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Course Name:
UNIT 1
Introduction to the Course & PRINCIPLES OF MACROECONOMICS
Ten Principles of Economics
LECTURER: Assoc.Prof. HA QUYNH HOA, PhD

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COURSE DESCRIPTIONS Main objectives

Upon completion of this course, students will be able to:
u This course introduces the fundamentals of macroeconomic theory and
explains their relevance to every-day economic problems. 1. understand some macroecomomics indicators: GDP, GNP, CPI, NX,
unemployment, exchange rate, money, …
u It examines the behavior of macroeconomic variables, such as national
income, unemployment, inflation and exchange rates. 2. obtain knowledge about the potential and limits of economic policies
and understand how the government use monetary policy and fiscal
u The short run economic fluctuations and the role of monetary and fiscal policy to manage economic fluctuations.
policies are also discussed.
3. use some macroeconomics models to analyse economic changes.
4. examine the global system, including exchange rates, trade and
international economic policy.

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Learning Materials Assessment scheme

On-going assessment:
1. Main textbook/ resources:
N. Gregory Mankiw (2021), Principles of Economics 9th edition, Cengage 1. Participation: 10%
Learning, ISBN 978-0-357-03831-4 2. 02 mid-term test: 40%
2. Additional references: 3. Final Exam: 50%
- Hall Robert and Lieberman Marc, Economics: Principles and Applications, § Part I: Multiple choice questions (20 questions/ 4 points)
2nd edition (2003)
§ Part II: Exercises (6 points / 3 questions)
- Lecturer slides

Completion Criteria: Final Result >=4.5

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Lecture Schedule
Student's task Title No of class hours
Unit 1 Introduction and ten principles of economics 3
Unit 2 Measuring a nation’s income 4
1. Actively participate in class activities
Unit 3 Measuring cost of living 2
2. Fulfill tasks given by instructor after class
Unit 4 Production and growth 3
3. Use their own laptop in class only for learning purpose
Unit 5 Saving, Investment and the Financial System 4
4. Read the textbook in advance
Unit 6 Unemployment 2
5. Do all Problems and Applications at the end of Chapters Unit 7 Money and Monetary Policy 4
Unit 8 Money growth and Inflation 2
Unit 9 Macroeconomics of Open Economies 4
Unit 10 Aggregate Demand and Aggregate Supply 8
Unit 11 Short-run trade off between Inflation and Unemployment 2
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Course Review 2

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Reading materials
Unit 1
N. Gregory Mankiw (2021), Principles of Economics 9th edition,
Cengage Learning, ISBN 978-0-357-03831-4
Ten Principles of Economics
CHAPTER 1: Ten Principles of Economics
LECTURER: Assoc.Prof. HA QUYNH HOA, PhD

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Look for the answers to these questions Economics

u Economics is a social science concerned with the production,

1. What is economics? distribution, and consumption of goods and services.
2. Why do we study economics?
3. What are the principles of how people make decisions?
u It studies how individuals, businesses, governments, and
4. What are the principles of how people interact? nations make choices on allocating resources to satisfy their
5. What are the principles of how the economy as a whole works? wants and needs, trying to determine how these groups should
organize and coordinate efforts to achieve maximum output.

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Economics
Economics
u Resources are scarce
u Microeconomics
u Scarcity: the limited nature of society’s resources
Study of how households and firms
Society has limited resources Cannot produce all the goods and
• Make decisions
services people wish to have
• Interact in markets
u Economics can generally be broken down into:
u Macroeconomics
o Microeconomics
Study of economy-wide phenomena
o Macroeconomics
• Including inflation, unemployment, and economic growth

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Ten principles in economics Principle 1: People Face Trade-offs

