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SOME CURRENT ECONOMIC PROBLEMS

I. Read and memorize the following words, word-ombinations and word-groups:

environment

e.g. Many companies acting as good citizens make efforts to protect the environment.

pollution

e.g. The costs of cleaning up the damage caused by pollution do not naturally fall on those who cause it.

acid rainfall

e.g. Dust and moisture combine in the atmosphere to form acids in clouds, and eventually there is an acid rainfall or snowfall.

pesticides

chemical fertilizers

e.g. Pesticides and chemical fertilizers used by farmers and home owners pollute streams, rivers, and ground water when they are transported by rain-water runoff.

prohibition

e.g. The prohibition of burning waste in incinerators, or the dumping of sewage in a river, and the banning of a pesticide are examples of this form of pollution control.

effluent fees

e.g. Effluent fees were levied on a factory pumping its waste into the atmosphere and a nearby stream.

incinerator

e.g. Pollution control includes the prohibition of burning waste in incinerators:

tax credits

e.g. Tax credits stimulate the producers to reduce the amount of pollution.

 

II. Give English equivalents of the following:

,

,

 

III. Fill in the blanks with appropriate words:

The costs of cleaning up the damage caused pollutants by ... do not naturally fall on those who pollution cause it. fuel

Burning fossil ... in cars and factories releases polluted pollutants into the air. acid rain

... kills fish and plants in lakes. direct regu-

Acid rain caused by ... in our country may lation fall on other countries. tax credits

Water is considered ... when it cannot be used for its intended purpose.

Government efforts to control pollution have taken three forms: ...,. effluent fees, ... .

 

IV. Read and translate the text:

By the mid-twentieth century the air over urban and industrial centers had become foul and the waters filthy.

The costs of cleaning up the damage caused by pollution do not naturally fall on those who cause it. Though many com-

panies acting as good citizens make efforts to protect the environment, there is little economic incentive for them to do so.

Modern technology produces massive amounts of wastes. Burning fossil fuel in cars and factories releases pollutants into the air. Then dust and moisture combine in the atmosphere to form acids in clouds, and eventually there is an acid rainfall or snowfall. The results are deadly. Acid rain kills fish and plants in lakes. It also builds up in the soil and damages crops. It wears away building surfaces. Blown by winds, the acid rain may fall far from the source of pollution. Acid rain caused by pollutants in our country may fall on other countries. In fact, studies indicate that about half the acid rainfall in Canada may originate in the United States.

Water is considered polluted when it cannot be used for its intended purpose, such as drinking, recreation, farming, or manufacturing. Pesticides and chemical fertilizers used by farmers and home owners pollute streams, rivers, and ground water when they are transported by rain-water runoff.

Government efforts to control pollution have taken three forms: direct regulation, effluent fees and tax credits.

Direct regulation refers to government rules to protect the environment. The prohibition of burning waste in incinerators, or the dumping of sewage in a river, and the banning of a pesticide (such as DDT) are examples of this form of pollution control. Those who fail to obey government regulations are subject to fine, imprisonment, or both.

Effluent fees are charges levied on polluters for discharging waste. For example, a factory that pumps its waste into the atmosphere or a nearby stream will be charged on the basis of the quantity of waste discharged.

Tax credits enable firms to reduce their taxes in exchange for investing in equipment that will! enable them to reduce the amount of pollution they generate (pp.187191).

 

V. Answer the following questions:

What has created thousands of hazardous dumpis sited all across the country?

What forms acid rainfall or snowfall?

What is the damage caused by acid rainfall?

May acid rain caused by pollutants in our country fall on other countries?

When is water considered to be polluted?

What forms have government efforts taken to control pollution?

 

 

VI. Define the terms:

pollution environment

direct regulation effluent fees

tax credits pollution control

wastes economic incentive

 

VII. Translate into English:

1. . 2. . 3. ; , . 4. . 5, , : , . 6. , , , , . 7. : , , , 8. , , , ' . 9. , .

 

VIII. Read and dramatize the following dialogue:

A.; What do you think about the events that influenced the population shift?

B.: Industrialization following World War I led to a population shift from farms to the cities. In the period since World War II, however, technological change has deprived the cities of many of the advantages that they once held. This has led to the growth of suburbs and to a number of economic problems for the cities.

A.: Do you see the ways of solving the problems of the cities?

B.: Proposals to solve economic problems of the cities generally call for some combination of federal, state and local approaches to the problems. Other proposals have called for the involvement of the business community, in partnership with government, as a way of solving some of the problems of the cities.

