ANSWERS FOR INTENSIVE REVISION (ESP1 CLC)

UNIT 1 MICROECONOMICS AND MACROECONOMICS

1. What does economics study?
Economics is the study (n) of / Economics studies how people choose to use resources the
most effectively to produce goods and services in order to best satisfy human demand.
Hoặc: Economics studies how people choose to use their limited resources to produce goods
and services in order to best satisfy human demand.
2. What does microeconomics study?
Microeconomics is the branch of economics that is concerned with individual areas of
economic activity, such as those within a particular company or relating to a particular
market.
Hoặc: Microeconomics studies how consumers, workers, and firms can best use their
limited resources/ can use their limited resources the most efficiently/ can make the most
of their limited resources in order to best satisfy their demand.
3. What does macroeconomics study?
Macroeconomics is the branch of economics that is concerned with the major, general
features of a country’s economy, such as the level of inflation, unemployment, or interest
rates.
4. What are three types of resources?
They are natural resources, human resources, and capital
5. Give examples for each type of resources.
Answers for question 4 & 5
A country's resources are the things that it has and can use to increase its wealth, such as
coal, oil, or land.
The resources of an organization or person are the materials, money, and other things that
they have and can use in order to function properly.
All resources can be divided into:
 Natural resources: land – đất đai, oil – dầu mỏ, coal – than đá, wind – gió, water –
nước, solar energy – năng lượng mặt trời, etc.
 Human resources: time, talent, knowledge, technology, inventions – phát minh,
patents – sang chế, etc.
 Capital (physical assets – tài sản dạng vật chất: buildings, equipment, etc. + financial
assets – tài sản bằng tiền: shares, bonds, accounts, investments, etc.)
6. What does the term “well-being” mean?
“Well-being” means/ refers to people’s satisfaction gained from the goods & services they
consume, the time they share with relatives and so on.
7. Name three themes of microeconomics.
Three themes of microeconomics are:
+ the allocation of scarce resources
+ the role of prices in the economy
+ the role of markets in the economy
8. What does CPI stand for? What does it mean?
CPI stands for Consumer Price Index: Chỉ số giá tiêu dùng
(US economics)
CPI is a measure of the average price of goods and services purchased by consumers, used as
an index of inflation
9. What does the term “trade-off” mean?
A trade-off is a situation where you make a compromise between two things, or where you
exchange all or part of one thing for another.
10. Why do consumers/ workers or firms have to make trade-offs?
Because their resources are limited, whereas/ while their demand is unlimited.
11. What does the consumer theory describe?
Consumer theory describes how consumers, based on their preferences, maximize their well-
being by making trade-offs
12. What does the theory of the firms describe?
The theory of the firms describe how firms can best make trade-off by using their limited
resources to deal with business practices such as what to produce, how to produce and for
whom to produce.

QUESTIONS FOR TOPICS

1. What are resources of consumers? How do they allocate their resources? (What are
examples for trade-offs made by consumers?)
Consumers have limited incomes. The consumer theory describes how consumers can best
make trade-offs based on their limited resources and preferences. For example, they may
trade off the purchase of more of some goods with the purchase of less of others. Another
example may be trading off current consumption for future.
- Prefer (v): prefer sth to sth: thích cái gì hơn cái gì
- Preferences: sở thích

2. What are resources of workers? How do they allocate their resources? (What are examples
for trade-offs made by workers)
Resources of workers are their time and talent, knowledge, working experience, etc. All these
resources are limited, so they have to make trade-offs. For example, they have to decide
when to enter the workforce (when finishing high schools or graduating from universities),
which job to do, who to work for. They can choose to work for large companies with job
security but limited potential for advancement or for small companies with more opportunity
for advancement but less security. They also have to decide how many hours for work and
how many hours for leisure and so on.

3. What are resources of firms? How do they allocate their resources? (What are examples
for trade-offs made by firms?)
Resources of firms are human resources, financial resources, production capacity,
technology, management ability, reputation (trade mark), brands, and so on. These resources
are scarce so companies have to make trade-offs. They have to decide what to produce, how
to produce and for whom to produce. For example, (lấy ví dụ về 1 công ty cụ thể). Thus, the
theory of the firm describes how companies can best make trade-offs.