Principle 1: People face trade-offs
To get something that we like, we have to give up something else that we also like
Principle 2: The cost of something is what you give up to get it
Principle 3: Rational people think at the margin “There is no such thing as a free lunch”
Principle 4: People respond to incentives
Principle 5: Trade can make everyone better off u Going to a party the night before an exam, Less time for studying
Principle 6: Markets are usually a good way to organize economic activity u Having more money to buy stuff, Working longer hours, less time for leisure
Principle 7: Governments can sometimes improve market outcomes
u The more it spends on national defense (guns) to protect its shores
Principle 8:
A country’s standard of living depends on its ability to produce goods and services The less it can spend on consumer goods (butter) to raise the standard of
Principle 9: living at home
Prices rise when the government prints too much money
Principle 10:
Society faces a short-run trade-off between inflation and unemployment
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Principle 2: The Cost of Something Is What You Give Up to Get It Principle 3: Rational People Think at the Margin
u Making decisions: u Rational people
Compare costs with benefits of alternatives o Systematically and purposefully do the best they can to achieve their objectives,
given the available opportunities.
Need to include opportunity costs
o Make decisions by evaluating costs and benefits of marginal change (Small
u Opportunity cost: Whatever must be given up to obtain some items
incremental adjustments to a plan of action)
u The opportunity cost of:
u Examples:
o Going to college for a year
o Cell phone users with unlimited minutes (the minutes are free at the margin): often
Tuition, books, and fees PLUS…….. prone to making long/frivolous calls; Marginal benefit of the call > 0
o Going to the movies o A manager considers whether to increase output: Compares the cost of the needed
The price of the movie ticket PLUS ………… labor and materials (Marginal costs MC) to the extra revenue (Marginal Revenue
MR).
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Principle 4: People Respond to Incentives

Principle 5: Trade Can Make Everyone Better Off
u Incentive
u People benefit from trade:
Something that induces a person to act
u Examples: People can buy a greater variety of goods and services at lower cost
Consumers access to a greater variety of goods – including goods they might
o When gas prices rise, consumers buy more electronic vehicles and
not be able to get at all
fewer gas-powered ones.
o When the government reduces VAT, HHs’ expenditures increase. u Countries benefit from trade and specialization
Get a better price abroad for goods they produce (exports abroad and get a higher
price)
Buy other goods more cheaply from abroad than could be produced at home

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Principle 6: Principle 7:
Markets Are Usually a Good Way to Organize Economic Activity Governments Can Sometimes Improve Market Outcomes

u Government - promote efficiency

u Market
o Market failures: market left on its own fails to allocate resources efficiently
A group of buyers and sellers (need not be in a single location)
o Externality – source of market failure: Production or consumption of a good
u “Organize economic activity” means determining affects bystanders (e.g. pollution à Law on Environmental Protection)
• What goods and services to produce o Market power – source of market failure: A single buyer or seller has substantial
• How much of each to produce influence on market price (e.g. monopoly à Antitrust law )
• Who produced and consumed these u Government - promote equality: Avoid disparities in economic wellbeing
Use tax or welfare policies to change how the economic “pie” is divided à Income
taxes law.

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Principle 8: Country’s Standard of Living Depends on Its Ability Principle 9:

to Produce Goods and Services Prices Rise When the Government Prints Too Much Money

u Huge variation in living standards Across countries and over time u Inflation
o Average income in rich countries is more than ten times average income in An increase in the overall level of prices in the economy
poor countries u In the long run
o The U.S. standard of living today Is about eight times larger than 100 years o Inflation is almost always caused by excessive growth in the quantity of
ago money, which causes the value of money to fall
u Productivity: most important determinant of living standards o The faster the government creates money, the greater the inflation rate
o Quantity of goods and services produced from each unit of labor input
o Depends on the equipment, skills, and technology available to workers
Other factors (e.g., labor unions, competition from abroad) have far less
impact on living standards
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Principle 10:
Society Faces a Short-run Trade-off between Inflation and Unemployment
Summary

u Fundamental lessons about individual decision making:

u Short-run trade-off between unemployment and inflation
o Over a period of a year or two, many economic policies push inflation
and unemployment in opposite directions
o Other factors can make this tradeoff more or less favorable, but the
tradeoff is always present
o People face trade-offs among alternative goals
o The cost of any action is measured in terms of forgone opportunities
o Rational people make decisions by comparing marginal costs and marginal benefits
o People change their behavior in response to the incentives they face

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Summary
u Fundamental lessons about interactions among people:
o Trade and interdependence can be mutually beneficial
o Markets are usually a good way of coordinating economic activity among
people
o The government can potentially improve market outcomes by remedying a
market failure or by promoting greater economic equality
u Fundamental lessons about the economy as a whole:
o Productivity is the ultimate source of living standards
o Growth in the quantity of money is the ultimate source of inflation
o Society faces a short-run trade-off between inflation and unemployment

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