Chapter 1: Introduction to macro-economics

Mail: truongpx@ftu.edu.vn
I. Basic concepts
1. Scarcity
- Definition: The situation in which unlimited wants exceed the limited resources available to
fullfill those wants
+) E.g: Viet Nam predictions and slogan for 2045
- The law of diminishing marginal returns/ product/productivity
 Make optimal choices in order to avoid Scarcity (First of being maximum benefits,
second is to think about minimum cost, then we take the total benefits minus the costs then
we have net-benefits)
2. Opportunity cost
- Definition: The value of the next - best alternative (value of the 2nd best choice) that must
be forgone in order to undertake the activity
- The law of increasing opportunity cost
- Economic costs = explicit costs + impliciti costs (opportunity costs)
+) E.g 1: A famous lawyer has two optionns.
* Option No.1: he’s very rich and he can write the will by himself and this will take
him 2 hours.
* Option No.2, he can hire another lawyer to write for him but he had to paid a fee of
$10,000
+) E.g 2: Fee/semester: 30,000,000 VND  The explicit cost includes material, an
increase in study fee, transportation fee,… 4 years mean nearly 800,000,000 VND 
We choose this as our project cause the first 4 years are an investment. After 6 years,
we can possibly balance out the fee we spent on study.
 Why option No.2 ?: Because the explicit cost (include printing, electricity,…) + optional
behaviors (going out, relaxing,…) and 2 hours of writing is $30,000 for option No.1.
Option No.2 only cost $10,000 (Implicit cost)
3. Three fundamental questions in economic
- The study of choices that economic players make to obtain their goals, given their scare
resources
- Macro level economics include: the whole economy
- Micro level economics include: household, firm, industries,…
- Three fundamental questions in economics
+) Produce what
+) How produce
+) Produce for whom
II. Overview of macroeconomics
1. What is macroeconomics
- Should FPT invest in new technology (Micro)
- Effect of increase of petroleum price on transportation (Micro)
- Whether increase in input cost leads to increase in CPIii (Macro)
- How Productivity affects GDPiii (Macro)
2. Objects and methods of research
- Macroeconomics focuses on 4 fundamental objects
+) Total output (aggregate output), economic growth, business cyclem  Vietnam’s
economics is growing but still low comparing to other countries
+) Price level, inflation  We used to have high inflations  starting to become better
but still high
+) Unemployment, social welfare  use this to make a prediction about the country 
China invades Viet Nam since we are in a lower position, xuất nhập khẩu thâm hụt so
với Trung Quốc
+) International trade, balance of payment, foreign exchange rate (Internal Indications for
how strong is a country
- Methods of research:
+) Model method: You create another world in which you have assumptions  E.g:
Make assumptions relating to temparature and students attending class. In summer of
Hanoi, the higher the temparature, the less students attend the class.
+) Mathematical method (Statistic method):
+) General equilibrium method: Must have demand quantity = supply quantity
 Questions revolving 4 above mentioned objects are the issues researched by
macroeconomics
3. Macroeconomic system
- Aggregate demand = Aggregrate supply
- The equilibrium point1 is created by both AD curve and AS curve
- Internal input is something generated by the economy. It is the input we can control. E.g:
Our bank controls interest rate  Governmennt spending is another internal input.
- External input: The input that we cannot control. This will shift the AD and AS. The
outputs include unemployment, price,…  E.g: Government decreases the income tax.
People buy more so AD shifts to the right. The output up, the price up, employment down.
Good input good outcome.  E.g 2: There will be a lot of tropical storm into VN  The
AS shifts the to the left. The output down, price up, unemployment up.
4. Objectives and policy tools of government to adjust macroeconomy
- There are 4 main policies:
+) Fiscal policy: through tax
+) Monetary policy: money supply to reduce the interest rate
+) Income policy: the gov use the law to directly the commonity, salary in the economy
+) Trade policy: terriff barrier (hàng rào thuế quan) and non-terriff barier