4. How are prices important in the economy? / What is the important role of prices in the
economy?
Prices influence all trade-offs made by consumers, workers and firms. For example, when
prices of a good increase, consumers tend to buy substitutes even they don’t prefer them.
Workers choose employment depending partly on salaries paid to them. And, a firm’s
decisions such as buying more machinery or employing more workers depend partly on
prices of those machines or salaries paid to those workers.

5. What does economics study?

Economics studies how people choose to use limited resources to produce goods and
services in order to best satisfy human demand. Resources consist of natural resources such
as …; human resources including ………. and capital such as ….. All these resources are
limited/ scarce while human demand is unlimited. That’s why it’s necessary to study
economics. And economists study economic phenomena by 2 different avenues:
microeconomics and macroeconomics.
(Economics has 2 branches microeconomics and macroeconomics. )

6. What does microeconomics study?

Microeconomics is a branch of economics that deals with how consumers, workers and firms
behave while making decisions on the allocation of their scarce resources. Because their
resources are limited so all consumers, workers and firms have to make trade-offs. For
example, first, consumers have to trade off the purchase of more of some goods with the
purchase of less of others. Second, workers have to make choice of employment, employer
(who to work for), and how many hours for work. Last, firms have to decide what to
produce, how to produce and for whom to produce.
Microeconomics also studies other important themes such as the role of prices and the role
of markets in the economy.
Deal with = study = look at + behavior of consumers, workers and firms

7. What does macroeconomics study?

- Macroeconomics is the branch of economics that studies the role of both markets (the
invisible hand) and governments (the visible hand) in the economy. Specifically,
macroeconomics studies interactions among all economic factors such as economic growth,
inflation, employment and so on, as well as economic relations between different countries in
the world. / as well as international marketplace.
Moreover, macroeconomics also studies the regulation of the economy by the government.
Usually, the government uses macroeconomics policies such as fiscal policy and monetary
policy to promote the economic growth, to reduce unemployment and to control inflation.
8. What are differences between microeconomics and macroeconomics?
Microeconomics and macroeconomics are different in some ways. Firstly, microeconomics
focuses on behavior of consumers, workers and firms, whereas macroeconomics emphasizes
the interactions among all economic factors, the role of governments in the economy, as well
as international economy. Secondly, microeconomics studies theories of consumers, workers
and firms, but macroeconomics focuses on how governments use their macroeconomic
policies to regulate the economy. Finally, microeconomics analyzes factors influencing
behavior of consumers, workers and firms while macroeconomics analyzes market forces
influencing the economy as a whole.

UNIT 2 PUBLIC FINANCE

QUESTIONS FOR DETAILS
1. What are federal funds?
Federal funds are government’s revenues generated from individual income taxes, corporate
income taxes and some others.
2. For what purpose are federal funds used?
Federal funds are used for / spent on the government’s annual projects or programs.
3. What are trust funds?
Trust funds are generated from payroll taxes.
4. For what purpose are these funds used?
Trust funds can be used only to pay for Social Security (an sinh xã hội) and Medicare. (Y tế)
5. By what way does the Treasury borrow money?
The Treasury can borrow money by (1) selling securities directly through its website and (2)
indirectly via banks or brokers
6. Who does the Federal Government owe money to?
The government can borrow money from both international investors and domestic investors.
7. Who can be international investors that buy government bonds?
International investors who can buy the government bonds are governments of other
countries, and foreign individuals or organizations.
8. Who can be domestic investors that buy government bonds?
Domestic investors can be the Central bank, local governments and citizens of the country.

QUESTIONS FOR TOPICS

1. How are trust funds and federal funds used? Give examples.
Trust funds are the government revenue coming from/ generated from payroll taxes. They are
only used for social security and medicare such as paying pensions for retired people,
subsidizing social families, and so on. While federal funds are the government revenue
coming from/ generated from income taxes, customs duties, excise taxes, etc. They are used
for infrastructure, paying salaries for state employees and for running the government body.
 2. What are different sources of money that the government can borrow from?
The government can borrow money from the surplus of trust funds which are called debts
held by federal accounts. The government can also borrow money from the public which are
called debts held by the public. That includes inside investors and international investors.
Inside investors include domestic private investors, the central bank (Fed), state and local
governments and others.

