PRINCIPLES OF

MACROECONOMICS
Lecturer: Le Phuong Thao Quynh
Foreign Trade University, Faculty of International
Economics
Email: [email protected]
Course content
Chapter 1 Introduction to macroeconomics
Chapter 2 Data of Macroeconomics
Chapter 3 Aggregate expenditure and Fiscal Policy
Chapter 4 Money and Monetary Policy
Chapter 5 Aggregate demand and Aggregate supply
Chapter 6 Unemployment
Chapter 7 Inflation and Phillips curve
Chapter 8 Economic Growth
Chapter 9 Saving, Investment and Financial System
Chapter 10 Macroeconomics in open economy
Objectives
Acquire basic background of macroeconomics (GDP,
CPI, AD-AS model, unemployment, inflation, foreign
exchange rate, fiscal policy, monetary policy)
Use knowledge of the course to study other
specialized economics (e.g. development economics,
public economics, environmental economics,
econometrics)
Apply academic background to practices (understand
what financial and economic news imply, explain what
happens in the economy, estimate or forecast economic
policy)
Course implementation
Teaching and learning methods: In class contact
hours, there will be lectures, discussions and
assistance with student’s works, reading and using
books.
Assessment methods:

+ Class participation: 10%

+ Midterm exam: Multiple choice questions and
short essay/problems set (50’)
+ Final written exam: 60%
 Reading Textbooks
1. N.Gregory Mankiw, Principle of Macroeconomic,
International Student Edition,Third edition,Worth
Pulisher,2003.
2. Frank and Bernanke, Principles of Macroeconomics
Third edition, 2007.
3. Glenn Hubbard and Tony O’Brien, Macroeconomics,
Second edition, 2008.
4. D.Begg,S Fisher,R.Dorchbusch,Economics,Third
edition,McGraw-Hill Book Company,1991
 Other references
1. The richest man in Babylon – Geogre Sclason
2. Naked Economics – Charles Wheelan
3. The Undercover Economist – Tim Harford
4. 80/20 Principle – Richard Kock
5. Currency War – Song Hongbing
6. The exlusive quest for growth – William Easterly
7. Blue Ocean Strategy – Wchankim, Renee Mauborgne
8. Good luck – Alex Rovira, Fernando Trias de Bes
9. How to stop worrying and start living – Dale Carnegie
10. If you want it done right, You don’t have to do it
yourself – Donna M.Genett
11. Who moved my cheese – Spencer Johnson
 Useful Websites
Foreign statistical websites
http://pwt.econ.upenn.edu/
http://www.oecd.org/statsportal/0,3352,en_2825_293564_1_1_1_1_1,00.html
http://www.adb.org/Economics/
http://www.imf.org/external/data.htm
http://www.un.org/en/databases/ http://data.worldbank.org/data-catalog/world-development-indicators
http://www.bis.org/statistics/index.htm
http://finance.yahoo.com/actives?e=us
http://www.mhhe.com/economics/dornbusch8e/quizzes/quizzes.mhtml
http://stat.wto.org/CountryProfile/WSDBCountryPFReporter.aspx?Language=E
http://www.trademap.org/tradestat/Country_SelProduct_TS.aspx
http://www.gapminder.org/data/
http://www.amis-outlook.org/
http://www.numbeo.com/common/
Economic information website
http://cafef.vn/
http://gafin.vn/
http://vneconomy.vn/
http://www.vnep.org.vn/vi-VN/Default.html
http://ecna.gov.vn/Pages/Index.aspx
Chapter 1: Introduction to
macroeconomics
Le Phuong Thao Quynh
[email protected]
Content
I Basic concepts in Economics
1 Scarcity
2 Opportunity cost
3 Three fundamental questions in economic
II Overview of macroeconomics
1 What is macroeconomics
2 Objects and methods of research
3 Macroeconomic system
4 Objectives and policy tools of government to adjust
macro-economy
 I. Basic concepts in Economics
I. Overview of economics
1. Scarcity
- Definition: The situation in which unlimited wants exceed the
limited resources available to fulfill those wants

-The law of diminishing marginal returns/ product/

productivity: the cost advantage usually diminishes for each additional unit of output
produced.

2. Opportunity cost
- Definition: The value of the next-best alternative that
must be forgone in order to undertake the activity.
 I. Basic concept in Economics
3. Economics
The study of the choices people make to attain their goals,
given their scare resources
Three fundamental questions in economics
- What to produce?
- How to produce?
- Produce for whom?
 TEN PRINCIPLES OF
ECONOMICS
1. People face trade-offs: To get one thing, we
usually have to give up another thing
TEN PRINCIPLES OF ECONOMICS
 TEN PRINCIPLES OF
ECONOMICS
2. The cost of something is what you give up to get
it:
- The opportunity cost of an item is what you give up
to obtain that item.
- Decisions require comparing costs and benefits of
alternatives.

3. Rational people think at the margin: Marginal

changes are small incremental adjustments to an
existing plan of action.
 TEN PRINCIPLES OF ECONOMICS
4. People respond to incentives.

