VŨ ĐỨC NGỌC THIỆN_423253027

CHAPTER 1: OUTPUT 12/ b) For each year, identify the variable that does not change. Explain why your answer makes sense. Prices did not change from 2020 to 2021. Thus, the percentage change in the GDP
deflator is zero. Likewise, output levels did not change from 2021 to 2022. This means that the percentage change in real GDP is zero. c) Did economic well-being increase more in 2021 or 2022? Explain.
Economic well-being rose more in 2021 than in 2022, since real GDP rose in 2021 but not in 2022. In 2021, real GDP rose but prices did not. In 2022, real GDP did not rise but prices did.
14/ f) Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain. The growth rate of nominal GDP (4.17%) was higher than the growth rate of real GDP (2.19%) because real
GDP ignores the increasing of the price while nominal GDP doesn’t.
16/ Goods and services that are not sold in markets, such as food produced and consumed at home, are generally not included in GDP. How might this cause GDP to be misleading in a comparison of the economic
wellbeing of the United States and Vietnam? Explain. In countries like Vietnam, people produce and consume a fair amount of food at home that is not included in GDP. So GDP per person in Vietnam and the
United States will differ by more than their comparative economic well-being.
17/ The participation of women in the U.S. labor force has risen dramatically since 1970. a) How do you think this rise affected GDP? The increased labor-force participation of women has increased GDP in the
United States, because it means more people are working and production has increased. b) Now imagine a measure of well-being that includes time spent working in the home and taking leisure. How would the
change in this measure of wellbeing compare to the change in GDP? If our measure of well-being included time spent working in the home and taking leisure, it would not rise as much as GDP, because the rise in
women's labor-force participation has reduced time spent working in the home and taking leisure. c) Can you think of other aspects of well-being that are associated with the rise in women’s labor-force
participation? Would it be practical to construct a measure of well-being that includes these aspects? Other aspects of well-being that are associated with the rise in women's increased laborforce participation
include increased self-esteem and prestige for women in the workforce, especially at managerial levels, but decreased quality time spent with children, whose parents have less time to spend with them. Such aspects
would be quite difficult to measure.
18/ “The ballooning trade deficit, meanwhile, took more than three percentage points away from GDP growth in the first quarter. Imports, which are subtracted from gross domestic product because they are
produced abroad, have soared in recent months as U.S. consumers have kept spending. But exports, which add to G.D.P., have lagged in part because of weaker economic growth abroad”. The net in net exports
refers to the fact that imports are subtracted from exports. This subtraction is made because other components of GDP include imports of goods and services. For example, suppose that a household buys a $50,000
car from Volvo, the Swedish carmaker. This transaction increases consumption by $50,000 because car purchases are part of consumer spending. It also reduces net exports by $50,000 because the car is an import.
In other words, net exports include goods and services produced abroad (with a minus sign) because these goods and services are included in consumption, investment, and government purchases (with a plus sign).
Thus, when a domestic household, firm, or government buys a good or service from abroad, the purchase does not affect GDP because it reduces net exports by the same amount that it raises consumption,
investment, or government purchases.
CHAPTER 2: PRICE 8/ c) If you were to learn that a bottle of Gatorade increased in size from 2020 to 2021, should that information affect your calculation of the inflation rate? If so, how? This would lower my
estimation of the inflation rate because the value of a bottle of Gatorade is now greater than before. The comparison should be made on a per-ounce basis. d) If you were to learn that Gatorade introduced new
flavors in 2021, should that information affect your calculation of the inflation rate? If so, how? More flavors enhance consumers’ well-being. Thus, this would be considered a change in quality and would also
lower my estimate of the inflation rate.
9/ c) Is the inflation rate in 2021 the same using the two methods? Explain why or why not. No, it is not the same. The rate of inflation calculated by the CPI holds the basket of goods and services constant, while the
GDP deflator allows it to change and holds the prices constant.