UNIT 3 FISCAL POLICY

QUESTIONS FOR DETAILS

1. What is deficit spending?
Deficit spending (bội chi) means spending funds obtained by borrowing or printing instead of
taxation
2. What are objectives of deficit spending?
Objectives of deficit spending are to promote economic growth, to increase employment or to
keep inflation under control.
3. What are tools of fiscal policy?
They are government spending and taxation
4. What is an expansionary F.P.?
A fiscal policy is expansionary when taxation is reduced, and/or government spending is
increased/
Hoặc: A fiscal policy is expansionary when the government reduces taxation (specifically tax
rates), and/or increases government spending.
5. What are objectives of an expansionary fiscal policy?
Objectives of an expansionary fiscal policy are to create more jobs (reduce unemployment)
and to promote economic growth.
6. What is a contractionary F.P.?
A fiscal policy is contractionary when taxation is increased, and/or government spending is
decreased
7. What are objectives of a contractionary fiscal policy?
Objective of a contractionary fiscal policy is to keep inflation under control/ to control
inflation.
8. Why should the government consider fiscal policies of other countries?
Because fiscal policies of other countries may tempt multinational corporations to relocate by
offering them generous tax programs (chương trình ưu đã về thuế) or other government –
controlled benefits
9. What is fiscal policy?
Fiscal policy is one of the major macroeconomic policies which controls the government
spending and revenues and is supervised by the Ministry of Finance.
QUESTIONS FOR TOPICS
1. Under what circumstance would deficit spending be helpful to the economy? Why?
Give an example to explain that.
Deficit spending can be helpful when the economic growth rate is low or unemployment rate
is high. For example, when the government borrow more money to build a new road, the
construction creates more jobs for local people who are idle, so the unemployment rate is
reduced. The construction also brings more incomes for both companies and workers. With
more incomes, they tend to spend more, leading to more production of goods and services,
and then the economy tends to grow.
2. Under what circumstance would deficit spending be harmful to the economy? Why?
Give an example to explain that.
Deficit spending can be harmful when inflation rate is high. For example, when the
government borrow more money to build a new road, the construction creates more incomes
for both workers and firms. With more incomes, they tend to spend more, so the aggregate
demand will increase, causing an increase in prices, and inflation rate will be higher. In times
of high inflation, it becomes difficult to control inflation and economic recession or crisis
may happen.
3. When should the government conduct expansionary fiscal policy? Why?
The government conduct expansionary fiscal policy when the economic growth rate is low or
unemployment rate is high. For example, when the government borrow more money to build
a new road, the construction creates more jobs for local people who are idle, so the
unemployment rate is reduced. The construction also brings more incomes for both
companies and workers. With more incomes, they tend to spend more, leading to more
production of goods and services, and then the economy tends to grow.
4. When should the government conduct contractionary fiscal policy? Why?
The government conduct contractionary fiscal policy when inflation rate is high. For
example, when the government increase income tax rates, both workers and firms will have
less money to spend or invest, so the aggregate demand will reduce. This will then reduce
pressure on prices, and inflation tends to reduce.
5. What are differences between fiscal policy and monetary policy?
fiscal policy monetary policy
- Tools: government spending & - Tools: Reserve requirement, Discount
taxation rates and open market operations
- control the government spending or - controls the money supply
taxation - supervised by the Central bank
- supervised by the Ministry of Finance - can be expansionary or restrictive
- can be expansionary or contractionary - Objectives are to manage inflation, to
- Objectives are to reduce reduce unemployment, to promote
unemployment; to promote economic moderate long-term interest rates.
 growth, to control inflation.

