AGGREGATE DEMAND AND AGGREGATE SUPPLY

I. CONCEPTS
AD: Aggregate demand is the amount of total spending on domestic goods and services in an economy
by Aggregate Demand curve.
AS: Aggregate supply is the total quantity of output firms, individuals and government will produce
and self- the real GDP by Aggregate Supply curve.
I. FACTORS AFFECTING AGGREGATE DEMAND
 C: Household Consumption
 I: Investment capital of the enterprise
 G: Government spending
 X, M : Exports and Imports
II. FACTORS AFFECTING AGGREGATE SUPPLY
 Domestic resource prices
 Prices of imported resource
 Productivity
 Changes in Taxes and subsidies
 Government regulation
A.VIET NAM DATA IN THE LAST YEARS

AGGREGATE DEMAND
2010-2021
Looking back at Vietnam's economy in the past period, it can be seen that the macro-
economy is more stable and solid, inflation is controlled at a low level, the achieved
economic growth is associated with the quality of growth, and the major balance of the
economy improved. Despite being greatly affected by the Covid-19 pandemic from the
beginning of 2020 until now. GDP growth in this period averaged 5.9%/year, belonging to
the group of high-growth countries in the region and the world; in which in the period 2011-
2015, the average growth rate is 5.9%/year; period 2016-2019 reached 6.8%/year. GDP per
capita increased from 1,331 USD in 2010 to about 2,750 USD in 2020, Vietnam has risen
from a low-income country to a low-middle-income country. During this period, not only
the quantity and quality of growth were improved, but labor productivity also improved
markedly. The contribution of total factor productivity (TFP) is about 39%, exceeding the
set target of 35%; Labor productivity in the period 2016-2020 increased by an average of
5.8%/year.
The consumer price index (CPI) decreased from 18.6% in 2011 to less than 4% in 2020,
which can see inflation in the economy during this period is very well contained. Major
balances in the state budget, trade, investment, energy, and food security continued to be
ensured and improved. Total import-export turnover increased sharply; the balance of trade
and the balance of international payments improved markedly. Total import-export turnover
increased by 3.6 times, from 157.1 billion USD in 2010 to nearly 544 billion USD in 2020.
Exports increased rapidly, from 72.2 billion USD in 2010 to nearly 282 billion USD in
2020, an average increase. about 14 %/year, creating an important driving force for
economic growth. The balance of international payments was in surplus, and foreign
exchange reserves increased from 12.4 billion USD in 2010 to 28 billion USD in 2015 and
reached nearly 100 billion USD in 2020 - reaching the highest ever. Mobilization of
resources for development investment is promoted; investment in the non-state sector
increased rapidly; investment quality and efficiency are improved. Total social development
investment capital increased by 10.6%/year on average; has attracted many large-scale,
high-tech foreign direct investment projects. GDP growth in 2021 increased by 2.58%,
lower than the rate of 2.91% in 2020, and also the lowest increase in the recent decade.
However, in the context of the Covid-19 epidemic seriously affecting all sectors of the
economy, this is an encouraging figure. Notably, the economic growth results of the fourth
quarter of 2021 in all three areas: Agriculture, forestry and fishery, industry-construction,
and services have improved due to the disease situation being controlled. The government
has introduced policies to support people and businesses in the recovery process, which has
contributed to bringing the whole year's economic growth to positive growth. In particular,
the total import and export turnover of goods reached 668.5 billion USD, up 22.6% over the
previous year. Which, exports reached 336.25 billion USD, up 19%; imports reached
$332.25 billion, up 26.5%. The balance of trade in goods is estimated to have a trade
surplus of 4 billion USD, this result continues to make Vietnam a country with a trade
surplus for 6 consecutive years and ranks among the top 20 economies in terms of
international trade.

2022
Aggregate demand improved well thanks to the strong recovery of private
consumption, positive disbursement of foreign direct investment (FDI), better trade
balance surplus.
Regarding private consumption (C): Domestic petrol and oil prices adjusted to world prices,
rising rents due to increased people's demand... are the main reasons why the consumer
price index (CPI) in November 2022 increased by 0.39 % from the previous month, an
increase of 4.56% compared to December 2021 and an increase of 4.37% over the same
period last year, according to the General Statistics Office. On average, in the first 11
months of 2022, CPI increased by 3.02% over the same period last year.
- Among 11 main groups of consumer goods and services, 8 groups of goods had an
increase in the price index in November, the strongest was the transportation group with an
increase of 2.23%.