A.: I see. And economic growth, as well as everything in this world, has its advantages and drawbacks. Am I right?

B.: Yes, certainly. The principal advantage of economic growth is that it enables the nation to increase living standards. But economic growth also exacts a price in terms of resources consumed and wastes that must be disposed of.

A.: So economic growth causes sometimes harmful externalities and who is to answer for that and take measures?

B.: Unfortunately the market system does not have a way to charge those who cause harmful externalities (such as air and water pollution) for the costs of cleaning them up. For that reason it has been left to government to allocate these costs and find ways to limit the effects of harmful externalities.

A.: I think it's the duty of everybody.

,: fully agree with you. As polluted air dirties our clothing, our buildings and our homes.

A.: Does this cost society money?

8.: The EPA estimated that pollution causes the average city family to pay up to 57 dollars per year to clean and replace soiled clothes and 20 dollars per year to repair houses and cars. Air pollution reduces agricultural productivity and adds to the price people must pay for food.

A.: In addition many firms are working to make more efficient use of resources by recycling paper, aluminum and other raw materials, while others are redesigning products to be biodegradable or reusable.

 

IX. Make up your own dialogue using the following expressions:

to solve the problem of economic growth

to cause harmful externalities to take measures

to limit the effects of harmful externalities acid rain

to make efforts to protect the environment to damage crops

to release pollutants into the air to control pollution

 

X. Ask questions as in the model:

Model: Ask your friend if chemical fertilizers have been

used by farmers.

Have chemical fertilizers been used by farmers?

Ask your friend:

1) if wafer has been polluted in this region; 2) if massive amounts of wastes have been produced by modern technology;

3) if building surfaces have been worn by acid rain; 4) if those who fail to obey government regulations have been fined; 5) if effluent fees have been levied on polluters for discharging waste.

 

XI. Ask when and where-questions using the Passive Voice:

Model: Massive amounts of wastes have been produced by this plant

this year.

When have massive amounts of wastes been produced by this

plant?

1. Acid has been formed in clouds and followed by acid rainfall. 2. The acid rain has been blown by winds far from the source of pollution. 3. Chemical fertilizers have been used by farmers very intensively in this part of the country. 4. People who failed to obey government regulations have been fined this year. 5. The factory that pumped its waste into the atmosphere has been charged by the group of experts this week.

 

XII. Translate into English, using the Present Perfect Tense (the Passive Voice):

1. . 2. . 3. , , . 4. . 5. , , .

 

II. Communicative situations:

1. Protecting the environment is important.

identify and describe potential sources of pollution in your community;

describe what is being done to protect the community from the efforts of pollution.

2. Industrialized countries produce many dangerous substances (toxic wastes) while manufacturing the goods consumers need and want.

a) Is it government's responsibility to control toxic waste disposal? Why or why not?

What basic strategies have governments used to regulate
industrial pollution?

What are pollution credits?

How can they be used to reduce pollution?

 

Lesson 14

THE ECONOMY

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

economy

e.g. Economy refers to the sum of all our individual production and consumption activities.

factors of production

e.g. In order to produce anything we need resources, or factors of production.

opportunity costs

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

economics

e.g. Economics is often defined as the study of how to allocate scarce resources.

production possibilities

e.g. 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.

law of increasing opportunity costs

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

economic growth

e.g. Economic growth is an increase in output, an expansion of production possibilities.

market mechanism

e.g. Market mechanism is the use of market prices and sales to signal desired outputs.

 

II. Give English equivalents of the following:

² ² Ҳ

 

III. Fill in the blanks with appropriate words:

available resources

inputs

final goods

market prices

production

output

1. Factors of production are the ... land, labor and capital we use to produce final goods and services (...).

Unfortunately the quantity of ... is limited.

Production possibilities are the alternative combinations of ... and services.

Over time the quantity of resources available for ... has also increased.

Market mechanism is the use of ... and sales to signal desired outputs.

 

IV. 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, labor, 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 focuces 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 everincreasing 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 labor and capital resources has improved, as a result of more education (labor) 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 (pp.187191).

 

V. Answer the following questions:

What is the economy?

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

Why are we compelled to choose among goods?

How is economics often defined?

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

What are the essentials of the market mechanism?

What is economics all about?

 

VI. Define the terms:

law of increasing opportunity costs economy

production possibilities economics

factors of production economic growth

opportunity costs market mechanism

 

VII. Translate info English:

1. . 2. , , ( ), . 3. , , , , . 4. . 5. , , , . 6. , . 7. , . 8. , , .