6. What factors should be considered when making decisions on fiscal policy? Why?
When making decisions on its fiscal policy, the Government should consider a number of
factors, consisting of inside factors and outside factors.
Firstly, internal factors include economic factors such as economic growth rate,
unemployment rate and inflation rate. Moreover, the government also needs to consider non-
economic factors as well, for example, politic consideration.
Secondly, external factors may have a great influence of the fiscal policy of a country. For
example, fiscal policies of other countries may tempt multinational corporations to relocate
their subsidiaries due to that countries’ generous tax programs. Other factors can be
requirements of the International Monetary Fund (IMF), which often grants aid packages
subject to conditions relating to fiscal policy.

UNIT 4 MONETARY POLICY

QUESTIONS FOR DETAILS
1. What does money supply include?
Money supply includes credit, cash (coins and currency in circulation), checks (checking
accounts & traveler’s checks), and money market mutual funds.
2. What does credit include?
Credit includes loans, bonds, and mortgages
3. What is monetary policy?
Monetary Policy is one of the major macroeconomic policies which controls/ manages the
money supply and is supervised by the Central bank.
4. What are 3 tools of monetary policy?
Three main tools of monetary policy are reserve requirements, discount rates and open
market operations.
5. What is reserve requirement?
Reserve requirement is/ refers to a percentage of deposits that the central bank sets as the
minimum amount of reserves as banks must have
6. What is the role of reserve requirement?
Reserve requirements determine the amount banks hold as reserves, so they determine the
bank lending capacity (how much money banks can have to lend out)
7. What is discount rate?
The discount rate is the rate of interest that the central bank of a country charges on the loans
that it makes to other banks.
 8. What are open market operations?
Open market operations mean the central bank’s buying and selling government securities on
the open market.
9. What is an expansionary monetary policy?
Monetary policy is expansionary when the central bank lowers reserve requirements, drops
the discount (bank) rates, or buys more bonds.
10. What are the objectives (goals) of an expansionary monetary policy?
Objectives of an expansionary monetary policy are to reduce unemployment, to promote
economic growth.
11. What is restrictive monetary policy?
Monetary policy is restrictive when the central bank increases reserve requirements, or the
discount (bank) rates, or sells more bonds.
12. What are the objectives (goals) of a restrictive monetary policy?
The objective of a restrictive monetary policy is to reduce aggregate demand, so to reduce
inflation rates/ or to cool the overheating economy.

