FOREIGN TRADE UNIVERSITY

FACULTY OF INTERNATIONAL EDUCATION

……..***……..

ASSIGNMENT
Subject: Business Economics

Name: Phạm Thị Khánh Duyên

Class: F-UON-M9D

Student ID: 2305001041

School year: 2023 – 2027

Ha Noi, 17/11/2024
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TABLE CONTENTS

Question 1..................................................................................................................3
Question 2..................................................................................................................5
Question 3..................................................................................................................6
Question 4..................................................................................................................8
REFERENCES........................................................................................................12
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Question 1: Go to the website of the Bureau of Statistics

([Link] What is the national unemployment rate in the period
2019 - 2023? Describes the changes of these rates and explains the reason for
this fluctuation. Find the unemployment rate for the demographic group that
best fits a description of you (for example, based on age, sex, and race,
location,..). Is it higher or lower than the national average? Why do you think
this is so?

The table below describes the unemployment rate of the labor force at working age
over the period 2019 - 2023. It compares the national and sex unemployment rate.

Unemployment rate (%)

Year
Male Female Whole country
2019 2,09 2,26 2,17
2020 2,01 3,05 2,48
2021 3,15 3,26 3,20
2022 2,36 2,32 2,34
2023 2,3 2,25 2,28

Figure 1. The unemployment rate of labor force at working age by sex and national
unemployment rate from 2019 to 2023

Overall, it can be seen easily that the national unemployment rate strongly
fluctuated over a 5-year period. The percentage of people who are out of work has
risen moderately and then showed a downward trend at the end of the period.

During the first 2 years 2019 and 2020, the whole country's unemployment rate has
increased significantly from 2,17% to 2,48%. In 2021, it soared sharply by 3,2%,
increasing nearly 0,8% within a year, leading to a decline in average income per
capita. The COVID-19 pandemic’s detrimental effects on our country are the main
reason for this surge. Lockdown measures, business closures and chain delays have
raised the unemployment rate. In which, the service industry suffered the most
negative impact with 72% of the labor workforce affected ([Link], 2024).
Conversely, in the next two years, as the COVID-19’s vaccine has been widely
available and the economy has recovered step by step, the labor and employment
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rate showed many signs of improvement. Thanks to the policies and measures
implemented by the government, the unemployment rate has fallen to 2,28% and
gradually stabilized in 2023.

Besides, from the data collected, the female unemployment rate is higher than the
national unemployment rate while male ratio is lower but through the pandemic
period, the ratios have been reversed as the male ratio was much higher. There are
some reasons for these issues.

According to the research report, the uneven distribution of family responsibilities

in Vietnamese society may be the cause of this disparity. Researchers also indicated
the gender inequality or discrimination has resulted in this gap between male and
female. Mrs. Valentina Barucci, a Labor Economics Expert of ILO Vietnam, said
that female workers account for the majority of vulnerable jobs, especially
housework. Despite putting the same working hours to men, they still earn lower
income. Also, the proportion of women holding decision-making positions is too
few. Women only occupy less than 25% of general management and leadership
roles even though they make up almost half of the workforce. That is why the
female unemployment rate is higher than the male and the national rate during the
first 3 years.

On the other hand, having been affected by the COVID-19, both male and female
unemployment rates jumped from 2,01% to 3,15%; 3,05% to 3,26% respectively.
Specifically, in male section, it has risen by more than 1% while female just raised
by 0,21%. There are several reasons to explain this situation. While women often
work in education, services, medical fields, are not likely to be affected; male
account for the majority of workers doing heavy jobs, constructions... These fields
are susceptible to the effects of economic instability. The labor market has been
more competitive, especially in the sector in which male participate most. In the
context of economic restructuring, the demand in education, medical field is rising
in order to serve the society's recovery, leading to a lower unemployment rate for
females. Due to the advanced technology and innovations, jobs requiring low skills
are gradually replaced by machinery, which increases the unemployment rate in
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male if they are not ready to adapt and upgrade themselves. In conclusion, male
jobless rate was higher than the national unemployment rate can be explained by the
detrimental effects of COVID-19, the competition in the labor market, structure
alterations and the developments of technology.

Question 2: If the government were to operate under a strict balanced-budget

rule, what would it have to do in a recession? Would that make the recession
more or less severe?