-In the opposite direction, 3 groups of goods have decreased the price index, including
education, food, catering services, and post and telecommunications.

-Core inflation in November 2022 increased by 0.43% over the previous month, up 4.81%
over the same period last year.

-Explaining the increase of core inflation higher than the general average CPI, the General
Statistics Office said that the main reason was due to the price of fresh food, which was the
factor restraining the CPI growth rate in November this year, which belongs to the group of
goods that are classified by the General Statistics Office. excluded from the core inflation
calculation.

-On average, in the first 11 months of 2022, core inflation increased by 2.38% over the
same period in 2021, lower than the general average CPI (up 3.02%).
There are several reasons for the increase in 11-month CPI. Specifically, gasoline prices
were adjusted 31 times, making the price of gasoline A95 increase by 490 VND/liter
compared to the end of 2021; E5 gasoline increased by 120 VND/liter; diesel oil price
increased by 7,230 VND/liter; kerosene increased 8,130 VND/liter. On average, in the first
11 months of this year, compared to the same period last year, the domestic gasoline price
increased by 31.76%, causing the overall CPI to increase by 1.14 percentage points.
Domestic gas prices fluctuate according to world gas prices, gas prices in the first 11
months of this year increased by 12.76% over the same period last year, contributing to the
overall CPI increase of 0.19 percentage points.

The COVID-19 epidemic is under control, the demand for eating out of restaurants
increases, so the price of eating outside the family increases; The price of housing and
construction materials increased in 11 months because the price of cement, iron, steel, and
sand increased in line with the price of input materials, which also affected the 11-month
CPI.
In addition, the increase in domestic rice prices in line with export prices, high prices of
food products, and high prices of educational services also contributed to an increase in
the 11-month CPI.

In contrast, some reasons for the decrease in CPI in the first 11 months of 2022 are pork
prices down 12.22% y/y, rental housing prices down 4.64%, and post and
telecommunications prices down 0.38 %.
 Regarding investment (I) FDI: As of November 20, 2022, the total newly registered
capital, adjusted and contributed capital to buy shares, and buy capital contributions
from foreign investors reached more than 25.1 billion USD
The Foreign Investment Agency (Ministry of Planning and Investment) has just announced
that the total foreign investment capital newly registered, adjusted, and contributed capital
to buy shares reached more than 25.1 billion USD, equaling 95% over the same period last
year. in 2021, an increase of 0.4% compared to 10 months and an increase of 10.3%
compared to 9 months

Foreign investors have invested in 19 industries out of a total of 21 national economic

sectors. Which, the processing and manufacturing industry leads the way with a total
investment of more than 14.96 billion USD, accounting for 59.5% of the total registered
investment capital. The real estate business ranked second with a total investment of nearly
4.19 billion USD, accounting for 16.7% of total registered investment capital.
In terms of investment partners, according to statistics from the Ministry of Planning and
Investment, there were 107 countries and territories investing in Vietnam in the 11 months
of 2022.
 Regarding Government spending (G): In August 2022, a fiscal policy continued to be
implemented in the direction of reasonable but tight expansion. On August 8, 2022, the
Government issued Decree No. 51/2022/ND-CP on reducing the preferential import tax rate
for gasoline from 20% to 10% to diversify supply and contribute to domestic market
stabilization. After being promulgated, Decree No. 51/2022/ND-CP will contribute to
creating opportunities for businesses to access new supply sources instead of depending on
gasoline sources from Korea or ASEAN (because petroleum is currently mainly imported
from Korea and ASEAN).
In terms of total revenue: In the first 8 months of 2022, state budget revenue is about
VND 1,208.2 trillion, equaling 85.6% of the estimate, of which the central budget is
estimated at 84.8% of the estimate; the local budget is estimated at 86.4% of the estimate.
Specifically: Domestic revenue reached nearly 954.6 trillion dongs, equaling 81.1% of the
estimate, up 15.9% over the same period in 20213; revenue from crude oil reached nearly
51.1 trillion dongs, equaling 181.2% of the estimate, up 98.8% over the same period in
2021; Balanced income from import and export activities reached VND 197.6 trillion,
equaling 99.3% of the estimate, up 21.5% over the same period in 2021.
In terms of total expenditure: Total state budget balance expenditure in 8 months reached
about 956.4 trillion VND, equaling 53.6% of the estimate, up 4.2% over the same period in
2021, of which: development investment expenditure reached about 212 .2 trillion dongs,
equaling 40.3% of the estimate decided by the National Assembly, reaching 39.15% of the
plan assigned by the Prime Minister4; interest payment reached nearly 65.2 trillion dongs,
equaling 62.9% of the estimate; recurrent expenditure reached nearly 677.3 trillion dongs,
equaling 60.9% of the estimate.
Regarding Export and Imports ( X,M) :
 Export turnover of goods in 11 months of 2022 was estimated at 342.21 billion USD, up
13.4% over the same period last year. In contrast, the import turnover of goods was
estimated at USD 331.61 billion, up 10.1% over the same period last year. In the first 11
months of 2022, the trade balance of goods is estimated to have a trade surplus of 10.6
billion USD (in the same period last year, a trade surplus of 0.6 billion USD).

