Fiscal policy фінансова політика

Monetary policy грошова політика

Tax receipts грошові надходження від

Оподаткування

Budget deficit дефіцит бюджету

Money supply грошові надходження

Ever since the days of the Great Depression, the federal government has sought to stabilize the economy.

To achieve these goals the government relies upon two sets of “tools” or strategies: fiscal policy and monetary policy.

Fiscal Policy. Fiscal Policy is applied by changing the level of tax receipts relative to federal spending. It is the responsibility of the President and Congress because they control taxing and spending.

When taxes are reduced, individuals and business firms will have more money available to spend for the things they want. As business and consumers spending begins to increase, the economy will enter the expansion phase. If taxes are increased consumers and business would have less spend. This would create a contracting in the total demand for goods that should reduce infatuation.

Fiscal Policy has its Critics: many economists feel that when properly applied, fiscal policies can provide effective tools with which to fight recession and inflation. Others, however, believe fiscal policy solutions have several serious drawbacks.

When government reduces taxes to fight a recession, it often creates a budget deficit. That is its revenues will be less than its expenditures, and government’s debts will increase.When taxes are reduced, the government can still spend because it can borrow or print money.

If the government chooses to borrow from the public to offset a tax reduction, the money it borrows cannot be spent by the lenders.

The federal government can also finance its debts by printing money.

Unfortunately, such increases in the money supply tend to fuel inflation by pushing up prices. For that reason a number of economists are opposed to this strategy. Fiscal policies must be timed so that they are applied at the right moment.

Monetary Policy. Monetary policy refers to regulation the supply of money as a way of stabilizing the economy.

There is a direct relationship between the amount of money in circulation and the level of business activity. When the money supply is increased, consumer spending and business spending tend to increase with it. it follows that in time of contraction and recession, an increase in the money supply will help to bring about economy recovery. When the opposite situation prevails and the booming economy is pushing up prices in an inflationary spiral, a reduction in the money supply will serve to reduce demand and lower prices.

 

Exercise 1. Give the English equivalents:

підвищувати податки, зменшувати податки, стабілізувати економіку, контролювати податки та витрати, застосовуватися в потрібний момент, змінювати рівень грошових надходжень за рахунок податків, випускати гроші, попит на товари, дефіцит бюджету, спад виробництва.

Exercise 2. Write an appropriate word-combination:

reduced, fiscal policies, inflation, federal spending, timed, budget deficit,

money, drawbacks, circulation.

1. Fiscal policy is applied by changing the level of tax receipts ….

2. When taxes are …, individuals and business firms will have more money available to spend for the things they want.

3. When properly applied … can provide effective tools with which to fight recession and ….

4. Fiscal policy solutions have several serious ….

5. When government reduces taxes to fight a recession, it often creates a ….

6. The federal government can also finance its debts by printing ….

7. Fiscal policies must be … so that they are applied at the right moment.

8. There is a direct relationship between the amount of money in … and the level of business activity.

Exercise 3. Translate into English:

1. Економісти шукають шляхи стабілізації економіки. 2. Для того щоб досягти мети стабілізації економіки, уряд звертається до двох стратегій: фіскальної та грошової політики. 3. Коли податки зменшуватимуться, фірми та приватні особи матимуть у розпорядженні більше грошей, щоб витрачати їх на речі, які вони хочуть придбати. 4. Деякі економісти стверджують, що фінансова політика має кілька серйозних недоліків. 5. Коли уряд зменшує податки, він може створити дефіцит бюджету. 6. Дефіцит бюджету означає, що прибутки будуть меншими за витрати, і заборгованість уряду зросте. 7. Уряд може покривати дефіцит бюджету, роблячи позики або випускати нові гроші. 8. Прикро, що збільшення грошової маси є поштовхом для інфляції. 9. Існує прямий зв'язок між наявною в обігу кількістю грошей та рівнем виробництва.

