tài liệu macroeconomics

Contents
TOPIC 1: The principles of Macroeconomics .............................................................................................. 4
1. Circular flow diagram ........................................................................................................................... 4
2. Positive vs. Normative statements ........................................................................................................ 4
TOPIC 2: Measuring a Nation’s Income (GDP) [LR] .................................................................................. 5
1. GDP, Real vs Nominal GDP and GDP deflator.................................................................................... 5
a. GDP (Gross Domestic Product) ........................................................................................................ 5
b. The measurement of GDP ................................................................................................................. 5
c. How GDP is measured ...................................................................................................................... 6
d. Real vs Nominal GDP ....................................................................................................................... 7
e. GDP deflator (chỉ số điều chỉnh GDP).............................................................................................. 7
2. GDP and Economic well-being vs Society’s well-being ...................................................................... 7
TOPIC 3: MEASURING THE COST OF LIVING [LR] ............................................................................. 8
1. CPI, CPI calculation and its limitations ................................................................................................ 8
a. CPI (Consumer Price Index) ............................................................................................................. 8
b. CPI calculation .................................................................................................................................. 8
c. Limitations of CPI ............................................................................................................................. 8
2. Inflation ................................................................................................................................................. 9
3. GDP deflator vs CPI ............................................................................................................................. 9
4. Using CPI to correct economics variables for the effect of inflation .................................................... 9
5. Real vs Nominal interest rate (lãi suất) ............................................................................................... 10
TOPIC 4: PRODUCTION AND GROWTH [LR] ..................................................................................... 11
1. Economic growth measurement .......................................................................................................... 11
2. Production Possibility Frontier (PPF) ................................................................................................. 11
3. Productivity ......................................................................................................................................... 11
a. Production function ......................................................................................................................... 12
b. Productivity function....................................................................................................................... 12
TOPIC 5: SAVING, INVESTMENT & FINANCIAL SYSTEM [LR] ..................................................... 13
1. Financial system.................................................................................................................................. 13
a. Financial market .............................................................................................................................. 13
b. Financial intermediaries .................................................................................................................. 13

2. Saving ................................................................................................................................................. 13
3. Loanable funds (vốn cho vay) and market for loanable funds ............................................................ 14
a. Supply of loanable funds ................................................................................................................. 14

1


b. Demand of loanable funds .............................................................................................................. 14
c. Equilibrium of loanable funds ......................................................................................................... 14
4. Government policies and taxes ........................................................................................................... 14
a. Policy 1: Taxes and S (affect Supply, )......................................................................................... 14
b. Policy 2: Taxes and Investment (affect Demand,  )...................................................................... 15
c. Policy 3: Government budgets – surplus or budget deficit (affecting S, ) .................................... 15
TOPIC 6: UNEMPLOYMENT [LR] .......................................................................................................... 16
1. Unemployment in LR (Natural rate of unp.) vs Unemployment in SR (Cyclical rate of unp.) .......... 16
2. The causes of LR unemployment: Frictional/ Structural/ Classical unp. ............................................ 17
a. Frictional unemployment (thất nghiệp tạm thời)............................................................................. 17
b. Structural unemployment (thất nghiệp cơ cấu) ............................................................................... 17
c. Classical unemployment (thất nghiệp theo lý thuyết cổ điển) ........................................................ 17
TOPIC 7: The Monetary System ................................................................................................................ 18
1. Money, Money Demand (Md) vs Money Supply (Ms) ...................................................................... 18
a. The meaning of money.................................................................................................................... 18
b. Money Demand (Md)...................................................................................................................... 18
c. Money Supply (Ms) ........................................................................................................................ 18
2. The functions of money ...................................................................................................................... 18
3. Money creation with frictional-reserve banking (ngân hàng hoạt động theo nguyên tắc dự trữ 1 phần)
................................................................................................................................................................ 18
The money multiplier .......................................................................................................................... 19
4. How Central Bank controls Ms ........................................................................................................... 19
TOPIC 8: INFLATION: ITS CAUSES AND COSTS [LR] ...................................................................... 21

