Exercise 2. Breaking Records

Read the article below. Choose the best word to fill each gap from A, B, C or D below. There is an example at the beginning. (0).

BREAKING RECORDS

Woody Allen once joked: ‘if my films don’t show a profit, I know I’m doing something right’. For most other people, in most other (0) __ B __, profit is a mark of success, and in most countries corporate profits are currently (1) _____. Last year, America’s after-tax profits (2) _____ to their highest for 75 years; the shares of profit in the euro area and Japan are also close to their highest for at least 25 years. UBS, a Swiss bank, (3) _____ that, in many world economies, the share of profits in national (4) _____ has never been higher. So, are (5) _____ profit margins sustainable? Are they fair?

Corporate profits may be inflated in various ways. If firms put money aside for the future (6) _____ costs for the over 65s or whatever, their earnings would be smaller. Nevertheless, the impressive (7) _____ of American firms to increase productivity and cut costs are genuine, (8) _____ some claims to the contrary in the press. Firms elsewhere, notably in Japan and Germany, are also (9) _____ aggressively. The share of profit in GDP always goes up sharply after a downturn, but in the United States a bigger slice of the increase this time has gone to profits than in any (10) _____ post-war recovery.

If the share of wages in GDP (11) _____ to slide, there could be a reaction from workers. Yet the chances of this are lower than before. The old (12) _____ between ‘them’ and ‘us’ is becoming unclear: many workers also own company (13) _____, which sooner or later will give them some of the profits. In any (14) _____, there are good reasons to believe that the (15) _____ in profits will soon slow sharply.

0 A conditions B circumstances C surroundings D states

 

1. A elevating B boosting C booming D lifting

2. A raised B raise C rise D rose

3. A judges B evaluates C estimates D assesses

4. A money B income C pay D earnings

5. A current B present C actual D up-to-date

6. A grant B redundancy C allowance D pension

7. A demands B efforts C trials D tests

8. A despite B however C nevertheless D although

9. A reconstructing B redecorating C regenerating D restructuring

10. A previous B early C beforehand D sooner

11. A maintains B carries C continues D stays

12. A break B disconnection C partition D divide

13. A dividends B shares C premiums D bonuses

14. A state B situation C case D instance

15. A extension B development C expansion D growth

 

Exercise 3. Match the words (1-10) with their definitions (a-j).

 

Profit a. the administration of the material resources of an individual, community or country

2. tax b. the rate or efficiency of work, especially in industrial production

3. economy c. any medium of exchange that is widely accepted in payment for goods and services and in settlement of debts.

4. profit margin d. a contribution to revenue exacted by the state from individuals or businesses

5. money e. the total value of a country’s output of goods and services over a certain period

6. share f. the profit percentages made by a business per dollar of sales

7. productivity g. amount of money paid to produce something

8. costs h. monetary difference between the cost of producing and marketing goods or services and the price subsequently received for those goods or services.

9. GDP i. payment made by an employer to an unskilled or semi-skilled employee

10. wage j. a part allotted, contributed, owned or taken

Now use some of these words in the sentences below.

 

1. One of the recurring problems of American agriculture in the 20th century has been the tendency of farm income to lag behind increases in the _____ of production.

2. Cost-push inflation occurs when prices rise to cover total expenses and preserve _____.

3. The payments include _____ and salaries; bonuses; premiums for night or holiday work; fees and retainers for professional services; and the income of business owners that compensates them for time devoted to business.

4. Numerous mergers occurred in the second half of the decade as carriers attempted to gain a greater _____ of the market and expand quickly.

5. Entrepreneur assumes the responsibility and the risk for a business operation with the expectation of making a _____.

 

 

Exercise 4. Read the adapted article about Denmark’s economy which was published in the Economist.

In most of the lines 1 – 12 there is one extra word. It is either grammatically incorrect or does not fit in with the sense of the text. Some lines, however, are correct. Determine the correct and incorrect lines as given in two examples (0) and (00).

 

0 did 00 correct

Denmark’s Economy

After a period of slow growth, Denmark’s economy did improved in 2005 and is extremely likely to grow quite strongly over the next two years time, says the latest report on the country’s prospects. Inflation will be stay low even though unemployment is set to decline. The current account will remain it in substantial surplus. But there are these longerterm worries. Without changes to increase labour supply and productivity growth, population ageing will reduce the very growth of GDP per person to 0.06% a year by the 2020s. A report says that more needs to be done if to increase working hours, reduce early retirement and reduce the length of his university education. It also calls for an increasing efficiency in the public sector by opening up to more competition. And it says Denmark’s costly schools could have do better, for example, by such teachers becoming more specialised and flexible.