Chương 2: Macroeconomics indicators

1
Điểm cân bằng
1) GDP (Gross Domestic products)
a) Definition:
- GDP is the total market value of all final goods and services produced within a country in a
given period of time.
- If the companies and agencies are in the territory of VN, they belong to GDP of VN.
+) Illegal good and services:
+) Self products and self consumed goods.
- 6 Asian countries in G20 (with the highest GDP in the world): Japan, South Korea, China,
India, Indonesia, Saudi Arabia
+) Must have advanced technology  Must be the owner of intellectual pattern,
inventions, knowledges,…
+) Have high population
+) Abundance in natural resource
+) Capital to invest in domestic and internaltional infrastructures, items,…
*) E.g: There is a guy who is a manager for the wife who is a singer. They fell in
love. If the husband still do the same job after getting married, what happens to the
GDP? Marriage cause the decrease in the GDP  Things become self-produced and
self-consumed. However, if you paid for the weddings, house and the children, the
GDP will go up.
b) Measurement method:
- Expenditure method: from a buyer perspective
+) GDP = C + I + G + NX
*) C: Consumption of household
*) I: Investment (Not only firm but also private sector)
*) G: Government spending (Government purchase):
*) NX: Next export: Export Values minus Import Value (EX - IM)
+) If household buys a new house, then it belongs to I
+) Transfer payment (Subsidy)2 even included in G but not included in GDP (you have to
exclude the Subsidy from Government spending if you do GDP)
+) C + G + I 3– M 4+ X5: If the value of M changes, the value of GDP will remain
unchanged  The old expenditure for domestic goods
- Income method: from a seller perspective
+) GDP = W + R + i + Pr + Te + Dep
*) W: Pay Wage to the workers
*) R: Pay Rent fot the rent owners
*) i: Interest rate of the bank
*) Pr: Profit income of owners (2 ways to huy động vốn: Borrow money
from the other capital, already owned the the capital)

2
trợ cấp
3
C + G + I: Domestic expenditure for all goods
4
C + G + I – M: Domestic expenditure for domestic goods
5
X: Foreign expenditure for domestic goods
 *) Te: Includes goverment6 and net tax.
*) Dep: Depreciation (Old machine)
+) Total expenditure must equal to the total income
2) GNP7 vs GDP:
a) GNP: the total income of people in one country earn by producing the final goods and
services in a given period of time.
+) GNP = GDP + NFA (Income of home people earn in foreign country –
Income of foreigners earn in whole country)
+) NFA > 0  GNP > GDP
+) NFA < 0  GNP < GDP
+) GNPVN2022: 395 = 410 + 19 – 34 (Billion VND)
+) Mr T is a Vnmese professor . He has been teaching in USA for Havard. His salary
belongs to GNP of VN and GDP of USA.  GNP of US remain unchange because this
only counts for homepeople
b) Nominal GDP vs Real GDP vs GDP deflater
- Nominal GDP: Easy to calculate but have no meaning. You cannot use it to compare the
input and output of a country.
+) GDPtn =Qt.pt
- The real GDP:
+) GDPtn =Qt.Pb (P is the constant price, The b is here stands for base year)
economy
+) Can reflect the change of total output produce by the
time
8
- GDP Deflater :
t
t GDPn
+) D GDP = t
.100
GDP r
+) Meaning: How many times the average price in the current year higher than the average
price of the base year.
Base Goods A Goods B
GDPn GDPr DGDP
year PA QA PB QB
1 5 10 3 6 68 68 100
2 6 8 4 8 80 64 125
3 8 12 5 5 121 75 161