Model of aggregate supply - aggregate demand (AS-AD)

Theoretically, the aggregate supply-aggregate demand (AS-AD) model is used to explain

the fluctuations of the economy in the short run and the movement of the economy from the
short run to the long run. From there, we will understand why important macro variables
change, including prices (inflation), output (short-term growth), and employment (through
the rate of change). unemployment rate). ). The intersection of aggregate demand curve AD,
long-run aggregate supply (LRAS), and short-run aggregate supply (SRAS) is the ideal
long-run equilibrium of the economy – point E (Figure 1).

2020
The COVID-19 pandemic has caused forced economic shutdowns, forced production
shutdowns (instead of weak demand), sudden job losses, and supply chain disruptions. all
have caused a leftward shift of the LRAS and SRAS curves. While negative supply shocks
can increase production costs and increase selling prices, shifts the SRAS curve upwards to
the left – output falls and prices rise.
Closing production and freezing activities of the economy negatively affect aggregate supply.
As shown above, the LRAS curve shifts to the left. At the same price levels, output also
decreases, and the SRAS curve shifts to the left. Immediately in 2020, countries actively
implemented relief packages, and rescue and ensured economic security for people and
businesses to reduce difficulties and injuries to the economy. economic.
2021
Until the first months of 2021, the epidemic raged and claimed many lives. Before the
shutdowns and faltering activities of the economy while the vaccine has not been officially
deployed widely and was mainly concentrated in rich countries. The general situation is that
almost all economies are in a state of paralysis and blows. However, thanks to the strategy of
vaccine coverage faster than expected, in the final months of 2021 a post-COVID-19 recovery
scenario also gradually appeared, many economic activities began to resume and countries
accelerated. implement increasingly aggressive fiscal and monetary policies. As a result,
demand increased again – the aggregate demand curve AD shifted gradually to the right. The
economic recovery is also when we see that along with the increase in output, upward pressure
on prices begins (Figure 5).
2022
Over time, vaccine coverage has grown, herd immunity has increased, and economies have
been re-established in many places. However, the consequences of supply chain disruptions,
bottlenecks, and high input costs could not be fully resolved along with the gradually
recovering demand, which pushed the price level to escalate - inflation accelerated. .
Unfortunately, the Russia-Ukraine conflict, China's zero-COVID policy, and soon a series of
countries implemented policies prohibiting the export of basic goods, the prices of food, raw
materials, and Escalating energy has triggered the inflation acceleration once again. Inflation
and the "reverse currency war" stemming from the race to raise interest rates (to control
inflation) seem to be taking place on a global scale. At the time this article is underway, we can
see fierce inflationary pressure everywhere. It can be seen that this is a very clear consequence
of the sharp leftward shift of the SRAS curve – Growth has slowed somewhat and inflation has
increased very rapidly (Figure 6).
 B.KOREA DATA IN THE LAST YEARS
AGGREGATE DEMAND

2022
Regarding private consumption (C): Korea's consumer price index (CPI) in June 2022 increased by 6%
compared to the same period in 2021. This is the highest level in the past 24 years, although the country has
raised interest rates 5 times.
According to Statistics Korea, the country’s consumer price index (CPI) jumped 6.0 percent year over year to
108.22 in June in the steepest rise since 6.8 percent in November 1998 when the country was recovering from a
near-default crisis in the wake of Asian currency debacle.
The core CPI that excludes volatile food and energy factors rose 4.4 percent in June, the sharpest since 4.5
percent in March 2009.

