Topic notes – 1

Course contents
+ How much output a country would? What does determine the national output (W2-W5)
+ What if the aggregate demand is too small? Anyone can help relieve the situation (W6-W7)
+ A Heaven: High Income, Low Unemployment and Low Inflation, Is that possible (W9)
+ Why are some countries poor and others rich? (W10)

Key indicators:
+ Growth rate and Productivity (RGDP) => Must collect the real data
+ Inflation rate: changes in the price level (the changes of the amount of money we spend)
+ Unemployment rate = Number of unemployed/ Labor Force *100

How to collect them

Investments in GDP is usually called fixed capital formation or accumulation
In economic class, capital represents machines, NOT MONEY
Ex: photocopy, building, bus, inventory (included in gross fixed capital formation)

Short run vs Long run

Before the industrial revolution, outputs of the human being depends on nature (rice, fruit, tree)
In industrial revoluation, outputs of human being kicks off and are free from nature
Fluctuation is called the bussiness cycle meaning outout can increase and decrease. Moreover,
the business cycle of corporation in the short run can change quarterly or yearly

Nature real GDP: called long-run average of the country economic growth
Ex: Vietnam’s economic growth for the last 30 years is 6.7 % yoy.
Actual/natural RGDP, Actual/ natural unemployment and Actual/ Natureal Inflation rate
Increase in real GDP means that we produce more => need more worker => Decrease in
unemployment rate => More people have more income => Spending more => Total amount
available of money in the economy become greater and greater. As a results, to purchase the
same things, people are willing to pay more and more money, which leads to the decrease in the
currency. When the output is above the average, the price level of the economy is likely to
increase.
 RGDP has a positive relationship with the Inflation rate and negative relationship
with Unemployment rate.
 RGDP, Inflation rate and Unemployment rate move together either in the same direction
or the opposite direction
Decrease in real GDP means that we produce less => do not need worker => Increase in
unemployment rate…..

With what methods can you show the sentence is correct or incorrect?
Step 1: Define terms (Unemployment rate, Economic growth, Inflation rate)
Step 2: Collect Data from the various sources
Note: Most preferable data (30 years)
 Yearly data meaning that 30 observations
 Quarterly data meaning that 120 observations (the more observations you have, the
better)
Step 3: + (1) RGDP (Focus on this and leads to the others)
+ (2) Inflation rate
+ (3) Unemployment rate
Note:
+ show using the graph.
+ calculate of each other or show the changes without any calculation
Ex: RDGP falls, so It is defined as the recession. During the recession, what would happene to
the inflation rate and unemployment rate.
Economic Policy:
+ Monetary policy (key variable: interest rate)
+ Fiscal policy => related to tax, government spending

Stabilisation
+ Expansionary: used in the Recession
+ Contracionaty: used in the Expansion (over heat)

Additional Knowledge:
1. Government intervention into economic activity will NOT lead to a change in the price level
in the short-run model
2. The position of the AD curve depends on monetary and fiscal policies and the level of
consumer confidence.
3. Economy’s long-run performance is judged by the growth in real GDP per capita
4. The growth of GDP can change because of efficiency improvements, which can result from
changes in knowledge
5. The ouput gap = The actual output – the potential output
6. Exchange rate system do central banks always stand ready to buy and sell theircurrency at a
predetermined price => A fixed exchange rate system