13/ a) Is the real interest rate on this loan higher or lower than expected? When inflation is higher than was expected, the real interest rate is lower than expected. For example, suppose the market equilibrium has
an expected real interest rate of 3% and people expect inflation to be 4%, so the nominal interest rate is 7%. If inflation turns out to be 5%, the real interest rate is 7% minus 5% equals 2%, which is less than the 3%
that was expected. b) Does the lender gain or lose from this unexpectedly high inflation? Does the borrower gain or lose? Because the real interest rate is lower than was expected, the lender loses and the
borrower gains. The borrower is repaying the loan with dollars that are worth less than was expected. c) Inflation during the 1970s was much higher than most people had expected when the decade began. How did
this unexpectedly high inflation affect homeowners who obtained fixed-rate mortgages during the 1960s? How did it affect the banks that lent the money? Homeowners in the 1970s who had fixed-rate mortgages
from the 1960s benefited from the unexpected inflation, while the banks that made the mortgage loans were harmed.
14/ d) If the government imposes a price ceiling on oil to keep oil price unchanged, what would happen to CPI and the cost of living? CPI the same but cost of living increase.
CHAPTER 3: EMPLOYMENT 6/ a) An orchard will hire labour up to the point where the market value of the apples picked by the extra worker becomes equal to the worker’s wage (the cost of employing the
worker): P × MPL = W, or $2 × (100 – 2L) = W. This equation can be written under the form L = 50 – W/4, which is the equation of the labour demand curve for an orchard. Twenty orchards will hire 20 times more
labour, so that the industry labour demand will be L = 1000 – 5W. b) The equilibrium wage is determined by the equality of supply and demand for labour: 200 workers = 1000 – 5W, for which the solution is W =
(1000 – 200)/5 = $160. Each farm hires L = 50 – 160/4 = 10 workers, produces Q = 100 × 10 – 102 = 900 apples, earns revenue = 900 × $2 = $1800, pays 10 × $160 = $1600 in wages, and makes profit = $1800 –
$1600 = $200. The total income of the country is equal to the market value of the total production; that is, $2 × 900 apples × 20 orchards = $1800 × 20 = $36 000. c) When the price of apples doubles to $4, the
labour-wage equation becomes $4 × (100 – 2L) = W, or 8L = 400 – W, or L = 50 – W/8. Twenty orchards employ L = 1000 – 20W/8. If we set this equal to the supply of labour, we can determine the market wage:
1000 – 20W/8 = 200, with the solution W = $320, twice as much as before. The costs of production are 200 × $320 = $64 000. For a farm, this cost is $3200. The quantity produced by a farm must be the same
(900), because the number of workers is the same and each worker produces the same quantity; revenue is now twice ($3600) because the price is twice; profit is now $3600 – $3200 = $400, twice as much as
before. d) When P = $2 and the number of farms is 10, the labour-demand equation for an orchard is the same as at point (a) above: L = 50 – W/4. The market demand is now L = 500 – 10W/4; the market wage is
given by 500 – 10W/4 = 200, with the solution W = $120. Each farm hires 200/10 = 20 workers [or L = 50 – W/4 = 50 – 120/4 = 50 – 30 = 20 workers]; it pays $120 × 20 = $2400 in wages; it produces 100 × 20 –
202 = 1600 apples; it makes $2 × 1600 = $3200 revenue and $3200 – $2400 = $800 profit. The wage is less than before the hurricane, so the workers are worse off; the profit to a remaining orchard is higher, so the
remaining farmers are better off; the total value created in the country is equal to the total revenue of the orchards, namely $3200 × 10 = $32 000, which is less than before the hurricane.