THE ECONOMY

Exercise1. Read and memorize the following words, word-combinations and word-groups:

 

economy — господарство

factors of production — чинники виробництва

opportunity costs — оптимальні витрати

economics — економіка

production possibilities — виробничі можливості

law of increasing opportunity costs — закон зростання оптимальних витрат

economic growth — економічне зростання

market mechanism — ринковий механізм

Exercise 2. Read and translate the text:

 

The economy is for us. ‘The economy’ is simply an abstraction that refers to the sum of all our individual production and consumption activities. In order to produce anything, we need resources, or factors of production. Factors of production are the inputs — land, labour, and capital (buildings and machinery) we use to produce final goods and services (output).

Unfortunately, the quantity of available resources is limited. We cannot produce everything we want in the quantities we desire. Resources are scarce relative to our desires. This fact forces us to make difficult choices. Hence the more missiles we build the less of other goods and services we can produce at the same time.

Opportunity costs exist in all situations where available resources are not abundant enough to satisfy all our desires.

Indeed, economics is often defined as the study of how to allocate scarce resources. The study of economics focuses on «getting the most from what we've got», on making the best use of our scarce resources.

Production possibilities are the alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology.

According to the law of increasing opportunity costs we must give up ever-increasing quantities of other goods and services in order to get more of a particular good.

Economic growth is an increase in output; an expansion of production possibilities.

Over time the quantity of resources available for production has also increased. Each year our population grows a bit, thereby enlarging the number of potential workers. Our stock of capital equipment has increased even faster. In addition the quality of our labour and capital resources has improved, as a result of more education (labour) and better machinery (capital).

Market mechanism is the use of market prices and sales to signal desired outputs (or resource allocations).

Thus the essential feature of the market mechanism is the price signal. If you want something and have sufficient income, you buy it. If enough people do the same thing, the total sales of that product will rise, and perhaps its price will as well. Producers, seeing sales and prices rise, will be inclined to increase production.

Exercise 2. Answer the following questions:

1. What is ‘the economy’?

2. What do you need to produce the textbook and what are these inputs called?

3. Why are we compelled to choose among goods?

4. How is economics often defined?

5. What do we call the law according to which we must give up ever increasing quantities of other goods and services in order to get more of a particular good?

6. What are the essentials of the market mechanism?

7. What is economics all about?

Exercise 3. Give English equivalents of the following.

згідно з законом зростання оптимальних витрат; важлива особливість ринкового механізму; кількість наявних ресурсів обмежена; відмовлятися від можливості; бути змушеним робити вибір; випускати кінцевий товар; задовольняти бажання; розподіляти ресурси

Exercise 4. Define the terms.

 

economy law of increasing opportunity costs

economics production possibilities

economic growth factors of production

market mechanism opportunity costs

Exercise 5. Translate into English.

 

1. Економічна наука вивчає виробництво та споживання.

2. Чинники виробництва — це земля, трудові ресурси, основний капітал (обладнання та будівлі), якими ми користуємося для виробництва товарів і послуг.

3. Ми не можемо виготовляти все, що ми бажаємо, і в кількостях, які нам потрібні, оскільки ресурси завжди обмежені.

4. Обмеженість ресурсів ставить нас перед вибором.

5. Економічна наука займається питаннями розміщення ресурсів, яких немає в достатній кіпькості, та тим, як їх краще використовувати.

6. Нам доводиться відмовлятися від випуску певного виду товару, щоб забезпечити випуск іншого.

7. Головним у ринковому механізмі є чинник цін, який впливає на розширення або скорочення виробництва.

8. Якщо товаровиробники бачитимуть, що продаж певного виду товару і ціни на нього зростають, вони збільшуватимуть випуск цього товару.

Exercise 6. Read and dramatize the following dialogue.

 

A .: People worry about love, the weather, and the economy. But not necessarily in that order. According to public-opinion polls, the economy is always one of our foremost concerns.