 

VIII. 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? .: 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. .: 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. S.; 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.

 

IX. Make up your own dialogue using the following expressions:

to satisfy desires available resources to make difficult choices to allocate scarce to get the most from what one has got resources to make the best use of scarce resources economic growth an expansion of production possibilities trade deficit unemployment rates inflation

 

X. Change from direct into indirect speech:

Model: 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.

 

 

X. Ask questions as in the model:

Model: 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 labor 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.

 

XII. Translate into English using the Past Perfect Tense (the Active Voice):

1. , . 2. , . 3. , . 4. ,  . 5, ³ , . 6. , .

 

XIII. 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?

 

Lesson 15

AGGREGATE SPENDING

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

aggregate demand e.g. Aggregate demand is the total quantity of output demanded at alternative price levels in a given time period. aggregate supply e.g. Aggregate supply is the total quantity of output producers are willing and able to supply at alternative price levels in a given time period. equilibrium e.g. Equilibrium is the combination of price level and real output that is compatible with both aggregate demand and aggregate supply. aggregate spending e.g. Aggregate'spending is the rate of total expenditure desired at alternative levels of income. derived demand e.g. Derived demand is the demand for labor and other factors of production. It results from the demand for final goods and services produced by these factors. consumption e.g. Consumption is expenditure by consumers on final goods and services. disposable income (Dl) e.g. Disposable income is aftertax income of consumers. saving e.g. Saving is that part of disposable income not spent on current consumption. investment e.g. Investment is expenditure on new plants and equipment in a given time period, plus changes in business inventories.

 

II. Give English equivalents of the following:

 

III. Fill in the blanks with appropriate words:

. Aggregate demand is the total ... aggregate supply of output demanded at alterative combination price levels in a given time period. market participants 2. Equilibrium is the ... of price level expenditures and real output that is compatible aggregate demand with both ... and aggregate quantity supply. to hire 3. ... is the total quantity of output pro- goods ducers are willing and able to supply services at alternative price levels in a given demand time period. sufficiently 4. Aggregate spending is the rate of expenditure total ... desired at alternative levels income of income. interest rates 5. The role of business firms in factor markets is ... available workers and other factors of production to produce ... and ... . 6. In fact all of the income spent in product markets ends up as income for ... . 7. Firms will ... more labor only if the demand for the goods and services such labor producer is ... strong. 8. Consumption decisions are influenced by a variety of forces, including ..., prices, ..., wealth and expectations. 9. Investment is ... on new plant and equipment in a given time period, plus changes in business inventories.

 

IV. Read and translate the text:

Producers have some notion of how much output they are willing and able to produce at various price levels. Likewise, consumers, businesses, governments, and the rest of the world have some notion of how much output they are willing and able to buy at different price levels. These forces of aggregate demand and aggregate supply confront each other in the market place. Eventually, buyers and sellers discover that only one price-output combination is acceptable to both sides. This is the price-output combination we designate as (macro) equilibrium.

At equilibrium, the aggregate quantity of goods demanded exactly equals the aggregate quantity supplied, in the absence of macro disturbances, the economy will gravitate toward equilibrium and stay there. Dollar expenditures (total spending) are directly related to the flow of real goods and services; the level of employment depends on the willingness of people to spend their incomes. Businesses hire workers only if the goods and services such workers produce can be sold in product markets. Firms will demand more labor only if the demand for goods and services such labor produces is sufficiently strong. In this sense we say that employers have a derived demand for labor, a demand that is derived from demands for final goods and services. Consumer expenditures account for two-thirds of total spending in the U.S. economy. We need to determine what factors influence the rate of consumption and thus the potential for achieving full employment. Consumption decisions are influenced by a variety of forces, including income, prices, interest rates, wealth and expectations. Disposable income (Dl) represents the amount of income consumers can actually choose to spend or not spend (save) in a given time period. Business firms purchase a new plant and equipment for the purpose of expending or improving their output capabilities; such purchases are called fixed investment. Firms also acquire inventories of goods that can be used to satisfy consumer demands; such expenditures are called inventory investment. Both forms of investment represent a demand for output and are therefore counted as part of aggregate spending.

 

 

V. Answer the following questions:

1. What forces confront each other in the market place? 2. What is the aggregate spending? 3. How do we call the demand, that is derived from demands for final goods and services? 4. What factors influence the rate of consumption? 5. What does disposable income represent? 6. What do we call saving? 7. What is investment?