8/ a) Total hours worked per week 1900 workers × 40 hours per worker = 76,000 hours per week. Total output per week = 76,000 total hours per week × 10 units of output per hour = 760,000 units of output. The
unemployment rate is 100 unemployed/2000 labor supply = 0.05, or 5%. b) Employment falls 4% from 1900 to: (1 – 0.04) × 1900 = 1824. The labor force falls 0.2% from 2000 to: (1 – 0.002) × 2000 = 1996. With a
labor force of 1996 and employment of 1824, unemployment is 1996 – 1824 = 172. The unemployment rate is 172/1996 = 0.086, or 8.6%. Hours worked per employed worker falls 2.5% from 40 to: (1 – 0.025) × 40
= 39. Total hours per week 39 hours per worker × 1824 workers = 71,136. So total hours per week falls by (76,000 – 71,136)/76,000 = 0.064 = 6.4%. Total output per week falls 1.4% for every 1% drop in hours, so
output falls by 6.4% × 1.4 = 8.96%. Since output was 760,000, it now falls to 760,000 × (1 – 0.0896) = 691,904. The Okun’s Law coefficient is the percent change in output divided by the increase in the
unemployment rate 0.0896/(0.086 – 0.05) = 2.49.
1*/ A person works more hours at a higher wage if the substitution effect is larger than the income effect; 2*/ A technological advance that increases the marginal product of labor shifts the labor-demand curve to
the right; 3*/ Around 1973, the u.S. economy experienced a significant slowdown in productivity growth, coupled with a slowdown in the growth of real wages; 4*/ A storm destroys several factories, reducing the
stock of capital. what effect does this event have on factor markets? Wages fall and the rental price of capital rises; 5*/ The main policy goal of unemployment insurance is to reduce the income uncertainty that
workers face; 6*/ One unintended consequence of unemployment insurance is that it reduces the search effort of the unemployed; 7*/ According to the theory of efficiency wages, firms may find it profitable to pay
aboveequilibrium wages; 8*/ When a firm pays an efficiency wage, it may find that its workers quit less frequently.
CHAPTER 4: GROWTH 2/ g) Suppose the economy is at the steady-state equilibrium and an earthquake destroys one-quarter of the capital
stock. Discuss what happens to output per labor in the short run and long run. The steady state is signifcant for two reasons. As we have just
seen, an economy at the steady state will stay there. In addition, and just as important, an economy not at the steady state will go there. That is,
regardless of the level of capital with which the economy begins, it ends up with the steady-state level of capital. In this sense, the steady state
represents the long-run equilibrium of the economy. In this case, the level of investment exceeds the amount of depreciation. Over time, the
capital stock will rise and will continue to rise – along with output f(k) – until it approaches the steady state k*. When the economy begins with
less capital than in the Golden Rule steady state, the policymaker must raise the saving rate to reach the Golden Rule. The increase in the
saving rate causes an immediate fall in consumption and a rise in investment. Over time, higher investment causes the capital stock to rise.
3/ b) Suppose the government has a policy to make all lazy adults go to work. Discuss what happens to output per labor in the short run and
long run. Discuss what happens to output per capita in the short run and long run.
CHAPTER 5: MONEY 1/ Why does an exchange economy need money? An economy that relies on barter will have trouble allocating its
scarce resources efficiently. In such an economy, trade is said to require the double coincidence of wants – the unlikely occurrence that two
people each have a good or service that the other wants. The existence of money makes trade easier. The restaurateur does not care whether
you can produce a valuable good or service for her. She is happy to accept your money, knowing that other people will do the same for her.
Such a convention allows trade to be roundabout. The restaurateur accepts your money and uses it to pay her chef; the chef uses her paycheck
to send her child to day care; the day care center uses this tuition to pay a teacher; and the teacher hires you to mow her lawn. As money flows
from person to person, it facilitates production and trade, thereby allowing each person to specialize in what she does best and raising
everyone’s standard of living.
2/ What are three functions that anything must satisfy as a money? Explain in detail. Money serves three functions. As a medium of exchange,
it is the item used to make transactions. As a unit of account, it provides the way to record prices and other economic values. As a store of
value, it offers a way to transfer purchasing power from the present to the future. b) Can seashells become money? Seashells have been used as
a form of money in various cultures throughout history for several reasons. Firstly, seashells were readily available in coastal areas, making
them a convenient medium of exchange. Additionally, seashells were durable and often had intricate designs, making them difficult to
counterfeit. Their use as money also reflects the idea that money is ultimately a social convention, and anything can serve as a medium of
exchange if it is widely accepted within a community. However, it's important to note that seashells were not universally accepted as money and were primarily used in specific cultural and historical contexts.