Regarding investment (I) FDI: SEOUL, Oct. 5 (Yonhap) -- Foreign direct investment (FDI)
pledges to South Korea rose 18.2 percent on-year during the first nine months of this year on the
solid growth in investment in such advanced sectors as chips and batteries, the industry ministry
said Wednesday.
The country received US$21.52 billion worth of FDI commitments during the January-September
period, compared with $18.21 billion logged a year earlier, according to the data by the Ministry of
Trade, Industry and Energy.

It marked the highest amount ever for any nine months of data. It is also the first time that the
country received more than $20 billion worth of FDI through the third quarter.
The amount of investment that actually arrived in South Korea, however, fell 6.7 percent on-year to
$11.16 billion, the data showed.
A total of 2,498 investment pledges were made during the cited period, up 12.7 percent from the
previous year.
Regarding Government spending (G): The Korean Ministry of Economy and Finance (MOEF)
said on August 31 that South Korea's national debt will exceed the threshold of 1 billion KRW
(nearly 900 billion USD) in 2022 due to annual spending. Government revenue increased by
8.3% compared to 2021, increasing by 604.4 trillion KRW.

MOEF figures show that Korea's national debt will reach an exchange rate of 1,068 KRW by
2022, or about 50.2% of GDP.

The Ministry of Economy and Finance's blueprint for fiscal management from 2021 to 2025
also shows that Korea's national debt is likely to exceed KRW 1,408 billion by 2025, or 58.8%
GDP defies a plan to cap spending growth at 5% starting in 2023.

Deputy Prime Minister wearing MOEF Minister Hong Nam-ki said the Korean government has
no choice but to issue nightmare offset bonds to maintain expansionary fiscal policies at least
through 2022. Help post-pandemic economic recovery and additional investments prepare for a
major shift in the post-COVID-19 era.

According to the spending plan for 2022, the budget for the health, welfare, and recruitment
sectors The application to close the income gap and strengthen the social safety net is allocated
216.7 trillion KRW (more than 187 billion won). billion) USD), an increase of 8.5% compared
to 2021, accounting for a high proportion.

The Korean government also set aside 16.4 trillion KRW (more than 14 billion USD) to pay for
various types of support related to livelihood, health, and housing for people along with 41.3
trillion KRW (over 35 billion USD) to spend on a target. to reduce the gap in education,
housing, health care, care services, and culture after the COVID-19 pandemic.

Regarding the prevention of the COVID-19 epidemic, the Korean government plans to use
3,500 billion KRW (3 billion USD) to vaccinate the entire population, such as ordering 90
million more vaccines (buying 80 million mRNA vaccines). and 10 million vaccines and
vaccines developed by Korean companies) and 1.8 trillion KRW ($1.54 billion) for the budget
for epidemic prevention. The defense budget is 55.200 billion KRW (more than 47 billion
USD)
Regarding Export and Imports ( X,M) : Exports from South Korea plunged 14 percent from a
year earlier to USD 51.9 billion in November 2022, the second straight month of decline and
compared with market expectations of a 11 percent fall. It was the steepest fall in exports since
May 2020, amid high inflation and aggressive monetary tightening by major economies, as well
as the impact of ongoing truckers' strike. Sales were down for chips (-29.8 percent),
petrochemicals (-26.5 percent), steel products (-10.6 percent). By contrast, sales of cars surged
31 percent, petroleum (26 percent), auto parts (0.9 percent), and batteries (0.5 percent). By the
destination, shipments decreased to China (-25.5 percent), ASEAN (-13.9 percent), but
increased to the US (8.0 percent) and EU (0.1 percent). For the first 11 months of this year,
exports grew 7.8 percent to a record high of USD 629.1 billion.

https://tradingeconomics.com/south-korea/foreign-direct-investment
https://m.pulsenews.co.kr/view.php?year=2022&no=587357
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