1. Causes of inflation .............................................................................................................................. 21
a. The classical dichotomy and money neutrality (thuyết lưỡng phân cổ điển/ cổ phần) ................... 21
b. The quantity equation...................................................................................................................... 22
2. Costs of inflation ................................................................................................................................. 22
TOPIC 9: OPEN-ECONOMY [LR] ........................................................................................................... 23
1. International flow of goods and capitals ............................................................................................. 23
a. Flows of goods (current account)  X, M, NX ............................................................................. 23
b. Flows of capital/ financial resources (capital account)  NFI ...................................................... 23
c. The relationship between flow of goods v flow of capital AND saving v investment .................... 24
2. The prices for international transactions: real vs. nominal exchange rate .......................................... 24
3. Purchasing Power Parity (PPP) ........................................................................................................... 25
TOPIC 10&11: AS, AD, the influence of money and fiscal policy on AD [SR] ....................................... 27

2


1. Aggregate Demand curve ................................................................................................................... 27
a. The wealth effect: ............................................................................................................................ 27
b. Interest rate effect: .......................................................................................................................... 27
c. Exchange rate effect: ....................................................................................................................... 27
2. Aggregate Supply curve ...................................................................................................................... 28
a. The sticky wage theory ................................................................................................................... 28
b. The sticky price theory.................................................................................................................... 28
c. Misperceptions theory ..................................................................................................................... 28
3. Government responds to the SR fluctuations through AD.................................................................. 30
a. Monetary policy (↓r to ↑AD) .......................................................................................................... 30
b. Fiscal policy (↑G and ↓T to ↑AD) .................................................................................................. 30

3

TOPIC 1: The principles of Macroeconomics


Scarcity  People make choice  Opportunity cost (give up he alternative one).

Economics






Economics = the study of the choices people and societies make to attain their unlimited wants,
given their limited resources.
Scarcity = the situation in which limited wants exceed the limited resources available to fulfill
those wants. (the limit nature of society’s resources)
Opportunity cost = giving up the best alternative to obtain some items.
Microeconomics = the study of how households and firms make choices, how they interact in the
markets and how the government attempts to influence their choices.
Macroeconomics = the study of the economy as a whole, including topics such as inflation,
unemployment and economic growth.

1. Circular flow diagram
Revenue
(GDP)
G&S sold

Spending
(GDP)

Markets for
GvS
G&S bought

Firms

Household
Input for
production

Wage, rent &
profit (GDP)

Provision of labor,
land & capital

Markets for
resources

Income
(GDP)

2. Positive vs. Normative statements
Positive statement/ phân tích thực chứng
- P.S are claims that attempts to describe the world
as it is.
- P.S are statements about facts.
e.g. minimum wage laws create unemployment.
- P.S cho bitết những gid đang thực sự xảy ra.

- Nó có thể được chứng minh là đúng hoặc sai.
- Nó có thể được kiểm chứng từ thực tế.

Normative statement/ phân tích chẩn tắc
- N.S are claims that attempt to prescribe how the
world should be.
- N.S depends on both facts and value
(recommendations, advice, views)
e.g. the minimum wage should be raised.
- N.S cho biết chúng ta nên làm gì.
- Nó phụ thuộc vào giá trị và cả nhật biết của mỗi
cá nhân.
- Nó rất khó có thể kiểm định được là đúng hoặc sai.

4


MACROECONOMICS IN LONG RUN: What is important to an economy in the long run?




The answer is growth.
For long term goals: raise income and the standard of living  generate economic growth (measured
as a change in real GDP per capita)
Standard of living = Real GDP per capita.

TOPIC 2: Measuring a Nation’s Income (GDP) [LR]
1. GDP, Real vs Nominal GDP and GDP deflator
a. GDP (Gross Domestic Product)



GDP = is the most basic measure of how an economy is performing (tells the size of the
economy).
= is the total market value of a country’s output. It is the market value of all final GvS
produced within a country in a given period of time.




GNP (Gross Nation Product) = total value of GvS produced by all nationals (kiều bào) of a
country (whether within or outside the country).
GNP = GDP + total capital gains from overseas investment – income earned by foreign nationals
domestically

b. The measurement of GDP







“GDP is the market value” = output is valued at market prices.
“… of all final …” = it records only the value of final goods, not intermediate goods (the value is
counted only 1).
“… goods and services…” = it includes both tangible (hữu hình) goods (food, clothing, car) and
intangible (vô hình) services (haircuts, housecleaning, doctor visit).
“… produced…” = it includes the GvS currently produced, NOT transactions involving goods
produced in the past.

“… within a country…” = it measures the value of the production within the geographic confines
(biên giới) of a country.
“… in a given period of time” = it measures the value of production that takes place within a
specific interval of time, usually a year or a quarter (3 months).