 

VI. Define the terms:

alternative price level real output aftertax income equilibrium 40-193

total expenditure final goods current consumption business inventories

 

VII. Translate into English:

1. . 2. ', . 3. , . 4. , . 5. . 6. , . 7. , .

 

VIII. Read and dramatize the following dialogue:

A.: Tell me please, when were many Americans out of work? C.: During the Great Depression of the 1930 as many as 13 million Americans were out of work. They were capable people and eager to work. But no one would hire them. As sympathetic as employers might have been, they simply could not use any more workers. Consumers were not buying the goods and services already being produced. Employers were more likely to cut back production and lay off still more workers than to hire any new ones. As a consequence, an army of the unemployed was created in 1929 and continued to grow for nearly a decade. It was not until the outbreak of World War II that enough jobs could be found for the unemployed, and most of these jobs were in the armed forces. A.: You see, the Great Depression was known to be the springboard for the Keynesian approach to economic policy. John Maynard Keynes concluded that the growing ranks of unemployed persons were caused by problems on the demand side-of product markets. C; What was the reason? A.: People simply were not able and willing to buy all the goods and services the economy was capable of producing. As a consequence, producers had no incentive to increase output or to hire more labor. So long as the demand for goods and services was inadequate unemployment was

inevitable. What did Keynes seek to explain? C: Keynes sought to explain how a deficiency of demand could arise, then to show how and why the government had to intervene. Keynes was convinced that government intervention was necessary to ensure optimal macro outcomes. And what can you say about Keynes's theory of macro instability? A.: His theory of instability was developed in nominal terms, not the real values used in aggregate supply and demand graphs. Keynes focused on how many dollars we spend, not on the quantity of output we purchase. Keynes asked how many dollars people will spend and how that rate of expenditure is related to (dollar) income. This is Keynesian concept of aggregate spending.

 

IX. Make up your own dialogue using the following expressions:

to have some notion of derived demand to be acceptable to in a given time period to increase output the rate of total expenditure to result from disposable income

 

X. Make up one complex sentence according to the model:

Model: A job was found. He lost an incentive to work. A job had been found before he lost an incentive to work. 1. They were hired by managers. They made up their mind to leave the city. 2. More workers were used by employers. They produced the goods and services. 3. Hired workers were laid off. Employers cut back production. 4. The army of unemployed was created, Enough jobs were found. 5. Many dollars were spent. They could produce their services.

 

XI. Make the following sentences passive:

1. You had laid off more workers by that time. 2. He had developed this theory by the end of the fiscal year. 3. They had spent a half of their saving before they returned to the hotel. 4. People had produced much output at various price levels by the end of the month. 5. He said that a variety of forces had influenced consumption decisions by that time.

 

XII. Translate into English:

1. , . 2. ³ , . 3. , . 4. ? 5. , .

 

XIII. Communicative situations:

1. What factors other than current income might influence consumer spending? How would changes in these factors affect the consumption function? Explain your reasoning. 2. Are current sales really ignored in investment decisions? How might changes in current sales affect expectation or rate of desired investment? Discuss it.

 

Lesson 16

INFLATION

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

inflation e.g. Inflation is an increase in the average level of prices, not a change in any specific price. deflation e.g. A decline in average prices is a deflation.

relative price e.g. Relative price is the price of one good in comparison with the price of other goods.

nominal income e.g. Nominal income is the amount of money you receive in a particular time period.

real income e.g. Real income is the purchasing power of that money, as measured by the quantity of goods and services your dollars will buy.

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

Price Index e.g. The most common measure of inflation is the Consumer Price Index.

inflation rate e.g. Inflation rate is the annual rate of increase in the average price level.

price stability e.g. Price stability is the absence of significant changes in the average price level.

demand-pull inflation , e.g. Demand-pull inflation is an increase in the price level initiated by excessive aggregate demand.

cost-push inflation , e.g. Cost-push inflation is an increase in the price level initiated by an increase in the cost of production.

 

II. Give English equivalents of the following:

( )

 

III. Fill in the blanks with appropriate words:

1. Most people associate inflation average level of prices with ... on goods and services. nominal income 2. Inflation is an increase in the ..., price increases not a change in any specific price, relative price 3. A decline in average prices ... income occurs when price decreases on a deflation some goods and services outweigh real income 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.

 

IV. Read and translate the text:

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 of a cup of coffee 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 quantify 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 lessons 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 (pp.157179).

