Microeconomics and macroeconomics

Many economists specialize in a particular branch of the subject. For example, there are labour economists, energy economists, monetary economists, and international economists. What distinguishes these economists is the segment of economic life in which they are interested. Labour economics deals with problems of the labour market as viewed by firms, workers, and society as a whole. Urban economics deals with city problems: land use, transport, congestion, and housing. However, we need not classify branches of economics according to the area of economic life in which we ask the standard questions what, how and for whom. We can also classify branches of economics according to the approach or methodology that is used. The very broad division of approaches into microeconomic and macroeconomic cuts across the large number of subject groupings cited above.

Microeconomic analysis offers a detailed treatment of individual decisions about particular commodities.

For example, we might study why individual households prefer cars to bicycles and how producers decide whether to produce cars or bicycles. We can then aggregate the behaviour of all households and all firms to discuss total car purchases and total car production. Within a market economy we can discuss the market for cars. Comparing this with the market for bicycles, we may be able to explain the relative output of these two goods. The sophisticated branch of microeconomics known as general equilibrium theory extends this approach to its logical conclusion. It studies simultaneously every market for every commodity. From this it is hoped that we can understand the complete pattern of consumption, production, and exchange in the whole economy at a point in time.

If you think this sounds very complicated you are correct. It is. For many purposes, the analysis becomes so complicated that we tend to lose track of the phenomena in which we were interested. The interesting task for economics, a task that retains an element of art in economic science, is to devise judicious simplifications, which keep the analysis manageable without distorting reality too much.

Microeconomists tend to offer a detailed treatment of one aspect of economic behaviour, but ignore interactions with the rest of the economy in order to preserve the simplicity of the analysis.

Macroeconomics emphasizes the interactions in the economy as a whole. It deliberately simplifies the individual building blocks of the analysis in order to retain a manageable analysis of the complete interaction of the economy.

For example, macroeconomists typically do not worry about the breakdown of consumer goods into cars, bicycles, televisions, and calculators. They prefer to treat them all as a single bundle called "consumer goods" because they are more interested in studying the interaction between households' purchases of consumer goods and firms' decisions about purchases of machinery and buildings.

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

- labour economics;

- urban economics;

- according to the approach;

- individual decisions about particular commodities;

- a pattern of consumption;

- at a point in time;

- total car purchases;

- total car production;

- without distorting reality

MODERN BANKING

The goldsmith bankers were an early example of a financialintermediary.

A financial intermediaryis an institution that specializes in bringinglenders and borrowers together.

A commercial bankborrows money from the public, crediting them with a deposit. The deposit is a liability of the bank. It is money owed to depositors. In turn the bank lends money to firms, households or governments wishing to borrow.

Banks are not the only financial intermediaries. Insurance companies, pension funds, and building societies also take in money in order to relend it. The crucial feature of banks is that some of their liabilities are used as a means of payment, and are therefore part of the money stock.

Commercial banks are financial intermediaries with a government licence to make loans and issue deposits, including deposits against which cheques can be written.

Let's start by looking at the present-day UK banking system. Although the details vary from country to country, the general principle is much the same everywhere.

In the UK, the commercial banking system comprises about 600 registered banks, the National Girobankoperating through post offices, and a dozen trustee savings banks. Much the most important single group is theLondon clearing banks.The clearing banks are so named because they have a central clearing house for handling payments by cheque.

A clearing systemis a set of arrangements in which debts between banks are settled by adding up all the transactions in a given period and paying only the net amounts needed to balance inter-bank accounts.

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

- a financial intermediary;

- bring lenders and borrowers together;

- as a means of payment;

- part of the money stock;

- financial intermediary with a government licence;

- vary from country to country;

- be much the same everywhere;

-operate through post-offices;

- handle payments;

- inter-bank accounts.

Auditing

The profession of the auditor is considered to be one of the most prestigious and well – paid ones. Auditors are accountants who analyze financial statements of the company and their responsibility is to express an opinion as to whether the accuracy of the company’s financial reporting meets the requirements imposed by the government. In general, auditors deal more with operating efficiency and managerial effectiveness than with the accuracy of the accounting data.

Internal auditors are known to be hired by the company in order to help to identify accounting weakness and correct them before significant errors occur. They are often analytically minded people who make flowcharts of accounting systems and evaluate these flowcharts to suggest improvements in division of labour, paper flow, cash control, or other accounting responsibilities.

Independent auditors are employed by a company’s board of directors to supply the stockholders with the results of checking the financial statements, in order to prove that annual reports are fair representations of the financial position of the company. Performing his work the auditor should follow several principles and assumptions: the company’s accounts must represent a true financial position; generally accepted accounting principles have been used at all accounting steps and accounts can be compared with those of similar companies; the proper amount of information is disclosed in the financial statements. As a result, the auditor’s opinion should be based only on facts and it must be objective. Auditors are expected to maintain a relationship of strict independence and professionalism with the companies for whom they work so they mustn’t hold shares in these companies. On the one hand, the auditor should respect the client’s confidence, so having access to some private information, the auditor must not spread it outside. On the other hand, he should think of public interests, that is why he must publish his opinion in a standard form and the information is to be clear to the stockholders. But he must always carry out his duties under the law and inform authorities about fraud.

Practice 2. Give the Russian equivalents to the word-combinations from the text:

- the most prestigious;

- analyze financial statements;

- managerial effectiveness;

- the accuracy of the accounting data;

- accounting responsibilities;

- to prove that annual reports;

- a true financial position;

- to maintain a relationship;

- independent auditor.