). The resulting surplus of labor, L(s) – L(d), represents unemployment.

Theory of efficiency wages: Firms voluntarily pay above-equilibrium wages to boost worker
productivity. And there are 04 reasons why firms might pay efficiency wages
cấp bậc quản lí: 200tr/ tháng
=> 250tr/ tháng
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+ Employed: paid workers, self- employed (freelancer),
unpaid workers in a family business, part - time students
1. Worker health
+ Unemployed: People not working who are looking for a job
2. Worker turnover hạn chế rời bỏ công ty previous 4 weeks, do commit to find job
3. Worker quality
+NLBF: do not commit to find work,
4. Worker effort homemakers, full - time students, elderly, Down, etc
QUICK QUIZ
1. The population of Ectenia is 100 people: 40 work full-time, 20 work half-time but
would prefer to work full-time, 10 are looking for a job, 10 would like to work but are so
discouraged they have given up looking, 10 are not interested in working because they
are full-time students, and 10 are retired. What is the number of unemployed?
a. 10
b. 20
c. 30
d. 40
2. Using the numbers in the preceding question, what is the size of Ectenia’s labor force?
a. 50 Adult population = LBF + NLBF = E + U + NLBF
b. 60
LBF = E +U = 70
c. 70
d. 80
3. The main policy goal of the unemployment insurance system is to reduce the
a. search effort of the unemployed.
b. income uncertainty that workers face.
c. role of unions in wage setting.
d. amount of frictional unemployment.
4. In a competitive labor market, when the government increases the minimum wage,
the result is a(n) __________
increase in the quantity of labor supplied and a(n) __________
decrease in
the quantity of labor demanded.
a. increase, increase
b. increase, decrease giảm nhu cầu tuyển dụng, tăng mong muốn đi làm
c. decrease, increase
d. decrease, decrease
5. According to the theory of efficiency wages,
a. firms may find it profitable to pay above- equilibrium wages.
b. an excess supply of labor puts downward pressure on wages.
c. sectoral shifts are the main source of frictional unemployment.
d. right-to-work laws reduce the bargaining power of unions.
CHAPTER 16. THE MONETARY SYSTEM

Money: the set of assets in an economy that people regularly use to buy goods and services
from other people.

1. The function of money:

Spa, haircuts - Medium of exchange (phương tiện trao đổi): an item that buyers give to sellers
=> pay money
when they want to purchase goods and services.
- Unit of account (đơn vị tài khoản): the yardstick people use to post prices and
record debts.

thóc, táo=> vải

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- Store of value: an item that people can use to transfer purchasing power from the
present to the future.

2. Kinds of money gold, silver, bronze, cloth

- Commodity money (tiền hàng hoá): money takes the form of a commodity with
intrinsic value.
- Fiat money (tiền định danh): money without intrinsic value that is used as money
because of government decree. paper money

Bank and Money Supply

Reserves: deposits that banks have received but have not loaned out
Government/ Central bank/ Fed (Central bank of the US)/ States Bank print money => control money supply

M1 (tự giữ): currency, demand deposits, checkable deposits, traveler’s checks

M2 (M1+ third party): savings deposits, money market in mutual funds (bonds, stocks), small time deposits, few minor categories

MS increase Public/ Society:

+ Individuals/ Households
Central Bank + Business
MS decrease + Commercial banks (VP Bank, Techcombank,…)
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Here is the T-account for First National Bank if the economy’s entire $100 of money is
deposited in the bank. VP Bank

R=100%

MS = $100 => MS=$100

Fractional-reserve banking: a banking system in which banks hold only a fraction of
deposits as reverse.

Reverse ratio: the fraction of deposits that banks hold as reverse.

Let's suppose that the First National has a reverse ratio of 1/10, or 10 percent.