B .: Yes, people worry about such questions as:

— what forces shape the economy;

— what determines how many jobs will be available;

— how much income people will receive;

— what goods will be produced;

— how much pollution will be created.

A .: And I was always wondering what, if anything, we can do to improve the economy's performance?

B.: І see. And when asked what the country's most important problem was, three out of four Americans pointed to the drug problem. However four out of ten cited economic concerns, including unemployment, government spending, budget deficits and inflation.

A .: But for many people, of course, concern for the economy goes no further than the price of tuition or the fear of losing a job.

B: I can't agree with you, because many others, however, are becoming increasingly aware that their job prospects and the prices they pay are somehow related to national trends in prices, unemployment, and economic growth.

A .: So you think that most of us now recognize the importance of major economic events.

B .: Yes, and that is why so many people worry about such abstractions as unemployment rates, inflation, economic growth, trade deficits, and budget deficits.

A .: But despite the widespread concern for the economy, few people really understand how it works. And you can hardly blame them.

B .: Certainly. The significance of billion dollar changes in output is easily lost on people who are trying to figure out how to pay this month's rent or next semester's tuition.

A .: You see, «the economy» as it abstract might seem, as very much a part of our everyday lives. We spend most of our lives working to produce the goods and services that flow from our factories and offices.

B .: Oh! And we spend a good part of the remaining time consuming those same goods and services. During much of the time left over, we worry about what to produce or consume next.

A .: Interest in the workings of the economy intensifies when we have some immediate stake in its performance. The loss of a job, for example, can rivet one's attention on the causes of unemployment. A tuition increase may start you thinking about the nature and causes of inflation.

B .: And high rents can start you thinking about the demand for housing in relation to its supply.

A.: So what we seek to determine, then, is not simply whether we are involved in the economy — a fact nearly everyone can accept with a shrug — but more important, how we are involved and where our interests lie.

B .: Right you are.

Exercise 7. Make up your own dialogue using the following expressions:

 

to satisfy desires unemployment rates

to make difficult choices available resources

to get the most from what one has got to allocate scarce resources

to make the best use of scarce resources economic growth

an expansion of production possibilities trade deficit

inflation

Exercise 8. Communicative situations.

 

1. What opportunity costs did you incur reading this chapter?

2. If all consumers desire air, why doesn't a market mechanism produce it?

3. What would happen to the production possibilities if additional factors of production became available?

Exercise 9. Change from direct into indirect speech:

EXAMPLE:He said: “We used buildings and machinery rather effectively to produce final goods and services.”

He said that they had used buildings and machinery rather effectively to produce final goods and services.

 

1. Our manager said: «We produced everything in the quantities we desired.»

2. He said: «This fact forced us to make difficult choices.»

3. The vice-president of marketing said: «We did much to advertise our product.»

4. The president of the company said: «We gave up the production of automobiles to produce agricultural machinery.»

5. The vice-president of production said: «We made the best use of our resources.»

Exercise 10. Ask questions as in the example.

 

EXAMPLE: Ask your manager if the quantity of resources available for production had increased.

Had the quantity of resources available for production increased?

 

Ask your manager…

1) if quality of labour and capital resources had improved;

2) if total sales of that product had risen;

3) if the enterprise had increased the production of agricultural machinery;

4) if the firm had allocated scarce resources so as to get the highest income;

5) if the firm had expanded its production possibilities.

Exercise 11. Translate into English using the Past Perfect Tense (the Active Voice).

 

1. Це підприємство вдало розмістило свої ресурси до того, як розпочало виробництво цього товару.

2. Наша фірма відмовилася від випуску цього товару, щоб розпочати випуск іншого.

3. Коли ціни на цей товар зросли, підприємство збільшило його випуск.

4. Вони підрахували свої майбутні прибутки до того, як розпочали випуск своєї продукції.

5. Він сказав, що їхнє підприємство вдало провело рекламну кампанію і тому обсяги продажу цього товару зросли.

6. Президент компанії повідомив, що брак ресурсів змусив їх зробити вибір.

 

 

NATIONAL-INCOME ACCOUNTING

Exercise 1. Read and memorize the following words, word-combinations and word-groups.