3/ What is the sufficient condition that anything must satisfy in order to become money? Anything can become money if people have trust/faith that. Others wil also trust/faith that... It can be exchanged for goods
and services. Money is only worth that others are willing to exchange for.
a) Without the government, is it more likely for gold or iron to become money? Why? Gold cannot meet the economic definition of “currency” in this modern era and probably never will. For something to be
considered a currency, it must meet the primary functions of money, which means it has to be durable, portable, and difficult to duplicate and must have a store of value. Gold Isn’t Portable: Take a moment and
think about how money functions today. Paper currency can make purchases in its current form through a check, people can transfer it electronically, and they can also store it on a plastic card and swipe it to make
payments. It’s impossible to use gold as currency with modern payment mechanisms. Gold Is Fragile and Easily Counterfeited: Let’s consider another reason gold can’t serve as a currency—it isn’t the most durable
material, which may come as a shock to some people. Although strong, it stands out as the most malleable type of metal. Pure gold will crumble under normal day-to-day stresses. Compared to paper money, a
skilled counterfeiter would find it easy to duplicate gold currency. It would take cutting-edge technology to come close to recreating modern paper money. Gold Isn’t a Unit of Account: The second characteristic of
currency ensures it acts as a unit of account, making it simple to measure. When you open your banking statement, you can see the amount of money deposited, how much money you withdrew, and you can even
use tools to analyze your expenses. When it comes to money substitutes like gold, it’s difficult to measure its unit of account. If you were to pay for something with gold, determining how much you spent compared
to your other transactions would be complex. Gold Pricing Is Subject to Erratic Fluctuations: The price of gold wildly fluctuates just like a commodity, based on supply and demand. Shortages of gold-based money
would be inevitable, and recessions would likely occur more often, followed by booms of economic prosperity when the supply comes back. Gold is too unstable to be an actual currency.
b) Explain how could a government make a paper become money without gold backing it? Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather
by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it.
Most modern paper currencies are fiat currencies, including dollar, euro, and other major global currencies. The term "fiat" is a Latin word that is often translated as "it shall be" or "let it be done". Thus fiat
currencies only have value because the government maintains that value; there is no utility to fiat money in itself.

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CHAPTER 6: FINANCE 8/ Explain why the banking system creates a trade-off between efficiency and stability? The Fed’s various tools – open-market operations, bank lending, reserve requirements, and interest
on reserves – have powerful effects on the money supply. Yet the Fed’s control of the money supply is not precise. The Fed must wrestle with two problems, each of which arises because much of the money supply
is created by our system of fractional-reserve banking. The first problem is that the Fed does not control the amount of money that households choose to hold as deposits in banks. The second problem of monetary
control is that the Fed does not control the amount that bankers choose to lend. When money is deposited in a bank, it creates more money only when the bank loans it out. Because banks can choose to hold excess
reserves instead, the Fed cannot be sure how much money the banking system will create. Hence, in a system of fractional-reserve banking, the amount of money in the economy depends in part on the behavior of
depositors and bankers. Because the Fed cannot control or perfectly predict this behavior, it cannot perfectly control the money supply. Banking and the liqidity/maturity transformation: Panics can kill good banks
(Self-fulfilling liqid crisis, Deposit insurance, Central bank as a lender of last resource, Rare in history), Bad loans can kill bad banks (Insolvency crisis, Interconnected and domino collapses, Credit crunches).

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CHAPTER 7: FLUCTUATIONS 1/ Explain why the AD curve is downward sloping? The aggregate-demand curve slopes
downward for three reasons. The first is the wealth effect: A lower price level raises the real value of households’ money
holdings, stimulating consumer spending. The second is the
interest-rate effect: A lower price level reduces the quantity of
money households demand; as households try to convert money
into interest-bearing assets, interest rates fall, stimulating
investment spending. The third is the exchange-rate effect: As a
lower price level reduces interest rates, the dollar depreciates in
the market for foreign-currency exchange, stimulating net
exports.