NOTE: some important definitions:
 Final goods and services
 Those GvS that are not produced for either resale or for use in the production of other goods; But
are produced for consumption.
 Intermediate GvS
 Those GvS that are produced by 1 firm for use by another firm to produce a final good (or another
intermediate good); produced for further production.
 Value added = VA (giá trị gia tăng)
 The difference between the value of the total GvS and the value of the intermediate goods.
(giá trị SL GvS của doanh nghiệp (doanh thu) – giá trị của HH trung gian từ doanh nghiệp khác)

5





GDP only includes all items produced in the economy and sold legally in the market.
GDP excludes most items that are produced and consumed at home and that never entered the
marketplace.

c. How GDP is measured
3 approaches to measure GDP:

- The expenditure approach.

- The income approach (GDP = total income).
- The value-added approach.

GDP = total income = total expenditure

1/ The expenditure approach (GDP= total expense on the economy’s output of GvS)

Y (GDP) = C + I + G + NX
= C + I + G+ X – M
Consumption ( C ) = The spending by households on GvS with the exception of new housing (không tính
mua nhà mới).
[by households]
Investment ( I ) = The spending on capital equipment (vốn tư bản), inventories and structures, including
household purchases of new housing. (bao gồm mua nhà mới)
[by firms/ households]
Government purchases ( G ) = The spending on GvS by local, state and federal governments. Goods does
NOT include transfer payments (khoản chuyển giao thu nhập) because they
are not made in exchange for currently produced GvS.
Net export (NX) = Exports (X) – Imports (M)

2/ The value-added approach (GDP= the sum of value added of all producers)
e.g.

Production

Generated

Added

Farmer

harvest wheat

$100

$100

Miller

make into flour

$200

$100

Baker

make into bread

$300

$100

$600

$300

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d. Real vs Nominal GDP
Real GDP (GDP thực tế)
- Real GDP values the production of GvS at
constant prices.

Nominal GDP (GDP danh nghĩa)
- Nominal GDP values the production of GvS at
current prices.

- Real GDP in X year as based:

GDP =  PX x Q

Nominal GDP=  P x Q

- Real GDP is nominal GDP adjusted for changes
in the prices level.

e. GDP deflator (chỉ số điều chỉnh GDP)




The GDP deflator measures the overall price level in an economy compared to some previous
years.
It tells us the rise in nominal GDP that is attributed to (quy cho, cho là) a rise in prices rather than
a rise in the Q produced.
It is the tool to convert Nominal GDP to Real GDP.

2. GDP and Economic well-being vs Society’s well-being




GDP is the best single measurement of the economic well-being of a society.
HOWEVER, GDP is NOT a perfect measure of the happiness/ quality of life (living standard/
society’s well-being). Because some things, such as leisure time and a clean environment, aren’t
measured by GDP.

NOTE: To know whether the economy is doing well or poorly, look at GDP PER CAPITA and how it
changes over time.

7


TOPIC 3: MEASURING THE COST OF LIVING [LR]
1. CPI, CPI calculation and its limitations
a. CPI (Consumer Price Index)




CPI is a measure (chỉ số đo lường) of the overall cost of GvS bought by a typical consumer.
CPI is used to monitor changes in the cost of living over time.
When CPI , the typical family has to spend more dollars to maintain the same standard of living.

b. CPI calculation
Steps in calculating CPI:
1/ Fix the basket: determine which GvS are the most important to the typical consumer.
2/ Find the price: find the prices of each of the GvS in the basket for each point in time (find P and year).
3/ Calculate the basket’s cost: use the data on the Ps to calculate the cost of the basket of GvS at different

times.
4/ Choose the base year and compute the index: designate (chỉ định) 1 year as the base year, making it the
benchmark (tiêu chuẩn) against which other years are
compared.




To calculate the difference between years:

n= year

c. Limitations of CPI


The CPI is an accurate measure of the selected goods that make up the typical bundle, BUT it is
not a perfect measure of the cost of living, because of:
 Substitution bias (độ lệch thay thế)
 Introduction of new goods
 Unmeasured quality changes

 CPI overstates the true living cost (CPI usually estimates the inflation rate higher than the actual rate
by around 1%/ year)

8


2. Inflation



The inflation rate is the percentage change in the price index from the preceding (có trước) period.
Inflation refers to a situation in which the economy’s overall price level is rising.