The application of a strict-budget balanced rule during a crisis is still a controversial

issue nowadays. On the one hand, people who encourage and support assume it will
help maintain investor confidence, lower interest rates and foster long-term
economic growth. On the other hand, others disagree with the viewpoint and believe
that makes the recession more severe, more cutting spending, decreasing demand
and higher unemployment rate.

If the government were to operate under a strict balanced-budget rule, it would have
trouble in responding to the economic slump. According to the balanced-budget
rule, the government cannot have a budget deficit as its expenditure must always
equal its revenue. In the context of recession, the economy is facing low demand,
high unemployment rate and reduced economical activities. A useful tool in this
case to deal with difficulties is implementing expansionary fiscal policies such as
raising government spending or cutting taxes. Expansionary fiscal policies are
frequently essential in periods of economic downturn because they foster aggregate
demand by bringing more money into the economy. However, strict-balanced
budget rules prevent governing bodies from applying it because they have to make
sure that there is no budget deficit.

In fact, this will limit the government's ability in implementing expansionary fiscal
policies such as raising government spending or cutting down taxes. Instead, the
government has to stand between two options and carefully consider: either
reducing public spending or raising taxes to make sure there is no budget deficit.
But it still depends on the level of recession, if it is compulsory to use
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contractionary fiscal policies, this unintentionally decreases aggregate demand. This

may worsen the crisis, starting a vicious cycle that makes it tougher for the
economy to recover.

Let’s take Greece in the period of European Debt crisis (2009-2018) as an example.
They struggled with massive debt levels and a growing deficit budget. The Greek
government was under pressure from the European Union (EU) and the
International Monetary Fund (IMF) to enact tightening regulations so as to stabilize
financial issues. To earn a financial subsidy, this nation had to commit to carrying
out contractionary fiscal policies. The government had to cut down expenses for
education, healthcare, social welfare programs which increase the jobless rate and
lower citizen’s lives. Also, tax rates on income, VAT and others increased,
diminishing people's buying power. Consequently, a strict-balanced budget had
resulted in a long-term recession in which the GDP of Greece fell down sharply by
25% (Berkeley Economic Review, 2022). Many demonstrations and protests have
been created on the streets due to pressure from financial burden and social welfare.
The contractionary temporarily fixed the short-term fiscal consolidation but
gradually made it even harder for the nation to overcome.

In conclusion, complying strictly balanced budget is an erroneous choice that make

a recession more severe. Although it is helpful in controlling public debt in the long
term, the government still faces difficulties using fiscal policy to foster the economy
during a downturn. Instead, they should adjust flexibly these policies to support
growth. Therefore, almost economists believe that government had better allow
budget deficit temporarily in order to recover the economy as soon as possible.

Question 3: Suppose the government reduces taxes by $30 billion, that there is
no crowding out, and that the marginal propensity to consume is 3/5.

Part a: What is the initial effect of the tax reduction on aggregate demand?
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3
According to the task, the marginal propensity to consume (MPC) is , which
5
means for every extra $1 of income, consumers spend an extra $0,6. When taxes are
3
cut down by $30 billion, people instantly spend more: MPC x Tax cut = x $30
5
billion = $18 billion.
The initial effect of the tax reduction on aggregate demand is increasing $18 billion.

Part b: What additional effects follow this initial effect? What is the total effect of
the tax cut on aggregate demand?

The amount of money costs $18 billion which people consume, become income
sources for others. And these people continue consuming a part of additional
incomes, creating a multiple effect. The marginal propensity of consumers
determines the amount of extra money spent and raises people's incomes, leading to
more spending.
1
Firstly, we use this formula for the multiplier (k): k =
1−MPC
3 1
substituting MPC = into the formula, we get k = = 2.5
5 1−3/5

The total effect is computed by initial change in consumption times k:

Total effect on AD = $18 billion x 2.5 = $45 billion

Hence, the total effect of the tax cut on aggregate demand is an increase of $45
billion.

Part c: How does the total effect of this $30 billion tax cut compare to the total
effect of a $30 billion increase in government purchases? Why?
Since the government purchases a $30 billion, the aggregate demand immediately
raises. Given a multiplier of 2,5 and an MPC = 0,6, the total effect is calculated:

The total effect of increasing government spending = $30 billion x 2,5 = $75 billion.