Exercise 4. Answer the following sentences:

1. What strategies does government rely on promote maximum employment, production and purchasing?

2. What is fiscal policy?

3. How is fiscal policy applied?

4. In what ways could the recession be reserved?

5. What will happen when business and consumer spending begins to increase?

6. Can fiscal tools be used to slow the economy?

7. What serious drawbacks have fiscal policy solutions?

8. What is monetary policy?

Exercise 5. Read and translate the following dialog:

A.:	Can you tell me what times we are living through? As I know when people speak of prosperity and depression, they think of things like business cycles.
B.:	Yes! The business cycle is the pattern of periodic ups and down of business activity.
A.:	And how does the government try to stabilize the ups and down of the economy?
B.:	In its efforts to stabilize the economy and achieve its goals the government relies on the fiscal and monetary policy.
A.:	Do you know anything about fiscal policies?
B.:	Certainly, I do. Fiscal policies seek to adjust total demand through the appropriate use of the government’s powers to tax and to spend. Fiscal policy is in the hands of the President and Congress.
A.:	Then monetary policies must be quite different.
B.:	Not exactly. Monetary policies seek to achieve similar goals by regulation the money supply. Monetary policies are determined by the Board of Governors of the Federal Reserve System.
A.:	And how do fiscal policies influence the events in times of recession?
B.:	In times of recession fiscal policies would call some combination of tax reductions and increases in government spending.
A.:	And what about monetary policies?
B.:	Monetary policies in those times would seek to increase the money supply through strategies such as the increased purchasing of government securities by the Open Market Committee, a lowering of discount rate, and a reduction in the reserve ratio
A.:	And what happen in its times of inflation?
B.:	In times of inflation both fiscal and monetary policies would follow an opposite course.
A.:	Oh! I came to know very much about some things I’ve never heard. Thanks a lot.
B.:	You’re welcome.

 

Exercise 6. Create communicative situations:

1. Although economists know a great deal about how to stabilize the economy, our system still goes through periods of expansion and contraction. Describe some of the problems facing decision makers who are trying to use fiscal and monetary policies to keep the economy growing steadily.

2. As the economy moves from “recession” to “expansion”, what is likely to happen to wages, investment, employment, profits?

3. During which phase of the cycle (“recession or “expansion”) is production

increasing? Why?

 

Unit 3. Inflation

Active Vocabulary

inflation deflation relative price nominal price real income money illusion Consumer Price Index inflation rate price stability demand-pull inflation cost-push inflation

інфляція дефляція відносна ціна номінальний доход реальний доход грошова ілюзія індекс споживчих цін темп інфляції стабільність цін інфляція спричинена попитом інфляція спричинена вартістю

Most people associate inflation with price increases on specific goods and services. The economy is not necessarily experiencing an inflation, however, every time the price goes up. We must be careful to distinguish the phenomenon of inflation from price increases for specific goods. Inflation is an increase in the average level of prices, not a change in any specific price.

We first determine the average price of all output — the average price level — then look for changes in that average. A rise in the average price is referred to as inflation.

The average price level may fall as well as rise. A decline in average prices — a deflation — occurs when price decreases on some goods and services outweigh price increases on all others. Relative price is the price of one good in comparison with the price of other goods.

Because inflation and deflation are measured in terms of average price levels, it is possible for individual prices to rise or fall continuously without changing the average price level. Nominal income is the amount of money you receive in a particular time period; it is measured in current dollars. Real income, by contrast, is the purchasing power of that money, as measured by the quantity of goods and services your dollars will buy. If the number of dollars you receive every year is always the same, your nominal income doesn't change — but your real income will rise or fall with price changes.

There are two basic points about inflation to be learned:

- Not all prices rise at the same rate during an inflation. Typically, some prices rise very rapidly, others only modestly, and still others not at all.

- Not everyone suffers equally from inflation. Those people who consume the goods and services that are rising faster in price bear a greater burden of inflation; their real incomes fall more. Other consumers bear a lesser burden, or even none at all, depending on how fast the prices rise for the goods they enjoy.

Money illusion is the use of nominal dollars rather than real dollars to gauge changes in one's income or wealth.

The most common measure of inflation is the Consumer Price Index (CPI). As its name suggests, the CPI is a mechanism for measuring changes in the average price of consumer goods and services.

Inflation Rate is the annual rate of increase in the average price level.

Price stability is the absence of significant changes in the average price level; officially defined as a rate of inflation of less than 3 percent. Our goal of «full» employment is defined as the lowest rate of unemployment consistent with stable prices.

The most familiar form of inflation is called demand-pull inflation. Demand-pull inflation is an increase in the price level initiated by excessive aggregate demand. The name suggests that demand is pulling the price level. If the demand for goods and services rises faster than production, there simply won't be enough goods and services to go around.