3. GDP deflator vs CPI




The GDP deflator measures the overall price level in an economy compared to some previous
years.
 CPI is a measure (chỉ số đo lường) of the overall cost of GvS bought by a typical consumer.
Similarity: both are used to measure the overall price level (the change in price)

GDP deflator (overall economies)

CPI (consumption)

- Reflects the prices of all GvS produced
domestically.

- Reflects the prices of all GvS bought by
customers.

- Compares the P of currently produced GvS to
the P of the same GvS in the base year.

- Compares the price of a fixed basket to the price
of the basket in the base year.



Import consumer goods: include CPI
Exclude GDP deflator



Capital goods (truck, …): include GDP deflator (if produced domestically)
Exclude CPI



The basket: CPI uses fixed basket
GDP deflator uses the P of GvS that year

4. Using CPI to correct economics variables for the effect of inflation


We can find the 2008 purchasing power equivalent (true value) of a $20,000 salary in 1980.

e.g. CPI1980=82, CPI2008=189, value of dollars in 1980= $20,000

 the salary in 2008 is higher than that in 1980.

9


5. Real vs Nominal interest rate (lãi suất)


Interest represents a payment in the future for a transfer of money in the past.

Nominal interest rate
- It is the interest rate usually reported and not
corrected for inflation. It’s the interest rate that a
bank says.

Real interest rate
- It is the interest rate that is corrected for the
effect of the inflation.
Real int. rate = Nominal int. rate – inflation

10


TOPIC 4: PRODUCTION AND GROWTH [LR]
1. Economic growth measurement


The growth rate (the % change) in Real GDP or Real GDP per capita from 1 period to another:



If the economy started at 100 and grew at a rate g for n years, then the Real GDP after n years
equals:



To find out how many years it would take for GDP to double, we use the rule of 70.

If an economy grows at X% / year, output will double in

years

2. Production Possibility Frontier (PPF)



PPF represents the maximum possible combinations of GvS that can be produced with a given
quantity of factors of production and given technology.
To achieve the greatesr possible satisfaction of society’s material wants given scarce resources:
 Full employment
 Full production: Allocative efficiency (based on the D, only 1 1 point on PPF)
Productive efficiency (at any point on PPF)
Y
D

NOTE:
Inside PPF curve (C): inefficient
Outside PPF curve (D): unachievable
C

PPF
X

3. Productivity




Productivity refers to the amount of GvS produced for each hour of a worker’s time.
Productivity is the key role in determining living standards and economic growth for all nations
in the world.
To understand the large difference in living standards across countries, we must focus on the
production of GvS.

11




The input used to produce GvS are called the factors of production. It includes:
 Physical capital
 Human capital
Productivity determinants
 Natural resources
 Technological knowledge

a. Production function

F() shows how the inputs are combined

K= quantity of physical capital

Y= quantity of output

H= quantity of human capital

A= available production technology

N= quantity of natural resources

L= quantity of labor

b. Productivity function


A production function has a constant return to scale, therefore we have the productivity:

Y/L (productivity) = output per worker
…/L = … per worker
 The equation says that the productivity depends on K/L, H/L, N/L, A.
 In order to  productivity: - invest in factors of production.
- diminishing returns and the catch up effect.



Diminishing returns:
As the stock of capital , the extra output produced from an additional unit of capital .



The catch-up effect:
It refers to the property whereby countries that start off poor tend to grow more rapidly than countries
that start off rich.

12


TOPIC 5: SAVING, INVESTMENT & FINANCIAL SYSTEM [LR]



The economy grows by investment. And investment is come from saving.

1. Financial system
a. Financial market






Savers can directly provide funds to borrowers.
Markets (cách huy động vốn): Bond market (thị trường nợ/ trái phiếu)
Stock market (thị trường vốn/ cổ phiếu)
A bond is a certificate of indebtedness that specifies obligations of the borrowers to the holder of
the bond.
Terms: the length of time until maturity.
Credit risk: the probability that the borrower will fail to pay some of the interest.
Tax treatment: the way in which tax laws treat the interest on the bond.
A stock/ share is a claim to partial ownership in a firm.
The sale of a stock to raise money is called Equity Financing.
Shares offer both higher risk and potentially higher returns.
Bond holders
Cố định
Trước
Không
Có giới hạn

Tiền lãi

Thứ tự thanh toán
Tham gia quản lý công ty
Thời gian nắm giữ

Stock holders
Phụ thuộc vào tình hình kinh doanh
Sau
Có
Vô hạn

b. Financial intermediaries





Savers can indirectly provide funds to borrowers.
2 important intermediaries: Banks
Managed funds
Banks take deposits (tiền đặt cọc, tiền gửi) from savers ==> make loans (tiền cho vay) to
borrowers.
A managed fund is an institution (tổ chức, cơ quan) that sells shares to the public and uses the
proceeds (doanh thu) to buy a selection of various types of shares, bonds or both.