 

V. Answer the following questions:

1. What is inflation? 2. What is 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?

 

VI. Define the terms:

inflation price stability Consumer Price Index real income nominal income

inflation rate cost-push inflation deflation money illusion demand-pull inflation

 

VII. Translate into English:

1. . 2. 5 . 3. ³ . 4. . 5. , . 6. ³ . 7. : , , . 8. .

 

VIII. Read and dramatize the following dialogue:

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. T.: 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? T.: 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.

D.: What do you mean by that?

T.: 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.

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

T.: 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.

T.: Not at all. Good luck!

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

 

IX. Make up your own dialogue using the following expressions:

to experience an inflation price stability

nominal income and real income to suggest

to be measured in terms of average inflation rate

price levels to mean

to be the most familiar form of inflation money illusion

to be initiated by excessive aggregate

demand to be initiated by an increase in the cost

of production

 

X. Change the following sentences using the Future Perfect Tense:

Model: Inflation will increase by 3% next month. Inflation will have increased by 3% by the

end of the month.

1. Average price level will fall next month. 2. His nominal income won't change next year. 3. She will finish her report on inflation tomorrow. 4. inflation rate will change next month. 5.

Prices on specific goods and services will increase next week.

 

XI. Complete the following sentences using the Future Perfect Tense:

Model: By that time tomorrow ... .
By that time tomorrow he will have finished his report devoted to the problems of inflation and deflation.

1. At this time tomorrow .... 2. By the end of the month 3. By the time you call on me ... . 4.By this summer ... . 5. By the end of the year ... .

 

XII. Translate into English:

1. . 2. ֳ . 3. 5 . 4. ֳ . 5. 10 .

 

XIII. Communicative situations:

1. Can you identify any groups of who are particularly helped or hurt by inflation? Explain. 2. Does an increase in the price level automatically lower society's real income? Explain. 3. Would it be advantageous to borrow money if you expected prices to rise? Why, or why not? Provide a numerical example.

 

Lesson 17

NATIONAL-INCOME ACCOUNTING

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

national-income accounting

e.g. National-income accounting is the measurement of aggregate economic activity, particularly national income and its components.

gross national product (GNP) () e.g. Gross national product (GNP) is the total market value of all final goods and services produced in a given time period.

GNP per capita e.g. GNP per capita is total population: average GNP. I

ntermediate goods e.g. We must focus on the value of final goods and services and exclude intermediate goods from our calculation. nominal GNP e.g. Nominal GNP is the value of final output measured in that year's prices.

real GNP e.g. When we calculate real GNP, we value goods and services at constant prices.

inflation e.g. Inflation is an increase in the average level of goods and services.

production possibilities e.g. 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 e.g. Depreciation is the consumption of capital in the production process; the wearing out of plant and equipment.

net national product (NNP) e.g. NNP is the amount of output we could consume without reducing our stock of capital.

gross investment e.g. Gross investment is positive as long as some new plants and equipment is being produced.

net investment e.g. Whenever gross investment exceeds depreciation, net investment is positive.

exports e.g. Exports are goods and services sold to foreign buyers.

imports e.g. Imports are goods and services purchased from foreign countries.

 

II. Give English equivalents of the following:

-

III. Fill in the blanks with appropriate words:

1. ... is the measurement of aggregate GNP per capita economic activity, particularly natio- nominal GNP nal income and its components. national-income ac-2. ... is total population: average GNP. counting 3. When we focus on domestic market intermediate goods activity we ... in calculating GNP. inflation 4. ... are goods or services purchased depreciation for use as input in the production of imports final goods or services. encounter problems 5. ... is the value of final output produced in a given period, measured in the prices of that period. 6. ... is an increase in the average level of prices of goods and services. 7. ... is the consumption of capital in the production process. 8. ... are goods and services purchased from foreign countries.

 

IV. 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 Hour, 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 (pp. 85103).

 

V. 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?

 

VI. Define the terms:

national-income accounting real GNP nominal GNP

gross national product (GNP) inflation

GNP per capita net national product (NNP) depreciation

 

VII. Translate into English:

1. , , . 2. , 䳿 . 3. ? 4. , . 5. , , . 6. , , . 7. , , , . 8. ʳ .

VIII. Read and dramatize the following dialogue:

S.: 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. S.: 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. S.: It is something. But you should distinguish between nominal GNP and real GNP. B.: What do you mean by that? S.: 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. S.: You are right. Imagine what would happen to our calculations of GNP if all prices were to double from one year to the next. Suppo

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