2/ & 3/ & 4/ What does the original Phillips curve tell us about
the AS curve in one year? Economists often express aggregate
supply in a relationship called the Phillips curve. The
Phillips curve says that inflation depends on expected
inflation, the deviation of unemployment from its natural
rate, and supply shocks. According to the Phillips curve,
policymakers who control aggregate demand face a
short-run tradeoff between inflation and unemployment.
CHAPTER 8: STABILIZATION 1/ & 2/ How can
monetary policy influence aggregate demand when the
interest rate hits the zero lower bound? If interest rates
have already fallen to around zero, monetary policy may
no longer be effective. One option is to have the central
bank commit itself to keeping interest rates low for an extended period of time. Such a policy is sometimes called forward
guidance. Even if the central bank’s current target for the interest rate cannot fall any further, the promise that interest rates
will remain low may help stimulate investment spending. A second option is to have the central bank conduct expansionary
open-market operations using a larger variety of financial instruments. Normally, the Fed conducts expansionary open-
market operations by buying short-term government bonds. But it could also buy mortgage-backed securities and longer-
term government bonds to lower the interest rates on these kinds of loans. This type of unconventional monetary policy is
sometimes called quantitative easing because it increases the quantity of bank reserves. During the Great Recession, the
Fed engaged in both forward guidance and quantitative easing.
3/ When the economy faces a stagflation, how can the central bank reduce inflation without increasing unemployment too
much? Faced with an adverse supply shock, a policymaker with the ability to influence aggregate demand, such as the Fed,
has a diffcult choice between two options. The frst option, is to hold aggregate demand constant. In this case, output and
employment are lower than the natural level. Eventually, prices will fall to restore full employment at the old price level,
but the cost of this adjustment process is a painful recession. The second option, is to expand aggregate demand to bring
the economy toward the natural level of output more quickly. If the increase in aggregate demand coincides with the shock
to aggregate supply, the economy goes immediately from point A to point C. In this case, the Fed is said to accommodate
the supply shock. The drawback of this option, of course, is that the price level is permanently higher. There is no way to adjust aggregate demand to maintain full employment and keep the price level stable.
4/ Explain in detail what is spending multiplier? When the government buys $20 billion of goods from Boeing, that purchase has repercussions. The immediate impact of the higher demand from the government is
to raise employment and profits at Boeing. Then, as the workers see higher earnings and the firm’s owners see higher profits, they respond to this increase in income by raising their own spending on consumer
goods. As a result, the government purchase from Boeing raises the demand for the products of many other firms in the economy. Because each dollar spent by the government can raise the aggregate demand for
goods and services by more than a dollar, government purchases are said to have a multiplier effect on aggregate demand. This multiplier effect continues even after this first round. When consumer spending rises,
the firms that produce these consumer goods hire more people and experience higher profits. Higher earnings and profits stimulate consumer spending once again and so on. Thus, there is positive feedback as higher
demand leads to higher income, which in turn leads to even higher demand. Once all these effects are added together, the total impact on the quantity of goods and services demanded can be much larger than the
initial boost from higher government spending.
5/ What are the disadvantages of fiscal policy? It is very dificult to estimate exactly multiplier effect and crowding out effect. Furthermore, fiscal policy also works with a lag, but unlike the lag in monetary policy,
the lag in fiscal policy is largely attributable to the political process. In the United States, most changes in government spending and taxes must go through congressional committees in both the House and the
Senate, be passed by both legislative bodies, and then be signed by the president. Completing this process can take months or, in some cases, years. By the time the change in fiscal policy is passed and ready to
implement, the condition of the economy may have changed.
13/ Reducing the budget deficit increases the supply of loanable funds ... which decreases the real interest rate ... which in turn increases NCO. The increase in NCO enhances the supply of dollars which causes the
real exchange rate to depreciate.
14/ Increasing investment leads to increase the demand of loanable funds ... which increases the real interest rate ... which in turn decreases NCO. The decrease in NCO reduces the supply of British pounds which
causes the real exchange rate to appreciate. The appreciate of British pounds reduces X and enhances M, so the British trade balance toward deficit.