2. Saving



Open economy’s GDP: Y = C + I + G + NX
Closed economy’s GDP: Y = C + I + G

 In a closed economy:

S = Y – C – G = (Y – C – T) + (T – G)

National saving: S= Y – C – G
Private saving: S= Y – C – T (tax  revenue for government, household)
Public saving: S= T – G, government budget: T = G  =0, balanced budget
T > G  >0, budget surplus
T < G  <0, budget deficit

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 In the same closed economy: Y = C + I + G
I=Y–C–G
And S = Y – C – G = (Y – C – T) + (T – G)
==> I = S

3. Loanable funds (vốn cho vay) and market for loanable funds



Financial market coordinates the economy’s S and I in the market for loanable funds.
Market for loanable funds have 2 variables: Real interest rate (%)
Quantity of loanable funds

a. Supply of loanable funds



Supply of loanable funds comes from people who have extra income they want to save and lend
out. [households]
Là 1 đường dốc lên từ trái sang phải.  Với mức lãi suất thực tế cao hơn thì người cho vay sẵn
long cho vay nhiều hơn. [saving people]

b. Demand of loanable funds



Demand of loanable funds comes from households/ firms that wishes to borrow to make
investment.
Là 1 đường dốc xuống từ trái sang phải.  Với mức lãi suất càng cao thì người đi vay cảm thấy
chi phí để vay vốn đắt hơn và sẽ vay ít đi. [investment people]

c. Equilibrium of loanable funds



The equilibrium of the S and D for loanable funds determines the real interest rate.
The real interest rate represents the amount that borrowers pay for loans and the amount that
savers receive on their saving.

4. Government policies and taxes


Government policies affect S and I.

a. Policy 1: Taxes and S (affect Supply, )





T : Under income tax, the future payoff from current saving.
Under consumption tax,  the incentive to save. (income that is saved is not taxed)
T :  incentive for households to save at any given interest rate.
R%

S1

e.g. The effect of encouraging saving policy.

S2

 Q, r
T (r)  S; govt encourage saving
by decreasing T.
T (r)  S; govt increasing T leads
to incentive to save.

R1
R2
D
Q1 Q2 Q3

Q

14

b. Policy 2: Taxes and Investment (affect Demand,  )



An investment tax credit increases the incentive to borrow.
If a change in tax laws encourages greater investment, the result will be greater interest rates and
greater saving (Q increase from Q1 to Q2, nhìn vào đường Supply).

An  in D of loanable funds

R%

S

 r , Q
R2
T (r)  I
T (r)  I

R1

D2
Q1 Q2 Q3

D1
Q

c. Policy 3: Government budgets – surplus or budget deficit (affecting S, )






G > T = budget deficit.
Accumulation of past budget deficit is called the government debt.
Government borrowing to finance its budget deficit REDUCES Q of loanable funds.
The fall in investment is referred as crowding up.

 budget deficit DECREASES S of loanable funds.
S2
When G borrows more to  expenditure:


B = the intermediate step for A to become C
(new equilibrium)

 in the same rate, from A to B = shortage

R%

S1
C

R2

B

A

R1

  R1 to R2 to solve the problem
D

 Q , R
Q3 Q2

Q1

Q

15


TOPIC 6: UNEMPLOYMENT [LR]
Children

Adult (≥15)

Labor Force
Labor Force is the sum of employed and
unemployed workers in the economy.




Old

Not in Labor Force
The people who are:



Not available for work (full time students,
homemakers, retiree)
Available for work but not currently look or
have some reasons.

Unemployed: là những người trong độ tuổi lao
động có khả năng làm việc, mong muốn làm

việc nhưng lại không tìm được việc làm.
Employed:
A person is employed if that person has spent at
least 1 hour of the previous week working at a
paid job or family business.
Là những người trong độ tuổi lao động đang
làm việc tại các cơ sở sản xuất kinh doanh, …
hoặc các công việc mang tính chất tự tạo khác
đem lại thu nhập cho bản thân.

