FURTHER CONSTRAINTS ON STABILIZATION POLICY

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

stabilization policy — політика стабілізації економічної кон'юнктури

e.g. It is important to remember that the crucial issue for stabilization policy is whether an economy moves towards full employment quite rapidly or quite slowly.

interest rate — ставка відсотка

e.g. Appropriate fiscal policy will be relatively more effective if stimulative policies do not affect interest rates by much or interest rates do not affect investment by much.

elasticity— еластичність; гнучкість

e.g. Long-term monetary policies will be affected by the income elasticity of demand for real money balances and the price-level elasticity of demand for nominal money balances.

monetary policy — грошово-кредитна політика

e.g. A stimulative monetary policy requires an increase in the money supply.

automatic stabilizer — автоматичний стабілізатор економіки

e.g. An automatic stabilizer is an expenditure law or tax law that automatically increases expenditures (or decreases taxes) when an economy enters a recession.

government transfer payments — урядові трансфертні виплати

e.g. Since more people are becoming unemployed during a recession, government transfer payments increase.

predictability — можливість прогнозування e.g. Predictability is important in efficiently organizing economic activity and the inconsistency of expectations creates a less predictable economic environment.

II. Give English equivalents of the following:

відносна ефективність ставка відсотка

фінансово-бюджетної та довгострокова політика

грошово-кредитної політики можливість прогнозування

тимчасові зміни в доходах економічне середовище

урядові трансфертні виплати стимуляційні заходи

спад виробництва податкова політика

III. Fill in the blanks with appropriate words:

The relative effectiveness of fiscal and increase monetary policies depends on the does not respond
interest elasticities of investment a boom
demand and money .... temporary

The response of the demand for mo- demand ney to a change in the level of real increases
... is also important fo stabilization output policy. expenditures

With a ... tax cut, individuals should recovery expect lower disposable income in tax change
the future because taxes will ... after that.

To offset changes in desired investment requires a relatively large ....

Consumption ... fully to changes in income.

An automatic stabilizer is an expenditure law or tax law that automatically increases ... when an есonomу enters a recession.

Government transfer payments automatically increase during a recession and automatically decrease during ... or ... .

IV. Read and translate the text:

It is important to remember that the crucial issue for stabilization policy is whether an economy moves toward full employment quite rapidly or quite slowly. In short, the important question for much of macroeconomics is: How long is the long run?

Even if stabilization policies were useful because they could move the economy toward full employment or stabilize prices more quickly than the economy would of its own accord, there remains an important policy issue: What is the best way to stabilize the economy — with activist, countercyclical monetary and fiscal policies or with nonactivist, rules-directed monetary and fiscal policies?

The relative effectiveness of fiscal and monetary policies depends in part on how sensitive desired investment and the demand for money are to interest-rate changes or, in the jargon of economics, on the interest elasticities of investment demand and money demand.

Obviously appropriate fiscal policy will be relatively more effective if stimulative policies do not affect interest rates by

much or if interest rates do not affect investment by much (that is, if crowding out does not occur).

Monetary policy will be less effective if either the demand for money is inelastic with respect to the interest rate or if desired investment is inelastic with respect to the interest rate.

The response of the demand for money to a change in the level of real output is also important to stabilization policy. Long-term monetary policies will be affected by the income elasticity of demand for real money balances and price-level elasticity of demand for nominal money balances. Because individuals use saving as a way of smoothing consumption relative to changes in income, temporary changes in income will not necessarily result in consumption changes of equal size. This poses a se­rious problem for fiscal policy. If a tax change, say a tax cut de­signed to stimulate aggregate demand, is perceived as temporary, individuals might increase consumption somewhat but are more likely increase their saving in order to smooth consumption. Why? With a temporary tax cut, individuals should expect lower disposable income in the future because taxes will increase after the temporary tax cut. Consumption does not respond fully to changes in income. To offset changes in desired investment which would otherwise lead to a change in aggregate demand, then, requires a relatively large tax change. In addition if the tax change is viewed as temporary, consumption may not change.