5. Trade can make everyone better off

6. Markets are usually a good way to organise

economic activity:
– Firms decide who to hire and what to produce.
– Households decide what to buy and who to work
for.
 TEN PRINCIPLES OF ECONOMICS
7. Government can sometimes improve market
outcomes
8. A country standard of living depends on its
productivity
9. Prices rise when government prints too much
money
10. In short-run, society faces the trade off
between inflation and unemployment
 Normative economics vs positive
economics
Normative economics is a part of economics that
expresses value or normative judgements about
economic fairness, or what the outcome of the economy
or goals of public policy ought to be.

Positive economics is the branch of economics that

concerns the description and explanation of economic
phenomena. It focuses on facts and cause-and-effect
behavioral relationships and includes the development
and testing of economics theories
 Positive or normative economics?
1. The government should invest in infrastructure for
better economic growth.
2. Inflation reduces the real income.
3. The interest rate should be decreased to stimulate
aggregate demand.
4. Recession leads to higher unemployment rate.
Microeconomics and macroeconomics
Microeconomics: is the study of how individual
households and firms make decisions and how
they interact with one another in markets.

Interaction between individual buyers and sellers

The factors that influence the choices made by

buyers and sellers in individual markets (e.g.
coffee industry).
Microeconomics and macroeconomics
Macroeconomics:
Macroeconomics is the study of the economy as
a whole (the aggregate economy).

Examine economy-wide phenomena:

unemployment, national income, rate of growth,
gross domestic product, inflation and price
levels.

Its goal is to explain the economic changes that

affect many households, firms, and markets at
once.
 Microeconomics or
macroeconomics?
The economic growth rate in Vietnam is expected
to be 7.5% in 2022.

Iphone is gaining a higher market share in

Vietnam.

The government expenditure should be increased

to stimulate economic growth and reduce
unemployment as a whole.

The government should invest more in

 II. Overview of macroeconomics
1. What is macroeconomics
While macroeconomics is a broad field of study, there are
two areas of research that are emblematic of the
discipline:
- the attempt to understand the causes and consequences of
short-run fluctuations in national income (the business
cycle)
- the attempt to understand the determinants of long-
run economic growth (increases in national income).
Macroeconomic models and their forecasts are used by
governments to assist in the development and evaluation
of economic policy.
II. Overview of macroeconomics
What is the object of macro and micro
1. Should FPT invest in new technology?
2. Effect of increase of petroleum price on
transportation?
3. Whether increase in input cost leads to increase in
CPI?
4. How Productivity affects GDP?
II. Overview of macroeconomics
2. Objects and methods of research
Objects
Macroeconomics focuses on 4 fundamental objects
- Total output (aggregate output), economic growth,
business cycle
- Price level, inflation
- Unemployment, social welfare
- International trade, balance of payment, foreign exchange
rate
Questions revolving 4 abovementioned objects are the issues
researched by macroeconomists
II. Overview of macroeconomics
2. Objects and methods of research
Methods of reasearch
Economists use economic models to explore the choices
people make and the consequences of those choices. A
model is any simplified representation of reality that is
used to better understand real-life situations
In economics, a model is theoretically constructed to
explain economic processes by a set of variables and a
set of logical and/or quantitative relationships between
them. The economic model often but not always using
mathematical techniques
 II. Overview of macroeconomics
2. Objects and methods of research
Methods of reasearch
Models are important because their simplicity allows
economists to focus on the effects of only one change at a
time. That is, they allow us to hold everything else
constant and study how one change affects the overall
economic outcome. Hence, an important assumption
when building economic models is the other things
equal assumption, which means that all other relevant
factors remain unchanged. Collecting
Building model data and
Observations Hypothesis
with check
assumptions accuracy of
the model
 II. Overview of macroeconomics
3. Macroeconomic system
Macroeconomic system has three components: input,
macroeconomic activities recording system (black box),
output
+ input: exogenous and endogenous variables
+ black box: AD – AS model under affect of variables will
produce macroeconomic outcome
+ output: total output, inflation, unemployment, foreign
exchange rate, interest rate
Inputs will go to black box, in which they interacts with
market principles and then outcomes of economy will be
produced under aggregate numbers
 II. Overview of macroeconomics
4. Objectives and policy tools of government to adjust
macroeconomy
Objectives
Economic goals Content
Economic efficiency Making the most resources
Economic freedom Freedom from government intervention in the
production and distribution of goods and services
Economic security and Assurance that goods and services will be
predictability available, payments will be made on time, and a
safety net will protect individuals in times of
economic disaster
Economic equity Fair distribution of wealth
Economic growth and Innovation leads to economic growth, and
innovation economic growth lead to higher standard of living
Other goals Environmental protection, human right protection
 II. Overview of macroeconomics
4. Objectives and policy tools of government to adjust
macroeconomy
Policy
+ Fiscal policy: the use of government revenue collection (taxation)
and expenditure (spending) to influence the economy
+ Monetary policy: the process by which the monetary authority of a
country controls the supply of money, often targeting a rate
of interest for the purpose of promoting economic growth and stability
+ Income policy: economy-wide wage and price controls, most
commonly instituted by governments as a response to inflation, and
usually below market level
+ Trade policy (commercial policy): a set of rules and regulations that
are intended to change international trade flows, particularly to restrict
imports
DISCUSSION
Key concepts
- Scarcity
- Opportunity cost
- Economics
- Macroeconomics
- Economic model
- Normative economics, Positive economics
- Macroeconomic system
- Fiscal policy, Monetary policy, Income policy, Trade
policy