Labor force = Employed + Unemployed

1. Unemployment in LR (Natural rate of unp.) vs Unemployment in SR (Cyclical
rate of unp.)




Natural rate
Long run problem.

Does not go away on its own, even in the LR.
Is the amount of unemployment that the
economy normally experiences.





Cyclical rate
Short run problem.
Year to year fluctuations in unemployment
around its natural rate.
Is associated with short-term ups and downs
of business cycle.

16


2. The causes of LR unemployment: Frictional/ Structural/ Classical unp.
a. Frictional unemployment (thất nghiệp tạm thời)


Results from the time that it takes to match workers with jobs. (people takes time to find jobs)

b. Structural unemployment (thất nghiệp cơ cấu)


Results from a mismatch between the skills the business require and the skills that workers have.

c. Classical unemployment (thất nghiệp theo lý thuyết cổ điển)

Results from:
- Minimum wage (set by
government)

- Efficiency wage (set by
firms)
 Set above We paid by
firms to productivity:
 worker health
 worker turnover ( the
% of worker quitting the firm
and having to hire new ones)
 worker effort
 worker quality

 Minimum wage is set
above the market clearing
level (WE).
Unemployment
W

S

Wmin

- Unions and collective
bargaining (set by labor)
 The union is a worker
association that bargains with
employers over wages and

working conditions.
 Usually set above We.

E
We

D
Ld

Le

Ls

L

17


TOPIC 7: The Monetary System
1. Money, Money Demand (Md) vs Money Supply (Ms)
a. The meaning of money


Money is the set of assets in an economy that people regularly use to buy GvS from other people.

b. Money Demand (Md)




Md is determined by: interest rates
Average level of prices in the economy
People hold money because it is the medium of exchange.
The amount of money that people choose to hold depends on the P of GvS.

c. Money Supply (Ms)



Ms is a policy variable that is controlled by the Central Bank.
Through instruments such as Open Market Operations, the Central Bank directly controls the Q
of Ms by the banking system.

2. The functions of money
Money has 3 functions in the economy:




Medium of exchange (chức năng trao đổi): is anything that is readily acceptable as payment.
Unit of account (chức năng thước đo giá trị/ hạch toán): is the yardstick (tiêu chuẩn so sánh)
people use to post prices and record debts.
Store of value (chức năng cất trữ có giá trị): is any item that people can use to transfer purchasing
power from the present to the future.

Kinds of money:



Commodity money takes the form of a commodity with intrinsic (giá trị bên trong, thực chất) e.g.

gold, silver, cigarettes.
Fiat money is used as money because of government decree (sắc lệnh). It does not have intrinsic
value. E.g. coins, currency, cheque deposits.

 Economists differentiate money by liquidity.


Liquidity is the ease with which an asset can be converted into the economy’s medium of
exchange.

3. Money creation with frictional-reserve banking (ngân hàng hoạt động theo
nguyên tắc dự trữ 1 phần)




The Ms is affected by the amount deposited in banks and the amount that banks loan.
 deposits into a bank are recorded as both assets (tài sản có) and liabilities (tài sản nợ).
 loans become an asset to the bank.
When one bank loans money, that money is generally deposited into another bank. This creates
more deposits and more reserves to be lend out.

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e.g. assume a reserve ratio is 10%
1st Bank
Assets
Reserves
100

Loans
900

Liabilities
Deposit
100

Assets
Reserves
Loans

2nd Bank
Liabilities
90
Deposit
810

900

 When a bank makes a loan from its reserves  Ms .

The money multiplier




Money multiplier is the amount of money the banking system generates with each dollar of
reserves.
Số lần lượng tiền trong kinh tế tăng lên do hoạt động của hệ thống ngân hàng tạo ra từ 1 đồng mà
ngân hàng trung ương bơm vào lưu thông.

Money multiplier is the reciprocal (số nghịch) of the reserve ratio:



With a reserve requirement, R= 20% or 1/5, the multiplier is 5.



e.g. Multiplier =1/R= 10
 R= reserve ratio= 1/10 = 10%
Original deposit

1000

Loan (1st bank)

900 (1000 × 90%)

Loan (2nd bank)

810 (900 × 90%)

… _________________________________________

90% loan out, 10%
reserve

900 becomes the
deposit of 2nd bank

4. How Central Bank controls Ms






Banks can influence the Qd deposits in the economy and Ms.
Monetary authority actions designed (kế hoạch) to change interest rates (by changing system
liquidity) to change the cost of credit, economic activity and the price level.
Easy money: authority decides interest rates  it buys govt. securities (chứng khoán của các cơ
quan chính phủ, government bonds) to maintain the lower interest rates;  the Ms and the cost
of credit.
Tight money: authorities decides interest rates  it sells govt. securities to maintain the higher
interest rates;  Ms and  the cost of credit.