 

national-income accounting — облік національного доходу

gross national product (GNP) — валовий національний продукт (ВНП)

GNP per capita — валовий національний продукт у розрахунку на душу населення

intermediate goods — проміжний продукт

nominal GNP — номінальний валовий національний продукт

real GNP — реальний валовий національний продукт

production possibilities — можливості виробництва

depreciation — амортизація

net national product (NNP) — чистий національний продукт

gross investment — валові капіталовкладення

net investment — чисті інвестиції

exports — експортовані товари

imports — імпортовані товари

 

 

Exercise 2. Read and translate the text.

 

National-income accounting is the measurement of aggregate economic activity, particularly national income and its com­ponents. The measurement of aggregate economic activity by national-income accounting serves two basic functions. First, it enables us to identify economic problems. The second function of national-income accounting is to provide an objective basis for evaluating policy.

National-income accounts help us not only to measure the economy but also to understand how it functions.

Gross national product (GNP) is the total market value of all final goods and services produced in a given time period. GNP per capita is total population: average GNP. GNP per capita relates the total value of annual output to the number of people who share that output; it refers to the average GNP per person.

Even when we focus on domestic market activity we encounter problems in calculating GNP. A very basic problem arises from the fact the production of output typically involves a series of distinct stages. Consider the production of bread, for example. For bread to reach the supermarket, the farmer must grow some wheat, the miller must convert it to flour, and the baker must make bread with it.

We must focus on the value of final goods and services and exclude intermediate goods from our calculation.

Intermediate goods are goods or services purchased for use as input in the production of final goods or services.

Nominal GNP is the value of final output produced in a given period, measured in the prices of that period (current prices).

To distinguish increases in the quantity of goods and services from increases in their prices, we must construct a measure of GNP that takes into account price level changes. We do so by distinguishing between real GNP and nominal GNP. Nominal GNP is the value of final output measured in that year's prices, whereas calculating real GNP, we value goods and services at constant prices.

Inflation is an increase in the average level of prices of goods and services.

Production possibilities are the alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology.

Depreciation is the consumption of capital in the production process; the wearing out of plant and equipment. This cal­culation leaves us with yet another measure of output; net na­tional product (NNP). This is the amount of output we could consume without reducing our stock of capital.

The distinction between GNP and NNP is thus mirrored in a distinction between gross investment and net investment. Gross investment is positive as long as some new plants and equipment are being produced. But our stock of capital — our total collection of plant and equipment — will not grow unless gross investment exceeds depreciation. That is, the flow of new capital must exceed depreciation, or our stock of capital will decline. Whenever gross investment exceeds depreciation, net investment is positive.

Exports are goods and services sold to foreign buyers.

Imports are goods and services purchased from foreign countries.

International trade is not a one-way street. While we export some of our own output, we also import goods and services from other countries. Whatever their use, imports represent purchases of goods and services that were not produced in their country.

The GNP accounts subtract imports from exports. The difference represents net exports.

Exercise 3. Answer the following questions.

 

1. What are the two basic functions of national-income accounting?

2. How can we determine last year's GNP?

3. What is GNP per capita used for?

4. What is the easiest way to calculate GNP?

5. What is the difference between nominal GNP and real GNP?

6. What is inflation?

7. What do our production possibilities depend on?

8. Where is the distinction between GNP and NNP mirrored?

9. What represents net exports?

Exercise 4. Give English equivalents of the following.

 

облік національного доходу; перекручувати розуміння; чистий національний продукт; можливості виробництва; валовий національний продукт; вимірювати в цінах; брати до уваги зміни в рівні цін; додана вартість; виробництво готових товарів і послуг; валовий національний продукт у розрахунку на душу населення; проміжні товари; амортизація

 

Exercise 5. Define the terms.

 

national-income accounting real GNP

inflation nominal GNP

depreciation GNP per capita

gross national product (GNP) net national product (NNP)

Exercise 6. Translate info English.

 

1. Облік національного доходу допомагає нам не тільки оцінити економіку, а й зрозуміти, як вона функціонує.

2. Додана вартість — це збільшення ринкової вартості продукції, яке відбувається на кожній стадії виробничого процесу.

3. Як зміни цін впливатимуть цього року на валовий національний продукт?

4. Для того щоб обчисли­ти реальний валовий національний продукт, необхідно оці­нити товари та послуги за постійними цінами.

5. Для того щоб підтримати наші виробничі можливості, ми повинні повернути капітал, який ми витрачаємо.

6. Щоразу, коли валові капіталовкладення перевищують амортизацію, чисті інвестиції є позитивними.

