1) Definition: GDP, GNP, CPI

Gross domestic product (GDP) is the total monetary or market value of all the
final goods and services produced within a country’s borders in a specific time
period.
Gross national product: Total income earned by the nation’s factors of
production, regardless of where located
The Consumer Price Index (CPI) is a measure of the average change overtime in
the prices paid by urban consumers for a market basket of consumer goods and
services.

Inflation rate: is the general increase in the prices of goods and services in an
economy
2) Difference between stock and flow:
A stock is a quantity measured at a point in time.
A flow is a quantity measured over period of time.
BASIS FOR STOCK FLOW
COMPARISON
Meaning Stock is basically the Flow implies the
accumulated or available movement of the
quantity of any commodity, from the
commodity at a particular source to destination,
moment. over a period.
Nature Static Dynamic
Measurement Quantity of economic Quantity of economic
variable, which is variable, which is
measured at a particular measured at a particular
point in time. period of time.
Indicates Level Rate

Reflects State of the economy at a Changes in the economy,

specific time. over an interval of time
Measured in Units Per unit of time
Time dimensional No Yes
Mutual Interdependence Stock influences flow Flow influences stock
3) Wage rigidity - the observation that wages cannot be adjusted downwards -
has important implications for labour markets and macroeconomic performance.
Reason for wage rigidity:
Minimum wage law: The minimum wage may exceed the equilibrium wage of
unskilled workers, especially teenagers.
Labor unions: Unions exercise monopoly power to secure higher wages for their
members. When the union wage exceeds the equilibrium wage, unemployment
results.
Efficiency wages: High wages paid to the workers make them more productive
4) Cost of inflation fall into 2 categorises:
expected inflation: Our expectations about future inflation are correct
Shoe-leather: the costs and inconveniences of reducing money balances to
avoid the inflation tax.
Menu cost: The costs of changing prices
Relative price distortions: Different firms change their prices at different
times, leading to relative price distortions causing microeconomic
inefficiencies in the allocation of resources.
General inconveniences
unexpected inflation: Our expectations about future inflation are incorrect
redistribution of purchasing power: borrowers and lenders
If pi > pi e: purchasing power is transferred from lenders to borrowers
If pi < pi e: purchasing power is transferred from borrowers to lenders.
• income must equal expenditure, because:
o Every transaction has a buyer and a seller.
o Every dollar of spending by some buyers is a dollar of income for
some sellers
6. The production function
- Shows how much output (Y) the economy can produce from
K units of capital and L units of labor
- Reflects the economy’s levels of technology
- Exhibits constans return to scale
7. Mối liên hệ giữa trade and capital flow
NX = Y – (C+I+G)
Implies
NX = (Y-C-G)-I=S-I
Trade balance = net capital outflow