Circular Flow of Payments and National Income

TEXT (Unit 7)

Circular Flow of Payments and National Income

To have a glimpse in the working of the economy as a whole may be of use to a student of economics.

In every economy there are lots of households to supply labour and capital to firms that use them to produce goods and services. Firms provide incomes for households, who in turn use this money to purchase the goods and services produced by firms. This process is called the circular flow of payments.

The gross domestic product (GDP) is the total money value of all final goods produced in the domestic economy over a one-year period. The GDP can be measured in three ways: (a) the sum of the value added3 in the production within a year, (b) the sum of incomes received from producing the year's output, (c) the sum to spend on the year's domestic output of goods and services.

The total money value of all final goods and services in an economy over a one-year period, that is the GDP, plus property income from abroad (interest, rent, dividends and profits) make the gross national product (GNP). The GNP is an important measure of a country's economic well-being, while the GNP per head provides a measure of the average standard of living of the country's people. However, this is only an average measure of what people get. The goods and services available to particular individuals depend on the income distribution within the economy.

We now recognize that assets wear out in the production process either Physically or become obsolete. This process is known as depreciation. There has to be part of the economy's gross output to replace existing capital, and this part of gross output is not available for consumption, investment, government spending, or exports. So we subtract depreciation from the GNP to arrive at national income.

National income measures the amount of money the economy has available for spending on goods and services after setting aside enough money to replace resources used up in the production process.

Since output is determined by demand, the aggregate demand or spending plans of households and firms determine the level of the output proceed, which in turn makes up the income available to households. Aggregate demand is the amount to be spent by firms and households on goods and services.

Governments also step in the circular flow of income and payments. They buy a considerable part of the total output of goods and services in an economy adding their demand to the demand of the private sector. Since government spending is a large component of aggregate demand, and since taxes affect the amount households and companies have for spending, government spending and taxation decisions, which are referred to as4 fiscal policy, have major effects on aggregate demand and output.

Перевод текста 7

TEXT (Unit 8)

Taxes and Public Spending

In most economies government revenues come mainly from direct taxes on personal incomes and company profits as well as indirect taxes levied on purchase of goods and services such as value added tax (VAT) and sales tax. Since state provision of retirement pensions is included in government expenditure, pension contributions to state-run social security funds are included in revenue, too. Some small component of government spending is financed through government borrowing.

Government spending comprises spending on goods and services and transfer payments.

 Governments mostly pay for public goods, that is, those goods that, even if they are consumed by one person, can still be consumed by other people. Clean air, national defence, health service are examples of public goods. Governments also provide such services as police, fire-fighting and the administration of justice.

A transfer is a payment, usually by the government, for which no corresponding service is provided in return. Examples are social security, retirement pensions, unemployment benefits and, in some countries, food stamps.

 In most countries there are campaigns for cutting government spending. The reason for it is that high levels of government spending are believed to exhaust resources that can be used productively in the private sector. Lower incentives to work are also believed to result from social security payments and unemployment benefits.

Whereas spending on goods and services directly exhausts resources that can be used elsewhere, transfer payments do not reduce society's resources. They transfer purchasing power from one group of consumers, those paying taxes, to another group of consumers, those receiving transfer payments and subsidies.

Another reason for reducing government spending is to make room for tax cuts.

Government intervention manifests itself in tax policy which is different in different countries. In the United Kingdom the government takes nearly 40 percent of national income in taxes. Some governments take a larger share, others a smaller share.

The most widely used progressive tax structure is the one in which the average tax rate rises with a person's income level. As a result of progressive tax and transfer system most is taken from the rich and most is given to the poor.

Rising tax rates initially increase tax revenue but eventually result in such large falls in the equilibrium quantity of the taxed commodity or activity that revenue starts to fall again. High tax rates are said to reduce the incentive to work. If half of all we earn goes to the government, we may prefer to work fewer hours a week and spend more time in the garden or watching television.