7. Виробничі можливості залежать від кількості землі, праці, капіталу та наших знань, як використати нову технологію.

8. Кількість імпортних товарів на українському ринку впродовж кількох останніх років зросла.

Exercise 7. Complete the text using the words from the box in the appropriate form.

output indicator relationship production activity saving costs factor

National income accounting is a set of principles and methods used to measure a country's income and 1)_____. There are two ways of measuring national economic activity: the expenditure approach, which measures the money value of the total 2)_____ of goods and services in a given period (usually a year); and the income approach, which measures the total income derived from economic 3)_____ after allowing for capital consumption. The most commonly used 4)_____ of national output is the gross domestic product (GDP). National income may be derived from gross national product (GNP) by making allowances for certain non-income 5)_____ included in the GNP, such as indirect taxes, subsidies, and depreciation. National income thus calculated represents the aggregate income of the owners of the 6)_____ of production; it is the sum of wages, salaries, profits, interest, dividends, rent, and so on. The data accumulated for calculating the GDP and national income may be manipulated in various ways to show various 7)_____ in the economy. Common uses of the data include breakdowns of GDP according to type of product, breakdowns of national income by type of income, and analyses of the sources of financing (e.g., personal 8)_____, company funds, or national deficits).

 

Exercise 8. Fill in the gaps providing the translation of the words and expressions given in brackets.

Who Gets GDP?

The n _____ i _____ and p _____ a _____ (рахунки національного доходу та продукту) have four groups that use production. The table below shows that in the United States the largest amount goes to ordinary people and is classified as c _____ (споживання). The food, the clothes, the medical check up, and the gasoline you buy are all c _____ e _____ (споживчі витрати). The next largest use of output is by the government, including state and local governments in addition to the federal government. This category of g _____ s _____ (урядові витрати) includes items such as purchases of m _____ g _____ (товари військового призначення), p _____ (виплати) to public school teachers, and the s _____ (платня) of your congressman. Not included as government expenditures are payments for which no service is expected, such as payment of s _____ s _____ to the e _____ (соціальна допомога громадянам похилого віку). This sort of transaction is classified as a transfer.

U.S. Gross Domestic Product, Selected Years (Numbers in billions of dollars)
.	1933	1960	1990
GDP	56.4	527.4	5803.2
Consumption	45.9	332.3	3831.5
Government Spending	8.7	113.8	1181.4
Investment	1.7	78.9	861.7
Net Exports	.1	2.4	-71.4
.
Sources: Survey of Current Business, August 2001;

The third category, investment, includes c _____ (споруджування) of new factories and the purchase of new machines by businesses. It also i _____ (включає) changes in inventories held by business and the purchase of new homes by consumers. New homes are considered i _____ s _____ (інвестиційні витрати) because they are long-lived assets that will yield services for many years. On the other hand, purchases of a _____ (електроприлади) and v _____ (засоби пересування) by consumers are considered consumption, though these items also have lifetimes much longer than a year.

The last group that receives the output that our economy produces is f _____ (іноземці). To take this group into account, we must add exports to consumption, investment, and government spending. However, some consumption, investment, and government spending is for goods that are produced in other countries, not here. One way to a _____ f _____ (прийняти до уваги) these purchases of foreign products would be to adjust consumption, etc. so that they included only the amounts spent on d _____ p _____ (вітчизняна продукція). However, this is not the way imports are taken into account. They are s _____ f _____ (вираховуватись з) exports to obtain n _____ e _____ (експорт мінус імпорт). A reason for this procedure is that data for imports as a whole is more r _____ (достовірний) than data broken into imported consumption expenditures, imported investment expenditures, and imported government expenditures.

We can summarize our discussion so far in terms of an e _____ (рівняння):

GDP = C + I + G + Xn

 

Exercise 9. Read and dramatize the following dialogue.

 

A.: As a future economist you ought to know certain things about gross national product.

B.: That's what I want. I hope to make my career in economics.

A.: What do you know about GNP?

B.: GNP is the total market value of all final goods and services produced in a given time period.

A.: It is something. But you should distinguish between nominal GNP and real GNP.

B.: What do you mean by that?

A.: Nominal GNP is the value of final output produced in a given period, measured in the prices of that period, whe­reas real GNP is the value of output measured in constant prices.