R=10%

100x10%

Deposit - Reserve

R=100% => MM=1/R=1/100%=1=> MS =$100 => increase $100x 1 =$100

R=10%=> MM=1/R=1/10%=10=> MS = $100=> increase $100 x 10 = $1000

$100=> Increase MS up to $1000 (M2)

Money multiplier = 1/R

Money multiplier: the amount of money the banking system generates with each dollar of
reverse each money will generate dollar of money
In the case above, $100 will generate $100 x = $1,000

government bonds: risk - free=> borrowers

How the Fed Influences the Quantity of Reverses => savers/borrowers
OMOs
1) To increase the money supply, the Fed instructs its bond traders at the New York
Fed to buy bonds from the public in the nation’s bond markets.
The open market operations: The purchase and sale of U.S. government bonds by the Fed.
Govt sells/issues bonds => public buys bonds=> money from public to govt=> MS decrease
Govt buys bonds=>public sells bonds=> money from govt to public => MS increase
2) Discount rate (lãi suất vay): the interest rate on the loans that the Fed makes to
banks when they feel they do not have enough reserves on hand, either to satisfy
regulators, meet depositor withdrawals, make new loans, or for some other
business reason. Discount rate increase=> commercial banks borrow less => MS decrease
Discount rate decrease=> commercial banks borrow more => MS increase

interest rate (lãi suất vay): business=> vay savers financial market (directly): bonds, stocks
discount rate (lãi suất vay): commercial banks => vay central bank financial intermediaries (indirectly): banks, mutual funds

buy bonds MS increase Public

+ Business
Central Bank
+ Households
issues bonds MS decrease
+ Commercial banks
Bank: reserve (tỉ lệ dự trữ)=>liquidity (thanh khoản)
=> 10%
Bank’s reserve = Reserve requirement + Excess Reserve (tỉ lệ dự trữ vượt mức) => 30% (trong đó có 10% RR) còn lại là ER (liquidity)
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3. Reserve requirement (ít dùng)

The Fed also influences the reserve ratio by altering reverse requirements (the regulations in
the minimum amount of reserves that banks must hold against deposits.
R decrease => MM increase=> MS increase
QUICK QUIZ R increase=> MM decrease => MS decrease
1. The money supply includes all of the following EXCEPT
a. metal coins.
b. paper currency.
c. lines of credit accessible with credit cards.
d. bank balances accessible with debit cards.
2. Chloe takes $100 of currency from her wallet and deposits it into her checking
account. If the bank adds the entire $100 to reserves, the money sup- ply ________, but
if the bank lends out some of the $100, the money supply ________.
a. increases, increases even more
b. increases, increases by less
c. is unchanged, increases
d. decreases, decreases by less
3. If the reserve ratio is 1⁄4 and the central bank increases the quantity of reserves in the
banking system by $120, the money supply increases by
a. $90. R=1/4
MS = $120
b. $150. => MS increase by $120 x MM =120 x (1/R) = 120 x 4 = $480

c. $160.
d. $480.
4. A bank has capital of $200 and a leverage ratio of 5. If the value of the bank’s assets
declines by 10 percent, then its capital will be reduced to
a. $100.
b. $150.
c. $180.
d. $185.
5. Which of the following actions by the Fed would reduce the money supply?
a. an open-market purchase of government bonds govt buy bonds => govt to public=> MS increase
R decrease=> MM increase=> MS increase
b. a reduction in banks’ reserve requirements
discount rate : Fed lends money to commercial banks
c. an increase in the interest rate paid on reserves discount rate = interest rate paid on reserves
increase discount rate => MS decrease
d. a decrease in the discount rate on Fed lending discount rate decrease=> MS increase
6. In a system of fractional-reserve banking, even with- out any action by the central
bank, the money supply declines if households choose to hold ________ currency or if
banks choose to hold ________ excess reserves.
a. more, more
b. more, less $1,000,000
households: $500,000=>MS=$500,000
c. less, more banks (R=10%): $200,000=> MS= $200,000 x 1/10%= $2,000,000
banks (R=30%): $300,000=>MS= $300,000 x 1/30% = $1,000,000
=> MS= $500,000 + $2,000,000 + $1,000,000 = $3,500,000
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d. less, less
bonds supply

bonds demand

Fed funds rate => OMOs => control money supply

increase fed funds rate => sells bonds less => MS decreases