tài liệu macroeconomics

Contents TOPIC 1: The principles of Macroeconomics Circular flow diagram Positive vs Normative statements TOPIC 2: Measuring a Nation’s Income (GDP) [LR] GDP, Real vs Nominal GDP and GDP deflator a GDP (Gross Domestic Product) b The measurement of GDP c How GDP is measured d Real vs Nominal GDP e GDP deflator (chỉ số điều chỉnh GDP) GDP and Economic well-being vs Society’s well-being TOPIC 3: MEASURING THE COST OF LIVING [LR] CPI, CPI calculation and its limitations a CPI (Consumer Price Index) b CPI calculation c Limitations of CPI Inflation GDP deflator vs CPI Using CPI to correct economics variables for the effect of inflation Real vs Nominal interest rate (lãi suất) 10 TOPIC 4: PRODUCTION AND GROWTH [LR] 11 Economic growth measurement 11 Production Possibility Frontier (PPF) 11 Productivity 11 a Production function 12 b Productivity function 12 TOPIC 5: SAVING, INVESTMENT & FINANCIAL SYSTEM [LR] 13 Financial system 13 a Financial market 13 b Financial intermediaries 13 Saving 13 Loanable funds (vốn cho vay) and market for loanable funds 14 a Supply of loanable funds 14 b Demand of loanable funds 14 c Equilibrium of loanable funds 14 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 Unemployment in LR (Natural rate of unp.) vs Unemployment in SR (Cyclical rate of unp.) 16 The causes of LR unemployment: Frictional/ Structural/ Classical unp 17 a Frictional unemployment (thất nghiệp tạm thời) 17 b Structural unemployment (thất nghiệp cấu) 17 c Classical unemployment (thất nghiệp theo lý thuyết cổ điển) 17 TOPIC 7: The Monetary System 18 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 The functions of money 18 Money creation with frictional-reserve banking (ngân hàng hoạt động theo nguyên tắc dự trữ phần) 18 The money multiplier 19 How Central Bank controls Ms 19 TOPIC 8: INFLATION: ITS CAUSES AND COSTS [LR] 21 Causes of inflation 21 a The classical dichotomy and money neutrality (thuyết lưỡng phân cổ điển/ cổ phần) 21 b The quantity equation 22 Costs of inflation 22 TOPIC 9: OPEN-ECONOMY [LR] 23 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 The prices for international transactions: real vs nominal exchange rate 24 Purchasing Power Parity (PPP) 25 TOPIC 10&11: AS, AD, the influence of money and fiscal policy on AD [SR] 27 Aggregate Demand curve 27 a The wealth effect: 27 b Interest rate effect: 27 c Exchange rate effect: 27 Aggregate Supply curve 28 a The sticky wage theory 28 b The sticky price theory 28 c Misperceptions theory 28 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 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 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) 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 gid thực xảy - Nó chứng minh sai - Nó 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 nên làm - Nó phụ thuộc vào giá trị nhật biết cá nhân - Nó khó kiểm định sai 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] 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 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 doanh nghiệp (doanh thu) – giá trị HH trung gian từ doanh nghiệp khác)   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 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 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 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 TOPIC 3: MEASURING THE COST OF LIVING [LR] 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) 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) 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 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 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 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 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: người độ tuổi lao động có khả làm việc, mong muốn làm  việc lại không tìm việc làm Employed: A person is employed if that person has spent at least hour of the previous week working at a paid job or family business Là người độ tuổi lao động làm việc sở sản xuất kinh doanh, … công việc mang tính chất tự tạo khác đem lại thu nhập cho thân Labor force = Employed + Unemployed 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 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 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 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 The functions of money Money has functions in the economy:    Medium of exchange (chức trao đổi): is anything that is readily acceptable as payment Unit of account (chức 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 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 Money creation with frictional-reserve banking (ngân hàng hoạt động theo nguyên tắc dự trữ 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 18 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 kinh tế tăng lên hoạt động hệ thống ngân hàng tạo từ 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  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 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 quan 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 nước currency) Deflation is a decrease in the overall price level (tăng sức mua nước 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   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, Q of output không thay đổi, 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 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 chung Y = sản lượng kinh tế (quantity of output, real GDP)  In the long run, an increase in the Q of money in an economy will affect 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 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 22 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 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 = X=M Trade deficit: NX < X  country is a net lender NFI <  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 > CAB >  Net lender  lending surplus savings to the rest of the world  S < I: NFI < CAB <  Net borrower  borrow savings from the rest of the world NOTE: CAB >  NX>0: poor lend to rich Developing and poor countries  net lenders Developed countries  net borrowers The prices for international transactions: real vs nominal exchange rate   International transactions are influenced by international prices 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 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 