B.: Although prices serve as a convenient measure of market value, they can also distort our perceptions of real output.

A.: You are right. Imagine what would happen to our calculations of GNP if all prices were to double from one year to the next. Suppose, for example, that the price of oranges rose from 20 cents to 40 cents, the price of bicycles to 100 dollars and the price of airplanes to 2 million dollars each.

B.: How would such price changes affect this year's GNP?

A.: Obviously, the price increases would double the value of final output. Measured GNP would rise from 1.400 million dollars to 2.800 million dollars. Such a rise in GNP does not reflect an increase in the quantity of goods and services available to us. We are still producing the same quantities only the prices of those goods have changed.

B.: Now I understand, changes in GNP brought about by changes in the price level can give us a distorted view of economic reality.

A.: Surely we would not want to assert that our standard of living had improved just because price increases raised measured GNP from 1.400 million dollars to 2.800 million dollars.

B.: Thank you very much for your help. It's very useful in­formation.

A.: Not at all. See you later.

Exercise 10. Make up your own dialogue using the following expressions.

 

intermediate goods net investment

to determine production possibilities

gross investment to depend

standards of living to exceed

international trade exports

to be mirrored imports

 

Exercise 11. Communicative situations.

 

1. Can we increase consumption in a given year without cutting back on either investment or government services? Under what conditions?

2. If gross investment is not large enough to replace the capital that depreciates in a particular year, is investment greater or less than zero? What happens to our production possibili­ties?

Exercise 12. Change the following sentences using the Future Perfect Tense (the Passive Voice).

 

EXAMPLE: Gross national product will be calculated next month.

Gross national product will have been calculated by the end of the month.

1. Prices on these goods will be set tomorrow.

2. Production of consumer goods of this company will be reduced next month.

3. The calculation of net national product will be done next week.

4. International trade will be rapidly developed in this country next year.

5. New technology will be sold to this company next year.

Exercise 13. Use the verbs in brackets in the Future Perfect Tense (the Passive Voice).

 

EXAMPLE: GNP per capita (to calculate) by the end of the week.

GNP per capita will have been calculated by the end of the week.

 

1. Intermediate goods (to purchase) by that time tomorrow.

2. Nominal GNP (to measure) by the end of the month.

3. These goods (to export) by the end of the month.

4. Purchases (to do) by tomorrow morning.

5. Production possibilities (to reduce) by that time.

 

 

Exercise 14. Translate into English.

 

1. Додану вартість цієї продукції буде обчислено до кінця тижня.

2. Нові інвестиції будуть вкладені в цей проект до кінця року.

3. Реальний валовий національний продукт буде обчислений економістами до кінця місяця.

4. Ці товари будуть доставлені посередниками до кінця тижня.

5. Угоду про купівлю обладнання відомої німецької фірми буде підписано українськими партнерами до кінця тижня.

 

 

MEASURING ECONOMIC ACTIVITY

Exercise 1. Read and memorize the following words, word-combi­nations and word-groups.

 

measures of economic activity — показники економічної діяльності

unit of account — одиниця обчислення

to quote a price in terms of smth. — визначати ціну в чомусь

implicit — не виражений прямо, прихований

exchange ratio — мінове відношення

relative price — відносна ціна

purchase — купівля; придбання

price index — індекс цін

to normalize expenditures — нормувати витрати

current prices — існуючі ціни

aggregate output — сукупний обсяг виробництва

to evaluate — оцінювати

to deflate — знижувати ціни

Exercise 2. Read and translate the text.

 

Understanding how an economy works and carefully examining different perspectives on the economy frequently require quantitative measures of economic activity.

Money is important to an economy because it lowers transaction costs, thereby increasing the gains to individuals from exchange and specialization. Once money has developed in an economy, however, it serves other very useful roles. One of the most important of these roles is that money often becomes a convenient way of measuring economic activity. That is, money is frequently used as a unit of account.

When prices are quoted in terms of the domestic unit of account it is easy to determine how many units of one good trade for another. This implicit exchange ratio of goods for goods is the relative price.