QUESTIONS FOR TOPICS

1. Under what circumstances should the Central bank conduct expansionary monetary
policy? And why?
Monetary policy should be expansionary when the economic growth rate is low or
unemployment rate is high. For example, when the central bank reduces reserve requirement,
or discount rate or buys government bonds, this will increase the bank lending capacity or
increase money in the circulation. The increased money supply encourage spending, leading
to more investment and production of goods and services, the economy then tends to grow.
2. Under what circumstances should the Central bank conduct restrictive monetary
policy? And why?
Monetary policy should be restrictive when the economy is overheating or inflation rate is
high. For example, when the central bank increases reserve requirement, or discount rate or
sells government bonds, these actions will reduce the bank lending capacity or reduce the
money supply, leading to reduced investment and consumption. When the aggregate demand
reduces, the prices of goods and services tend to reduce, and inflation rate is likely to reduce.
3. What are major objectives of monetary policy in general? How should the central
bank conduct monetary policy to achieve these objectives
In general, the major objectives of monetary policy are to promote economic growth rate or
to reduce unemployment rate or to reduce inflation rate. In order to promote economic
growth rate or to reduce unemployment rate, the central bank conducts an expansionary
monetary policy by reducing RR or DR, or to buy government bonds. In order to reduce
inflation rate, the central bank conducts a restrictive monetary policy by increasing RR or
DR, or to sell government bonds.
 UNIT 5 FINANCIAL MARKETS
Questions for detailed information
1. What is the main function of financial markets?
Financial markets perform the essential economic function of channeling funds from
households (individuals), firms (organizations), and governments (chính quyền) that have
saved surplus funds by spending less than their income to those that have a shortage of funds
(money/ capital) because they wish to spend more than their income.
2. What are securities?
Securities are mostly shares and bonds and other valuable papers.
3. What are debt markets?
A debt market is the financial market in which/ where debt instruments such as bonds or
mortgages are traded.
4. What are equity markets?
Equity markets are the financial markets in which equity instruments (equities) are traded.
5. What can the debt holders (creditor) receive for holding debt instruments?
They can receive determined regular interests for holding debt instruments
6. What can equity holders (shareholders) be paid by the company?
Equity holders (shareholders) can receive flexible (unfixed) dividends paid by the company.
7. What can shareholders do if they want to get back their money?
If they want to get back their money they can sell their shares to others (someone else on the
equity markets.
8. What is the main disadvantage of owning a corporation’s equities rather than its debt?
The main disadvantage of owning a corporation's equities rather than its debt is that an equity
holder is a residual claimant - that is, the corporation must pay all its debt holders before it
pays its equity holders.
9. What are primary markets?
A primary market is a financial market in which new issues of a security, such as a bond or
a stock, are sold to initial buyers by the corporation or government agency borrowing funds.
10. What are secondary markets?
A secondary market is a financial market in which securities that have been previously
issued can be resold.
11. Can issuers raise more money in secondary markets? Why/ why not?
Issuers of stocks and bonds can’t raise more money in secondary markets because in these
markets previously issued securities are traded.
12. What do investment banks do in primary markets?
They assist in the initial sale of securities in the primary market by underwriting securities:
They guarantees a price for a corporation's securities and then sells them to the public.
13. What are Exchanges?
Exchange is an organized market in which transactions (trading) are (is) made in a physical
place (called a trading floor – sàn giao dịch) and during fixed hours (called a trading session
– phiên giao dịch).
14. What are OTC markets?
An OTC market is a market in which transactions are made through/ via means of
communication such as computer link or telephone and throughout the day.
15. What are money markets?
The money market is a financial market in which only short-term debt instruments
(generally those with original maturity of less than one year) are traded;
16. What are capital markets?
The capital market is the market in which longer-term debt instruments (generally those
with original maturity of one year or greater) and equity instruments are traded.

QUESTIONS FOR TOPICS

1. How do debt markets operate?
Debt markets are the markets in which debt instruments such as bonds or mortgages are
traded.
- The borrowers have to pay debt holders fixed amounts of money at regular intervals,
consisting of interest and principal payments until a specified date (the maturity date), when
a final payment is made.
- The debt holders always know how much their money will be worth in a certain period of
time.
2. How do equity markets operate?
- Equity markets are the markets in which equity instruments such as stocks are traded.
-The stockholders are entitled to parts of the company’s assets and are paid periodic
dividends. They can only get back their money by selling their shares to other investors on
secondary securities markets, but not from the share issuers. Dividends are flexible, it means
that dividends can be paid or not to the stockholders
3. How do primary markets operate?
A primary market is a financial market in which new issues of a security, such as a bond or
a stock, are sold to initial buyers by the corporation or government agency borrowing funds.
Initial buyers are often investment banks, stock companies or insurance companies. These
markets help the issuers of share or bonds to raise more capital. However they are not well-
known to the public because fresh securities are sold to initial buyers.
4. How do secondary markets operate?
- A secondary market is a financial market in which securities that have been previously
issued can be resold.
- These markets don’t help issuers of shares or bonds to increase more money. However,
prices of fresh securities on the primary markets are determined by the secondary markets.
- These markets makes securities more liquid because the investors can get back their money
by selling their securities on the secondary markets.

5. What are differences between Exchanges and OTC markets?

Exchanges are the securities markets in which transactions are made/ undertaken in a single
location and during fixed hours. Only securities of listed companies – large companies which
satisfy the requirements of listing are traded in Exchanges.
Whereas, OTC markets are the markets in which transactions are made via means of
communication and throughout the day. These brings opportunities to buy and sell securities
of small and medium-sized companies who cannot be listed in the Exchanges.
6. What are differences between Money markets and Capital markets?
Money markets are the markets in which only short-term debt instruments, (with the maturity
of a year or less) are traded.
Capital markets are markets in which long-term debt instruments and equity instruments are
traded.
Short-term debt instruments are more liquid, so they are safer to invest than instruments of
capital markets.