Base Goods A Goods B

GDPn GDPr DGDP
year PA QA PB QB
1 5 10 3 6 68 84 80,9
2 6 8 4 8 80 80 100
3 8 12 8,4 5 138 92 150
c) Limitations of GDP
- Calculate value of thing that should have been eliminated (V1)
6
Provides infrastructures + security for the company
7
National accounting systems: NAS
8
Chỉ số giảm phát GDP
 - Do not calculate value of things that should have been included (V2)
- NEW ( Economic farewell: Giá trị kinh tế giàu): GDP/GNP – V1 + V2
 In practice HDI : (From 0  1; The closer to 1 the more developed the country), where
to be born Index (nơi nào sinh ra sướng nhất),
3) CPI
a) Definition:
- CPI is the price index that measures the average price of the basket of goods and services
bought by a typical consumer9
b) How to calculate CPI (Computing method)
- Step 1: Choose the basket by month
+) Food (Pork: 10kg)
+) Transportation: Gasoline (200K)
+) Knowledge: Book
- Step 2: Identify price of goods:
Month Pfood (1kg/$) Ptransportation Pbook(1/$) Total CPI Inflation rate
1 5 10 8 258 100 n/a
2 8 15 12 292 152 52%
3 10 20 16 516 200 31.6%
- Step 3: Calculate cause of the basket
- Step 4: Calculate CPI
cost of basket ∈a month
- CPI ( b ) = . 100
cost of basket ∈base month
- Step 5: Calculate inflation rate in Multi CPI
t t−1
CPI −CPI
- π(t )= t−1
.100 %
CPI
c) Meaning:
- How many times the CPI in a month higher than the CPI in the base month
d) DGDP vs CPI
- Common: 2 indicators are used to reflect price level
- Difference:
*) Drinking milk produce by VN have increased in the price. Which indicators
increase? Both DGDP and CPI. If you want to increase CPI, change the product to Meiji.
If you want neither DGDP and CPI to not increase, you should change the product to
private jets.
+) The updatedness of DGDP is quicker than the basket of CPI. Every 5 years, the basket
of CPI is updated. Every year, basket of DGDP is updated.
 Fisher price indext = √ CPI t . DtGDP

9
Average/medium income
 (1) CPI (3)DGDP
Goods bought by Goods that are
(2) Goods
bought by

typical consumers typical

consumers and
domestic goods
but not domestic are domesstic
goods
but not bought by
goods. E.g: Agriculture typical customers
products,
Gasoline, meat Military goods,
(pork, beef) machines,

e) Limitaions of CPI:
- Subsitution bias
- New goods introduction
- Never tells you about the quality of goods and services
f) Application of CPI
- Nominal variable  real variable = purchasing power
Nominal wage
+) Nominal wage: 10 million VND. Real wage =
CPI
+) The change of nominal wage in percentage must be greater than inflation rate in order to
increase real wage
+) i (nominal interest rate) +) 10%
+) π +) 0%
+) r (real interest rate) +) 10%
+) r ≈ i−π
- Use CPI to convert money value in 1 year to another year
+) 2013: brother graduated FTU with a starting point at 5 million VND of 2013 (CPI =
100). 2023 you graduated FTU with 10 million VND (CPI = 220) Your brother has higher
salary than you.
Mx
+) . CPIy=My
CPIx
4) Unemployment
a) Definition:
- Have no job
- In working age population (15 – 60 years old)
- Able to work
- Want to work
- Employed is the same but they have jobs
- Labor force = Unemployed + Employed

Elder
Non in labor force
(disabled, students,
prisoners,
housewives,...
Working age populaion Employed

Labor force

Children Unemployed

-
b) Calculate
UR
- Unemployment rate (UR) = .100 %
Labor force
Labor force
- Labor force participation rate: . 100 % (If we have 90% of people
Workingage population
in labour force, for the next 5 years, a possibility of 10% people will only be in labor force)
- Math problem No.1: Total population is 100 million people. Elder and children are 20
million in total. Labor force participation rate is 80% . The number of employed higher than
unemployment rate 56 million. Calculate: Unemployment rate
- Elder - -
- Children - Non labour force - Employed
- Working age population - Labor force - Unemployed
- WAP: 80 million:
LFP
- Labour force: .WAP=64 = U + E
100 %
- E – U = 56

-  { U =4
E=60
- Math problem no.2
5) Two main types
a) Natural unemployment (Thất nghiệp tự nhiên)
- Cause by objective reasons (minimize the negative effect cause by those)
- Can exist in the long run
- 4 types
+) Frictional unemployment (thất nghiệp tạm thời)
 +) Structutal unemployment (Not only for the whole economy but also a specific sector);
(Thất nghiệp cơ cấu)
*) Eg: 10 years ago we have bicycle fixer, now we don’t
+) Seasonal unployment (It exist because some jobs in the aconomy have seasonality)
*) Eg: If you are the employee of a water park, you won’t have any job in the winter
+) Classical unemployment:
*) If W1 is higher than W0, it will stay the same in classical unemployment (W1) due to
government (minimum wage law regulated by the government), labor union (công đoàn
lao động), some firms in the economy want to pay the wage higher than W0 (Efficient
wage theory)
+)
5
W1 witness a supply surplus
4.5 (Unemployment)
Bu y
er b
4 eha
v io r
s
3.5