19


 The central bank controls the Ms by:
 Open market operation
 Reserve requirement rate
 Discount rate

20


TOPIC 8: INFLATION: ITS CAUSES AND COSTS [LR]





Inflation is an increase in the overall price level. (giảm sức mua trong nước của currency)
Deflation is a decrease in the overall price level. (tăng sức mua trong nước của currency)
Hyperinflation is an extraordinarily high rate of inflation.



If P is the price of GvS, measured in terms of money, then 1/P is the value of money measured in
terms of GvS.
When the overall P , the value of money .
The D and S of money determines the value of the money.




1. Causes of inflation




For money market in the long run, the overall price level adjusts to balance Md and Ms.
A monetary injection shifts Ms to the right.
At the new equilibrium, the P level , making each dollars less valuable.

The effect of a monetary injection:
Value of money (1/P) 
Price level (P) 

HIGH

1/P, value
of money

Ms shifts when there are changes in:

Ms0

LOW
P, price
level

Ms1

1/P0

P0

L, Capital, Natural resources and tech. knowl.

1/P1

P1
Md

LOW

Mo

M1

HIGH

Quantity of
money

Quantity of money
fixed by Central Bank

a. The classical dichotomy and money neutrality (thuyết lưỡng phân cổ điển/ cổ phần)
 Nominal variables are variables measured in monetary units (in terms of money).
 Real variables are variables measured in constant price (physical units).
 This separation is referred as classical dichotomy. Different forces influence real and nominal
variables.
 Monetary neutrality is the irrelevance of monetary changes for real variables. (khi lạm phát xảy
ra/ P tăng, thì Q of output không thay đổi, chỉ có Q of money thay đổi)
 Because in the LR, changes in Ms affect nominal variables only.

21


b. The quantity equation
M = Ms = lượng cung tiền trong nền kinh tế
V = tốc độ chu chuyển tiền, the speed at which the typical dollar bill transfers around
the economy from wallet to wallet.
P = mức giá cả chung
Y = sản lượng của nền kinh tế (quantity of output, real GDP)


In the long run, an increase in the Q of money in an economy will affect 3 variables:





Assume V is relatively stable over time.
When central bank changes the Q of money (Ms)  proportionate (tương ứng) changes in the
nominal value of output P x Y.
Because of monetary neutrality  Ms does not affect Y. (Y only be affected by factors of
production in the LR)

 When C.B. increases Ms  increase inflation/ P only.

2. Costs of inflation




Government can pay for some of its spending by printing more money  more inflation tax (a
tax on everyone who holds money).
Fisher effect = when inflation rate rises  the nominal interest rates increase by the same rate;
the real interest rate stays unchanged.
Costs are: Shoeleather costs
Menu costs
Relative price variability
Inflation induced tax distortions
Confusion and inconvenience
Arbitrary redistributions of wealth

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TOPIC 9: OPEN-ECONOMY [LR]



A closed economy is one that doesn’t interact with other economies in the world; that is, there are no
import, no export and no capital flows.
An open economy is one that interacts freely with other economies around the world.
 Buy and sell GvS in world’s product markets.
 Buy and sell financial assets in the world’s financial markets. (most countries open, but not
completely open, they maintain restrictions on imports (quotas and tariffs) and on capital inflows
and outflows.

1. International flow of goods and capitals
a. Flows of goods (current account)  X, M, NX




Exports = are GvS that are produced domestically and sold abroad.
Imports = are GvS that are produced abroad and sold domestically.
Net exports = X – M.

Trade balance: NX

Trade surplus: NX >0
X>M
Trade balanced: NX = 0
X=M

Trade deficit: NX < 0
X

Factors that affect NX:

The taste of consumers.
The Ps of GvS at home and abroad.
The exchange rates.
The income of consumers at home and abroad.
The cost of transporting goods.
The policies of the government towards international trade.

b. Flows of capital/ financial resources (capital account)  NFI


Net foreign investment (NFI, Net capital outflow):
The purchase of foreign assets by domestic residents – the purchase of domestic assets by
foreigners.