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= AUD eVND/AUD= 20,000 VND (20,000đ mua đô la Úc) eAUD/VND= 0,00005 AUD (0,00005 AUD mua 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: dùng cách khác, cách dùng price of Aus’s pizza in VN= × 20,000 = 140,000 VND 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 price, a good must sell for the same price in all locations If the law of 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   (hàng hóa phải bán với mức nơi, không, có hội kiếm lợi nhuận chưa khai thác với buôn bán ăn chênh lệch giá (carry trade) diễn khiến cho giá hàng hóa trở lại cân bằng) If PPP happens: exchange rate CANNOT change The nominal exchange rate between the currencies of countries must reflect the different price level of those countries 𝑒 𝑃∗ 𝑃 e.g USD buy bag in US 19,000 VND buy bag in VN (same quality, same quantity) PPP, USD= 19,000 VND e=  RER= ∗ =  Tuy nhiên, thực tế điều (RER=1) không xảy PPP có nhiều hạn chế Limitations of PPP    Trade barriers Many goods are not easily traded or shipped from one country to another Tradable goods are not always perfect substitutes when they are produced in different countries When central bank prints large Q of money, the money loses value both in terms of GvS it can buy AND in terms of the amount of other currencies it can buy  PPP DOES NOT HOLD IN REALITY 26 TOPIC 10&11: AS, AD, the influence of money and fiscal policy on AD [SR]  Economic fluctuations in SR use variables:  The economy’s output of GvS (Q of output) measured by real GDP  The overall inflation rate measured by CPI or GDP deflator Inflation rate AS E inf rate AD E output Q of output Aggregate Demand curve   AD curve shows the Q of GvS that households, firms and govt want to buy at each inflation rate The components of GDP (Y) contribute to the AD for GvS: Y = C + I + G + NX  AD is downwards sloping because of effects:  The wealth effect: inflation rate and C  The interest rate effect: inflation rate and I  The exchange rate effect: inflation rate and NX  ↓ inflation rate  ↑overall Qd a The wealth effect: b Interest rate effect: - P ↓  Q↑ (can buy more) - P↓ and Money demanded ↓ (don’t need more money to buy GvS)  MS >MD because the MS remains, MD↓  more extra money and more saving  interest rate↓ (more people lend out at the same rate  i↓)  c Exchange rate effect: - P↓ and i↓ domestic assets become less attractive (bonds, currency,…)  Prefer to buy foreign asset  Convert domestic currency into foreign currency (sell Dong, buy Dollar)  Value of domestic currency is depreciated  NX↑, AD↑ (AD shift) AD shifts when one of the components (C, I, G, NX) changes 27 Aggregate Supply curve    The AS curve shows the Q of GvS that firms choose to produce and sell at each inflation rate ↑ inflation rate  ↑ Qs AS is upwards sloping because of theories:  The sticky wage theory  The sticky price theory  Misperceptions theory a The sticky wage theory b The sticky price theory c Misperceptions theory - Lower P, wage unchanged  wage rate↑ (wage rate= W/P) e.g P↓ from 100 80, wage= 20 (unchanged) less profitable And because of wage rate= W/P (P↓wage rate ↑)  produce less to cut loss - Lower P  AS↓  cut production, supply less -Lower P (only P of good lower)  that good producer has to ↓AS because Y/Q↓  have to cut loss by producing less  AS shifts when there are changes in:  Labor  Capital  Natural resources  Technology  Expected price level ( ̂ ↑ labor wage ↑  production cost↑shift left[decreased])  These are all affecting production cost d Some important graphs Global recession: NX   AD [AD Contraction] (1): NX  AD Inflation rate AD1 shift to the left (decrease) to AD2 (𝜋) (2): after AD1 shift to AD2, Y1 (the full employment stage) > Y2  unemployment   wage  (wage does not change because of the sticky 𝜋1 wage theory, but because there is 𝜋2 unemployment, when workers enter into 𝜋3 new contracts, they accept any offer regardless the lower wage  we assume the wage is decreased)  production cost   can produce more  AS1 shift to AS2, back to the LR LRAS AS1 (2) AS2 (1) AD1 AD2 Y2 Y1 Q of output (Y) 28 AS2 Stock market boom: [AD expansion] (1): C+I increase  AD (2): Y1< Y2  over employment (workers have to worker, therefore, when entering into new contracts, they require higher wages So, we assume that wages increase) LRAS Inflation rate (𝜋) 𝜋3 AS1 (2) 𝜋2 𝜋1 (1) AD2  wages   production costs  AD1  have to cut loss by  AS1 Y1 Y2 Q of output (Y) The effects of a shift in AS - Adverse shift in AS cause stagflation AS2 - Stagflation: a period of recession (Y) and inflation ( ) e.g Oil price increases (cause stagflation) (1): oil price  = inflation   Y  AS1 shift right () (2): Y1>Y2  unemployment wages   production cost   can produce more  AS2 increase and shift back to AS1, to the LR LRAS Inflation rate (𝜋) (1) AS1 (2) 𝜋2 𝜋1 AD1 Y2 Y1 Q of output (Y) NOTE: The curve will adjust by itself After adjusting, curves will return to the LRAS= the full employment stage as well as the Long Run stage 29 In previous topic, curves adjust by themselves In this topic, govt uses policies to affect the curves Government responds to the SR fluctuations through AD a Monetary policy (↓r to ↑AD)   Changes in Ms  changes in interest rate  changes in I and C According to the theory of liquidity preference by Keynes, the interest rates adjust to balance the S and D of money There is interest rate (the equilibrium r), at which Q of money demanded = Q of money supplied AD = Y = C + I + G + NX C and I affect AD To increase C and I, have to ↓ interest rate by ↑Ms (central bank increases Ms)   Ms   interest rate  I &C  AD NOTE: MS↑ = r↓, easy money MS = r, tight money b Fiscal policy (↑G and ↓T to ↑AD)  Changes in government spending  The multiplier effect: the additional shift in AD that result when expansionary fiscal policy increases I and C MPC (marginal propensity to consumer): the fraction of extra income that a household consumes rather than saves  The crowding out effect: ↑G  ↑Y  ↑Md, Ms unchanged (vì Md tăng mà Ms không đổi, ta assume Ms giảm) ↑r  I, C ↓Y An increase in G causes interest rate to rise A higher interest rate reduces I, C, reduces demand  Changes in taxes When govt cuts income T, it increases households take home pay (households save more income, spend more on consumer goods  shift demand to right) 30 [...]... (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