The study of what determines relative prices and what happens when relative prices change is called microeconomics (or, sometimes, price theory). While relative prices are of great importance, in an economy that produces tens of thousands of goods, it is useful to have some idea of what is happening to the prices of all goods taken together, particularly when comparing changes in prices through time. That is, it is often useful to have a measure of the general or aggregate price level in addition to measures of specific relative prices. The price level is measured using a price index. A price index is usually created by pricing a basket of goods at market prices in a base year and normalizing the expenditures on those goods to 100. The same basket of goods is priced at current market prices at subsequent dates. The difference in the expenditures on the basket from those made in the base year indicates the changes that have occurred in the price level. The expenditures at each subsequent date are also normalized, using the base period expenditures so that the price index begins at 100 and then moves upward or downward depending upon whether there is inflation or deflation.

Aggregate output, domestic product, or national income are ways to measure the dollar value of the total production of goods and services in an economy. A common measure of aggregate output, domestic product, or national income is the Gross National Product (GNP), which is the dollar value of output in an economy over a one-year period evaluated at current dollar prices. A price index can be used to create a measure of real aggregate output, real GNP, by deflating nominal GNP. If an economy imports goods and services, the individuals within the economy have more goods and services to consume than those produced within the economy, while if an economy exports goods and services, the individuals within the economy have fewer goods and services to consume. Therefore, whether more or fewer goods and services are available than those produced within the economy will depend upon whether exports exceed imports or imports exceed exports.

Exercise 3. Answer the following questions.

 

1. Why can money be used to measure economic activity?

2. What is the relative price?

3. What do relative prices measure?

4. What is called microeconomics?

5. Why is it useful to have a measure of the aggregate price level?

6. What is price index usually created by? What is the Gross National Product? What can a price index be used for?

Exercise 4. Give English equivalents of the following.

 

визначати ціну в чомусь; одиниця обчислення; приховане мінове відношення; визначати відносні ціни; мати ціну на існуючому ринку; загальний рівень цін; нормалізувати витрати; за ринковими цінами; сукупний обсяг виробництва; індекс цін зростає або зни­жується (падає)

 

Exercise 5. Define the terms.

 

commodity aggregate output

microeconomics relative prices

price index imports

market prices exports

Exercise 6. Translate into English.

 

1. Ціна, яка була визначена на цей товар, виявилася дуже високою.

2. Якби у них був вибір, вони закупили б обладнан­ня за твердими цінами.

3. Споживання палива зменшилось у зв'язку з підвищенням податків.

4. Як ви оцінюєте купівельну спроможність цієї компанії?

5. Затримка у постачанні спо­живчих товарів перевищила два тижні.

6. Гроші — вигідний засіб вимірювання результатів економічної діяльності.

7. Зміни у відносних цінах відображають зміни в альтернативних цінах.

8. Він вивчає мікроекономіку вже впродовж двох років.

Exercise 7. Read and dramatize the following dialogue.

 

A.: You know that the radical reform of our national economy may be realized on the basis of a new price formation system, setting up a single market.

B.: Yes, I know it perfectly. What's beyond me is why we should try to invent the bicycle when it was already done ages ago. Why can't we study the experience of the common market thoroughly and apply it to our reality with corresponding alterations. Surely it may be much easier and help avoid possible mistakes and miscalculations.

A.: I agree with you. They have a wide experience in this field. And it took them over 40 years at that. Since the EEC was created in 1957 they have had several stages in developing their collective currency unit.

B.: One thing's absolutely clear. We can't do it in a day. It may take quite a long time.

A.: Again I agree with you there.

B.: And we must have a really common currency unit for our trading community instead of the existing currency.

A.: Naturally our existing currency should be covered by the amount of goods produced, i. e. we should check, fight down so to say, the inflationary process first of all.

B.: How serious is it in our country?

A.: Some say 2%, others up to 6%. No one knows exactly.

B.: There're many terms in our economic literature concerning currency. Let's see which is which. First, what is hard currency and soft currency?

A.: Hard currency is defined as one that is reliable and stable, which is why it is readily accepted by foreign countries in payment for goods or of debt. Soft currency is defined as one that is not convertible to gold or into certain other currencies which are more in demand as it is likely to fall in value usually because of an adverse trade balance.

B.: What foreign exchange belongs to hard currency?

A.: Currencies of almost all advanced industrialized countries and even of some developing or as they are now called newly-industrialized countries like Singapore or South Korea. I can't enumerate them all, but one thing's quite clear, that the US dollar, the Japanese yen and the Deutsche mark are most popular and more or less reliable at that.