On the other hand, a $30 billion tax cut raises the incomes and consumption.
However, not all part of the money is spent, a part of them is for saving. With MPC
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= 0,6 means people spend 60% from cutting taxes. Initially, slashing taxes $30
billion leads to an increase to $18 billion. The total effect is calculated:

The total effect of cutting taxes = $18 billion x 2,5 = $45 billion.

In conclusion, increasing government spending has a greater impact than cutting

taxes because the effect from government expenditures rising has directly impacted
on the aggregate demand. Meanwhiles, tax cuts impact is lower due to dependence
on people’s consumption levels.

Part d: Based on your answer to part (c), can you think of a way in which the
government can increase aggregate demand without changing the government’s
budget deficit?

As mentioned in question 2, a solution for a nation to increase aggregate demand

without changing the government’s budget deficit is implementing expansionary
fiscal policies. Specifically, in this situation, we have to decline taxes or paying
money for public services. When personal income taxes are at a low rate, people
have more money. Leading to an increase in consumption, they tend to buy more
and it contributes in GDP, promotes total demand. Secondly, firms are encouraged
to invest larger in production, expand the scales and create more jobs. Additionally,
the bigger amount of products and services manufactured shifts the aggregate
demand curve to the right. Lastly, government can use financial solutions such as
restructure spending, cutting down unnecessary purchases, or transfer spending on
fields that have abilities create great impact to aggregate demand.

Question 4: Examine the impact of the COVID-19 pandemic on the GDP of

Vietnam during the years 2020-2022. In your analysis, discuss the key factors
that contributed to fluctuations in GDP, including changes in consumer
spending, investment, government policies, and international trade. Support
your argument with relevant data and examples.

The period from 2020-2022 is considered to be a challenge and has many

difficulties to the worldwide economy, including Vietnam. Economists have
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predicted the global economy was going to be the most severe downturn in history.
Almost all big country’s declined due to the negative effects of COVID-19.
However, Vietnam still maintained a GDP growth rate estimated at 2,91% (General
Statistics Office, 2021). Became one of highest growing countries in the region and
in the world, thanks to leveraging resources and making good use of opportunities
to adapt the economy.

Economic Government Net export

GDP Consumption Investment
Year growth rate expenditures rate (%)
(trillion) rate (%) rate (%)
(%) rate (%) Export Import
201
3,738,546 7,36 60,4 31,2 13,6 20,1 16,9
9
202
3,847,182 2,37 60,3 30,7 14,2 19,8 16,4
0
202
5,115,805 2,55 59,5 30,1 14,4 21,5 18,2
1
202
5,545,716 8,02 60,4 31,5 15,2 22,0 19,1
2

Figure 2. Vietnam’s GDP Components rate and Economic Growth rate from 2019-2022

According to the data collected from GSO, the COVID-19 pandemic had
significantly affected the GDP of Vietnam, including consumer purchases,
investment, government expenditures and net export. Although having suffered
these obstacles, Vietnam still performed well and presented in the top countries with
the highest growth rate in ASEAN. Overall, it can be seen easily from the table, the
GDP fluctuated during the 4-year period. There are significant changes in 2020-
2021 as the GDP increased sharply and brought the economy more stable. Also, the
economic growth rate went up and down several times. All the components of GDP
had slight shifts when the pandemic crossed by.

Total GDP and the economic growth rate

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From the table, Vietnam’s GDP and economic growth rate have been affected
detrimentally and resulted in the economic disruptions. Before the crisis, in 2019,
our nation became one of the most developed countries in Southeast Asia.
Compared to 2020, the GDP growth rate has shrunk abruptly from 7,36% to 2,37%
but it will increase gradually in the next year. Though it is not a great number, it
showed positive signs of economic growth. After GDP’s stagnation in 2020, it has
strongly risen to nearly 5,6 trillion, also the economic growth. Compared to minus
rate in 2020, achieving a positive in 2021-2022 showed an impressive recovery.