3 Equilibrium
W2: witness a supply point (W0)
2.5
shortage
2

1.5

0.5

0
Demand curve

Supply curve Column1 Column2 Column3

b) Cyclical unemployment (Thất nghiệp tuần hoàn)

- Cause by subjective reasons
- Only exist in the short run, have the feature of instability
- Occurs with economic cycle
- At the expansion phase, cyclical U down
- When economy fall in to recaption, cyclical U up
- It depends on the managers’ reception
- In the long run, the trennd is always upward since The after peak (bottom) higher than the
previous peak(bottom). There won’t be no fluctuation
- Total unemployment = Natutal U + Cyclical U  Cyclical U = Total U – Natural U (To
see the economic cycle in the short run, use Cyclical U)
- - Year 1 - Year 2
- TU - 10% - 9%
- NU - 6% - 4%
- CU - 4% - 5%
-
 Y-Values
3.5

2.5

1.5

0.5

0
0 0.5 1 1.5 2 2.5 3 3.5
-
6) Solutions for unemployment
a) Frictionnal unemployment
- Promote activities for unemployment agencies
- Open more or develop short courses
- Facilitate labour movement
b) Classical unemployment
- Don’t have any solution
c) Cyclical unemployment
- Stimulus policy (If you don’t have a job in private sector, find jobs in public sector)
- T3 tuần sau KTGK (12/12/2023)
 Chương 3: Economic Growth
1) Definition
- Economin growth is the increase of a country’s output (GDPr)
2) Measurment (Y ≡GDP)
a) Absolute growth (Tăng trưởng tuyệt đối)
- Easy to be calculated
∆y = y t − y t−1
- - 1 - 2 - ∆y - Gt
- A - 100 - 110 - 10 - 10%
- B - 10000 - 10100 - 100 - 1%
- Take account into the size of country A and country B
b) Relative growth
t y t− y t −1
g= . 100 %
yt
c) Average growth
- 10 years later in 2023 we have 4000 USD/person
- 2013 GDP/person = 2000 USD/person

n
- y n= y 0 ( 1+ g a )  ga =
Yn
Y0 √
n yn
−1  n=log 1+ g ( ) 
y0
ln
a
yn
y0 ( )
ln ( 1+ ga )
+) Yn value of ending year/month (period)
+) Y0 value of starting year/month (period)
+) Ga average growth rate
+) N is the period.
- 2023 VN GDP/person = 3853 USD/person
- 13845 USD/person is consider to be a high GDP
- ga =6 , 5 %

-
n=
ln ( 13845
3853 )
≈ 22 years
 After 2045 we will be consider as a country with high GDP
ln (1+ 6 ,5 % )
70
- Rule 70 : for quick estimation, you take ¿ calculate the year that the GDP will be doubled
ga
- Only use rule 70 (rule of thumb) for quick result
ln ( 1+ x )
- lim =1∧ln 2=0 , 69
x →0 x

-
n=
ln n
y
y0 ( )
≈
ln 2 .100 70
≈
ln ( 1+ g a ) g a .100 g a
3) Meaning of Economic growth
- - Ga - Rule of 70 - After 70 years
 - US - 2% - 35 years - 4 times (22)
- VN - 7% - 10 years - 128 times (27)
- Low GDP country, high ga is the vital aspect for the low GDP country to catch up with high
GDP country
- Improve living standard  state can collect more stuff and have enough fund to build
infrastructure
- Create more job  reduce unemployment rate (the growth rate must be higher at a certain
level)
- Credibility of government in the economy management
4) Factors deciding Economic growth (supply side)
- In the short run, the demand side will be the one to decide ER
- In the long run, the supply side will be the one to decide ER
- Economic factor group (decisive role)
+) L (labor): Hire more labor  have the ability to produce more
+) K (capitial): invest in machine, infrastructure, facility
+) R (natural resources): expand the revenue
+) T (technology): AI, robots, transportation
- Non - economic group (supply role)
+) Institution (thể chế): (toà án tối cao)
+) Geography: landlocked country
+) Religion
5) Policies to promote economic growth
-
i
Chi phí ẩn
ii
CPI: chỉ số giá tiêu dùng
iii
GDP: Tổng sản phẩm quốc nội