Cost-push inflation is an increase in the price level initiated by an increase in the cost of production. In 1979, for example, the Organization of Petroleum Exporting Countries (OPEC) sharply increased the price of oil. For domestic producers, this action meant a significant increase in the cost of producing goods and services. Accordingly, domestic producers could no longer afford to sell goods at prevailing prices. They had to raise prices. The result was a cost-push inflation.

 

Exercise 1. Give the English equivalents:

підвищення цін, середній рівень цін, отримати великий прибуток, стабільні ціни, перебувати а пригніченому настрої, відрізняти явище інфляції від підвищення цін на окремі товари, мати сенс, купувати речі на продаж, темп інфляції, виробництво йде на спад.

Exercise 2. Write an appropriate word-combination:

average level of prices, nominal income, prices increase, relative price,

income, a deflation, real income;

1. Most people associate inflation with … on goods and services.

2. Inflation is an increase in the …, not a change in any specific price.

3. A decline in average prices …occurs when price decreases on some goods and services outweigh price increases on all others.

4. … is the price of one good in comparison with the price of other goods.

5. … is the amount of money you receive in a particular time period; it is measured in current dollars.

6. …, by contrast, is the purchasing power of that money as measured by the quantity of goods and services your dollars will buy.

7. Money illusion is the use of nominal dollars rather than real dollars to gauge changes in one’s … or wealth.

 

Exercise 3.Translate the following sentences:

1. Явище інфляції треба відрізняти від підвищення цін на окремі товари.

2. Впродовж останнього місяця інфляція на споживчі товари зросла на 5 відсотків.

3. Відносна ціна — це ціна одного товару в порівнянні з ціною інших товарів.

4. Інфляція найчастіше маємісце в країнах із нестабільною економікою.

5. Номінальний доход — це кількість грошей, які ви отримаєте за певний період.

6. Він досліджує про­блеми інфляції у цій країні вже протягом двох років.

7. Не всі ціни підвищуються однаково під час інфляції: деякі зро­стають дуже швидко, інші — помірно, а деякі зовсім не змінюються.

8. Темп інфляції — це щорічний середній темп підвищення рівня цін.

Exercise 4. Answer the following questions:

1. What is the inflation?

2. What is the deflation?

3. What is referred to as inflation?

4. What do we call the price of one good in comparison with the price of other goods?

5. What is the influence of price changes on your nominal and real income?

6. What are the two basic lessons about inflation?

7. What phenomenon do economists call money illusion?

8. What phenomenon do we observe when speculative profits become too easy?

9. What is the most common measure of inflation?

10. How can we calculate the inflation rate?

11. What do we call the absence of significant changes in the average price level?

12. What do we observe when the demand for goods and services increases faster than production?

Exercise 5. Read and translate the following dialog:

T.: Haven't seen you for a long time. What are you busy with?

D.: I am making preparations for my exam in economics. By the way I know

you are competent in questions concerning inflation. Will you help me to

distinguish the phenomenon of inflation from price increases for specific

goods.

Т.: With pleasure. The first thing you should take into account is that inflation

is an increase in the average level of prices, not a change in any specific

price.

D.: And what about deflation? Have you any idea about it?

T.: Well, deflation occurs when price decreases on some goods and services

outweigh price increases on all others.

D.: Thank you, Tom, there is one more point to be cleared up. What is the

difference between nominal income and real income?

Т.: Nominal income is the amount of money you receive in a particular time

period, and real income, by contrast, is the purchasing power of that money

as measured by the quantity of goods and services your dollars will buy.

D.: I see you are really a specialist in problems connected with inflation.

T.: Thank you for the compliment, but I'd like to draw your attention to the fact

that there are two basic lessons about inflation to be learned: not all prices

rise at the same rate during an inflation and not everyone suffers equally

from inflation.

T.: What do you mean by that?

D.: Typically some prices rise very rapidly, others only modestly and still others

not at all. Those people who consume the goods and services that are rising

faster in price bear a greater burden of inflation; other consumers bear a

lessen burden, or even none at all, depending on how fast the prices rise for

the goods they enjoy.

T.: And do you know anything about the measure of inflation?

Т.: Well, the most common measure of inflation is the Consumer Price Index.

As its name suggests the CPI is a mechanism for measuring changes in the

average price of consumer goods and services.

D.: I'm very much obliged to you for your exhaustive expla­nation. I think with

you help I'll pass my exam in a good way. Thanks a lot.

Т.: Not at all. Good luck!

D.: Why don't we go to the cafe and have a snack together?