Cuts in tax rates will usually reduce the deadweight tax burden and reduce the amount of taxes raised but might increase eventual revenue.

 If governments wish to reduce the deadweight tax burden and balance spending and revenue, they are supposed to reduce government spending in order to cut taxes.

Перевод текста 8

TEXT (Unit 9)

Money and Its Functions

Money has four functions: a medium of exchange or means of payment, a store of value, a unit of account and a standard of deferred payment. When used as a medium of exchange, money is considered to be distinguished from other assets.

Money as the medium of exchange is believed to be used in one half of almost all exchange. Workers exchange labour for money, people buy or sell goods in exchange for money as well.

People do not accept money to consume it directly but because it can subsequently be used to buy things, they wish to consume. To see the advantages of a medium of exchange, imagine a barter economy, that is, an economy having no medium of exchange. Goods are traded directly or swapped for other goods. The seller and the buyer each must want something the other has to offer. Trading is very expensive. People spend a lot of time and effort finding others with whom they can make swaps. Nowadays, there exist actually no purely barter economies, but economies nearer to or farther from the barter type. The closer is the economy to the barter type, the more wasteful it is.

Serving as a medium of exchange is presumed to have for centuries been an essential function of money.

The unit of account is the unit in which prices are quoted and accounts are kept. In Britain, for instance, prices are quoted in pounds sterling; in France, in French francs. It is usually convenient to use the same unit to measure the medium of exchange as well as to quote prices and keep accounts in. However, there may be exceptions. During the rapid German inflation of 1922-23 when prices in marks were changing very quickly, German shopkeepers found it more convenient to use US dollars as the unit of account. Prices were quoted in dollars though payment was made in marks. The same goes for Russia and other post-communist economies who used the US dollar as a unit of account, keeping their national currencies as means of actual payment. The higher is the inflation rate, the greater is the probability of introducing a temporary unit of account alongside the existing units for measuring medium of exchange.

Money is a store of value, for it can be used to make purchases in future. For money to be accepted in exchange, it has to be a store of value. Unless suitable for buying goods with tomorrow, money will not be accepted as payments for the goods supplied today. But money is neither the only nor necessarily the best store of value. Houses, stamp collections, and interest-bearing bank accounts all serve as stores of value.

Finally, money serves as a standard of deferred payment or a unit of account over time. When money is borrowed, the amount to be repaid next year js measured in units of national currency, pounds of sterling for the United Kingdom, for example. Although convenient, this is not an essential function of money. UK citizens can get bank loans specifying in dollars the amount that must be repaid next year.

Thus, the key feature of money is its use as a medium of exchange. For money to be used successfully as a means of exchange, it must be a store of value as well. And it is usually, though not always, convenient to make money the unit of account and standard of deferred payment.

Перевод текста 9

Деньги и их функции

Деньги выполняют четыре функции: средство обмена или средства платежа, средство сбережения, расчетная единица и стандарт отсрочки платежа. При использовании в качестве средства обмена деньги считаются отличными от других активов.

Считается, что деньги как средство обмена используются в половине почти всех обменов. Рабочие обменивают рабочую силу на деньги, люди покупают или продают товары в обмен на деньги.

Люди не принимают деньги, чтобы потреблять их напрямую, но поскольку их впоследствии можно использовать для покупки вещей, они хотят потреблять. Чтобы увидеть преимущества средства обмена, представьте себе бартерную экономику, то есть экономику, не имеющую средства обмена. Товары продаются напрямую или обмениваются на другие товары. И продавец, и покупатель должны желать того, что может предложить другой. Торговля стоит очень дорого. Люди тратят много времени и усилий на поиски других, с которыми они могут обменяться. В настоящее время фактически не существует чисто бартерной экономики, но есть экономики, которые ближе или дальше от бартерного типа. Чем ближе экономика к бартеру, тем она расточительнее.

Предполагается, что на протяжении веков работа в качестве средства обмена была важной функцией денег.