B.: I'm not an expert in financial matters, but I think that the real exchange rate is necessary not only in respect of hard currencies but in respect of clearing currencies as well.

A.: What does a real exchange rate imply?

B.: Perhaps I won't be able to answer your question properly but I know that monetary exchange is impossible without the real exchange rate; and there must be several stages; but first is the convertibility of our currency inside this country.

A.: What does that mean?

B.: That means that our enterprises must have a chance to buy foreign currency for our currency to pay for their machinery imports to modernize their factories.

A.: How can that be achieved?

B.: A domestic monetary market should be created or a cu­rrency exchange should be allowed.

A.: That's a good prospect but it seems far away to me.

B.: I don't think it'll take much time.

Exercise 8. Make up your own dialogue using the following expressions.

 

measures of economic activity price index

to consume relative prices

market prices to export

to be measured expenditures

opportunity costs to normalize

unit of account to exceed

useful prices

to import current

 

Exercise 9. Communicative situation.

 

If the price index increases from $50 to 180 in a single year, are the individuals living within the economy worse off or better off?

Exercise 10. Fill in the gaps providing the translation of the words and expressions given in brackets.

Measures of national income and output are used in economics to estimate the welfare of an economy through totalling the value of goods and services produced in an economy. The primary measures of national income and output are G _____ D _____ P _____ (валовий внутрішній продукт) (GDP), G _____ N _____ P _____ (валовий національний продукт) (GNP), G _____ N _____ I _____ (валовий національний прибуток) (GNI), N _____ N _____ P _____ (чистий продукт країни) (NNP), and N _____ N _____ I _____ (чистий національний прибуток) (NNI).

 

There are three main ways of calculating these numbers; the output approach, the income approach and the expenditure approach. In theory, the three must yield the same, because t _____ e _____ (загальні витрати) on goods and services (GNE) must equal the total income paid to the producers (GNI), and that must also equal the total value of the output of goods and services (GNP).

The Output Approach

The Output Approach focuses on finding the total output of a nation by directly finding the total value of all goods and services a nation produces.

Because of the complication of the multiple stages in the production of a good or service, only the final value of a good or service is included. This avoids an issue often referred to as " d _____ c _____" (подвійний обрахунок) –when the total value of a good is included in the national output in s _____ s _____ of p _____ (декілька стадій виробництва). In the example of meat production, the value of the good from the farm may be $10, then $30 from the butchers, and then $60 from the supermarket. The value that should be included in the national output should be $60, not the sum of all those numbers; $100.

The method of National Income by Output, Value Added method:

GDP at market price = Value of Output in an economy in a particular year – Intermediate consumptionNNP at factor cost = GDP at market price – Depreciation + NFIA (net factor income from abroad) – Net Indirect Taxes

The Income Approach

The Income Approach focuses on finding the total output of a nation by finding the total income of a nation. This is acceptable, because all money spent on the production of a good – the total value of the good – is paid to workers as income.

The main types of income that are included in this measurement are r _____ (рента) (the money paid to owners of land), salaries and wages (the money paid to workers who are i _____ in the p _____ p _____ (включені у процес виробництва), and those who provide the natural resources), i _____ (процент) (the money paid for the use of man-made resources, such as machines used in production), and p _____ (прибуток) (the money gained by the e _____ (підприємець) – the businessman who combines these resources to produce a good or service).

The equation for measurement of National Income by Income Method:

NDP at factor cost = compensation of employee + operating surplus + Mixed income of self employee National Income = NDP at factor cost + NFIA (net factor income from abroad)

The Expenditure Approach

The Expenditure Approach is the most popular n _____ o _____ a _____ m _____ (метод обчислення національного сукупного продукту). It focuses on finding the total output of a nation by finding the total amount of money spent. This too is acceptable, because like income, the total value of all goods is equal to the total amount of money spent on goods. The basic formula for d _____ o _____ (внутрішнє виробництво) combines all the different areas in which money is spent within the region, and then combining them to find the total output.

GDP = C + I + G + (X - M)

Where:
C = Household consumption expenditures/Personal consumption expenditures

I = G _____ p _____ d _____ i _____ (валові приватні внутрішні інвестиції)

G = Government consumption and gross investment expenditures

X = Gross exports of goods and services

M = Gross imports of goods and services

 

Note: (X - M) is often written as N_X, which stands for "Net Exports"