Lend to abroad

Borrow from abroad

NFI > 0  country is a net lender.
NFI < 0  country is a net borrower.


Factors that affect NFI: The real interest rates being paid on F.A.
The real interest rates being paid on D.A.

The perceived economic and political risks of holding assets abroad.
The govt. policies that affect foreign ownership of D.A.

23


 The equality of current and capital accounts
The current account measures an imbalance between a country’s NX, as well as the NY and NT.
Current account balance (CAB)= NX+NY+NT
NY=net inflow of income
NT=net transfer

For an open economy:

NFI = CAB

c. The relationship between flow of goods v flow of capital AND saving v investment


Gross National Disposable Income (GNDY/ GNP):

GNDY = GDP + NY + NT
= C + I + G + NX + NY + NT


Gross national saving: S = GNDY – C – G
S = C + I + G + NX + NY + NT – C – G
S = I + NX + NY + NT
S = I + CAB
S = I + NFI

 CAB = NFI = S – I

 Net foreign investment (NFI) = Saving Investment balance (S-I) = current account balance (CAB)


S>I:
NFI > 0
CAB > 0
 Net lender  lending surplus savings to
the rest of the world.



S < I:
NFI < 0
CAB < 0
 Net borrower  borrow savings from
the rest of the world.

NOTE: CAB > 0  NX>0: poor lend to rich
Developing and poor countries  net lenders.
Developed countries  net borrowers.

2. The prices for international transactions: real vs. nominal exchange rate



International transactions are influenced by international prices.
2 most important international prices are: nominal exchange rate & real exchange rate

24


Nominal exchange rate
- Nominal exchange rate is the rate at which a person
can trade the currency of 1 country for the currency of
another. It is express by either:
 Units of domestic currency / one unit of foreign
currency
 Units of FC / one unit of DC
e.g. eVND/AUD= 20,000
 eAUD/VND=

Real exchange rate
- Real exchange rate is the rate at which a person can
trade GvS of 1 country for GvS of another.
- RER compares the Ps of domestic goods and foreign
goods in the domestic economy.
- RER is a key determinant of how much a country
exports and imports.
𝑅𝐸𝑅

= 0,00005

- Appreciation= an increase in the value of a currency
as measured by the amount of FC it can buy.
- Depreciation= a decrease in the value of a currency
as measured by the amount of FC it can buy.
e.g. if a VND buys more FCVND is appreciated.
If a VND buys less FCVND is depreciated.

𝑛𝑜𝑚𝑖𝑛𝑎𝑙 𝑒𝑥𝑐 𝑎𝑛𝑔𝑒 𝑟𝑎𝑡𝑒 𝑑𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑝𝑟𝑖𝑐𝑒
𝑓𝑜𝑟𝑒𝑖𝑔𝑛 𝑝𝑟𝑖𝑐𝑒

𝑒𝐹𝐶

𝐷𝐶
𝑃∗

𝑃

- RER  in A country:
A country’s goods become cheaper compared to
foreign goods.
Encourages consumers at home and abroad buy
more goods from A, fewer goods from other countries.
 Country A’s X↑, M↓NX↑.
RER = cheaper
RER = more expensive
RER -- = 1, whether the good is from domestic or
abroad, the price is the same.

e.g. Pizza prices
Pizza in VN= 200,000 VND
Pizza in Australia= 7 AUD
eVND/AUD= 20,000 VND (20,000đ có thể mua 1 đô la Úc)
eAUD/VND= 0,00005 AUD (0,00005 AUD có thể mua được 1đ)
Price of VN’s pizza in AUD= 200,000 × 0,00005 = 10 AUD
RER=

∗

 Pizza in VN is 1.43 more expensive than pizza in AUD
NOTE: có thể dùng cách khác, bằng cách dùng price of Aus’s pizza in VN= 7 × 20,000 = 140,000 VND.

3. Purchasing Power Parity (PPP)



PPP is a theory of exchange rates whereby a unit of any given currency should be able to buy the
same Q of goods on all countries.
The theory of PPP is based on a principle called “the law of one price”.
 According to the law of 1 price, a good must sell for the same price in all locations. If the law
of 1 price were not true, unexploited profit opportunities would exist. The process of taking
advantage of differences in prices in different markets is called arbitrage.

25