Расчетная единица - это единица, в которой котируются цены и ведутся счета. В Великобритании, например, цены указаны в фунтах стерлингов; во Франции - во французских франках. Обычно удобно использовать одну и ту же единицу для измерения средства обмена, а также для котировки цен и ведения счетов. Однако могут быть исключения. Во время быстрой инфляции в Германии 1922-1923 годов, когда цены в марках менялись очень быстро, немецкие владельцы магазинов сочли более удобным использовать доллары США в качестве расчетной единицы. Цены были указаны в долларах, хотя оплата производилась в марках. То же самое касается России и других посткоммунистических стран, которые использовали доллар США в качестве расчетной единицы, сохраняя свои национальные валюты как средство фактических платежей. Чем выше уровень инфляции, тем выше вероятность введения временной расчетной единицы наряду с существующими единицами измерения средства обмена.

Деньги - это средство сбережения, потому что их можно использовать для покупок в будущем. Чтобы деньги были приняты взамен, они должны быть средством сбережения. Если товар не подходит для покупки на завтра, деньги не принимаются в качестве оплаты за товары, поставленные сегодня. Но деньги - не единственное и не обязательно лучшее средство сбережения. Дома, коллекции марок и процентные банковские счета служат хранилищами стоимости.

Наконец, деньги служат стандартом отсрочки платежа или расчетной единицей с течением времени. Когда деньги берутся в долг, сумма, подлежащая выплате в следующем году, измеряется в единицах национальной валюты, например, в фунтах стерлингов для Соединенного Королевства. Хотя это удобно, это не основная функция денег. Граждане Великобритании могут получить банковские ссуды с указанием в долларах суммы, которая должна быть возвращена в следующем году.

Таким образом, ключевой особенностью денег является их использование в качестве средства обмена. Чтобы деньги можно было успешно использовать как средство обмена, они также должны быть средством сбережения. И обычно, хотя и не всегда, удобно делать деньги расчетной единицей и стандартом отсрочки платежа.

TEXT (Unit 10)

Перевод текста 10

TEXT (Unit 11)

Перевод текста 11

TEXT (Unit 7)

Circular Flow of Payments and National Income

To have a glimpse in the working of the economy as a whole may be of use to a student of economics.

In every economy there are lots of households to supply labour and capital to firms that use them to produce goods and services. Firms provide incomes for households, who in turn use this money to purchase the goods and services produced by firms. This process is called the circular flow of payments.

The gross domestic product (GDP) is the total money value of all final goods produced in the domestic economy over a one-year period. The GDP can be measured in three ways: (a) the sum of the value added3 in the production within a year, (b) the sum of incomes received from producing the year's output, (c) the sum to spend on the year's domestic output of goods and services.

The total money value of all final goods and services in an economy over a one-year period, that is the GDP, plus property income from abroad (interest, rent, dividends and profits) make the gross national product (GNP). The GNP is an important measure of a country's economic well-being, while the GNP per head provides a measure of the average standard of living of the country's people. However, this is only an average measure of what people get. The goods and services available to particular individuals depend on the income distribution within the economy.

We now recognize that assets wear out in the production process either Physically or become obsolete. This process is known as depreciation. There has to be part of the economy's gross output to replace existing capital, and this part of gross output is not available for consumption, investment, government spending, or exports. So we subtract depreciation from the GNP to arrive at national income.

National income measures the amount of money the economy has available for spending on goods and services after setting aside enough money to replace resources used up in the production process.

Since output is determined by demand, the aggregate demand or spending plans of households and firms determine the level of the output proceed, which in turn makes up the income available to households. Aggregate demand is the amount to be spent by firms and households on goods and services.

Governments also step in the circular flow of income and payments. They buy a considerable part of the total output of goods and services in an economy adding their demand to the demand of the private sector. Since government spending is a large component of aggregate demand, and since taxes affect the amount households and companies have for spending, government spending and taxation decisions, which are referred to as4 fiscal policy, have major effects on aggregate demand and output.

Перевод текста 7