Consumption (C)

Consumtion has been affected strongly as we see downward trends during the
pandemic. It declined from 60,4% to 59,5% within 3 years. In the context of
widespread illness from 2020-2021, the government implemented restriction and
social isolation as in an emergency, which limited production, consumption and
international trade. This resulted in the instability of people incomes, decreasing the
consumers’s purchases. The outbreak of COVID-19 has impacted on goods
circulation process leading to the suppy chains disruption and many firms had
closed or scaled down. Especially, international commerce around the world in
general, and Vietnam in particular, are harmfully impacted. The tourism industry
was frozen totally due to closing borders and limitations in worldwide travel
activities. For example, Vietnam Airlines and others faced losses when many flights
were canceled and the tourist numbers plummeted. Gradually, the blockage and
isolation were removed and brought the number back at 60,4%. Particularly,
electronics, home appliances and retail sales increased. Consumers prefered
shopping online on e-commerce platform like Shopee, Lazada, Tiki,... to going to
traditional market. Therefore, the government has complied expansionary fiscal
policies in order to stimulate people’s purchases and increase the aggregate demand.
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Investment (I)

Following the consumption, investment occupies the second largest percentage in

the GDP structure and the most affected components while the pandemic crossed
by. They had to face the negative impact on the investment field with more than 1%
dropping than the previous year. The pandemic created chaos in business, made
investors and firms became cautious and considered long-term investments in the
future. Despite the widepsread illness, in the first quarter of 2021, the Foreign
Direct Investment rate (FDI) showed a downward trend but it still increased greatly
about 14 billion USD, just lower by 2% than the previous year. This is a positive
sign that the investment industry will recover rapidly and thrive in the future.

Government expenditure (G)

During the pandemic, the economy was stagnant and limited business activities. The
data showed the state budget increases year by year. The government of Vietnam
was trying to make an effort to stimulate the economy since they purchased 62,000
billion dong in public spending such as infrastructures, healthcare and social
welfare programs in order to support people and firms recovered. Also, they
purchases more in modern medical equipment and promotes buying vaccine.
Thanks to the vaccines, the governing bodies loosened isolation and removed
blockage measures. Firms are reopened and production activities become normal.
The administration strengthened and provided financial support packages, slashed
the taxes, provided loan for affected firms and households.

Net exports (NX)

In spite of the recovery in 2022, Vietnam still struggled with negative impact in
2020-2021. The blockage measures in major exporting countries, such as China and
European countries, resulted in the decline exports in these markets. Because of
closing production activities, importing materials and machinery also decreased.
However, there was growth in some products such as electronics, machines and
agricultural products. The economy gradually revived and strengthened cooperation
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with China, Japan, Korea,.. In 2022, the total value of exports and imports
respectively are 371,3 and 358,9 billion USD (General Department of Vietnam
Custom).

In conclusion, the key factors leading to the fluctuation in the period from 2020 to
2022 is primarily from global supply chain disruption, decreases consumption,
investment and net export. The government’s policies and solutions have supported
a part of the impact but the recovery still faced challenges. However, in 2022,
Vietnam’s economy has begun to recover and create opportunities to stabilize and
be sustainable.

REFERENCES

1. Berkeley Economic Review, 2022, A Tale of Two Countries: A History of the

Greek Debt Crisis.

2. General Department of Vietnam Customs, 2023, Tinh hinh xuat khau, nhap khau
hang hoa cua Viet Nam thang 12 va 12 thang/2022. Retrieved from
[Link]

3. General Statistisc Office of Vietnam, 2019, Nien giam thong ke nam 2019, p9-10.
Retrieved from [Link]

4. General Statistisc Office of Vietnam, 2020, Nien giam thong ke nam 2020, p9-11.
Retrieved from [Link]

5. General Statistisc Office of Vietnam, 2021, Nien giam thong ke nam 2021, p9-12.

Retrieved from [Link]

6. General Statistisc Office of Vietnam, 2022, Nien giam thong ke nam 2022, p9-12.

Retrieved from [Link]

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7. Thu Cuc, 2020, Goi ho tro 62.000 ty: Hoan tat chi tiet tra 4 nhom doi tuong, go
vuong cho DN kho khan, Government News. Retrieved from
[Link]
[Link]

8. [Link], 2024, Ty le that nghiep o Viet Nam qua cac nam tu 2010 – nay.
Retrieved from [Link]