Temporary change in tax policy will not affect consumption much since consumption is determined by expectations about income over a long period of time.

An automatic stabilizer is an expenditure law or tax law that automatically increases expenditures (or decreases taxes) when an economy enters a recession, and automatically decreases expenditures (or increases taxes) when an economy enters a period of inflation.

A second source of macroeconomic stability is the relative stability of government expenditures through economic cycles. While investment and, to some degree, consumption expenditures rise and fall with the economic cycle, the relative stability of government expenditures means that these expenditures become relatively more important during recessions and relatively less important during booms.

A third source of macroeconomic stability is the govern­ment's transfer system. During a recession, individuals automa­tically qualify for welfare and unemployment compensation should they become unemployed. Since more people are beco­ming unemployed during a recession, government's transfer

payments increase. Conversely, during a recovery or a boom when the unemployment rate decreases, so do unemployment and some transfer payments.

Government transfer payments automatically increase during a recession and automatically decrease during a recovery or boom, thereby automatically stabilizing the economy.

An important reason for rule-governed policy is that expec­tations about policy responses can influence how a policy affects an economy. Predictability is important in efficiently organizing economic activity and the inconsistency of expectations with the actual policies pursued will create a less predictable economic environment.

V. Answer the following questions:

Why will permanent tax cuts lead to larger increases in consumption than temporary tax cuts?

When will fiscal policy be more effective?

What are the main sources of economic stability?

What is an important component of aggregate demand?

What does the relative effectiveness of fiscal and monetary policies depend on?

When will appropriate fiscal policy be relatively more

effective?

What will temporary changes in income result in?

What is an important reason for rule-governed policy?

VI. Define the following terms:

recession monetary and fiscal policies

automatic stabilizer predictability

interest rate to create a predictable economic

temporary tax cut environment

VII. Translate into English:

1. Тимчасові зміни в податковій політиці не впливають на рівень споживання. 2. У 1964 р. Конгрес знизив податки на 18 %, що зумовило підвищення рівня споживання. 3. Високий рівень податків автоматично стабілізує економіку. 4. За фінансовий 1980 рік зовнішній національний борг CШA стано­вив $121 мільярд. 5. Уряд США виплатив $12 мільярдів за відсотками. 6. Уряд повинен керувати грошово-кредитною та фінансово-бюджетною політикою. 7. Економісти неодностайні щодо стабільності сукупного попиту. 8. Трансфертні виплати уряду автоматично збільшуються під час спаду виробництва і зменшуються в період економічної стабіпьності.

VIII. Read and dramatize the following dialogue:

A.: The effectiveness of active stabilization policies, either fiscal or monetary, depends in part on the expectations of indi­vidual consumers and firms.

В.: і see, but this is an area of considerable dispute since it is difficult to know precisely how individuals form expectations and how expectations, once formed, change. What do expectations depend upon?

A.: Expectations depend upon the availability and costs of gathering information. For example, how rapidly the labor market returns to equilibrium depends upon how sticky no­minal wages are.

B.: And what are nominal wages adjusted to?

A.: Adjustments in nominal wages depend very much upon the expectations that individuals have about the effect of changes in aggregate demand and policy responses on the price level.

B.: Even if everyone knew that the price level would decline (or increase), by how much it would decline may be a much more difficult issue.

A.: Yes, if the price level will decline a lot, nominal wages will also have to decline a lot in order to move the labor market back to full employment, If some people believe that the price level will only decline a little or perhaps not at all, unemployment will persist until these expectations change.

B.: This is a particularly interesting area because there is a considerable disagreement among economists.

A.: As you know economists are notorious for disagreeing about policy matters.

B.: And what is the source of policy disagreements?

A.: Some economists believe that the best way to maintain a steady growth in aggregate demand is for the government to pursue steady fiscal and monetary policies. These economists believe that aggregate demand is stable and they are in favor of nonactivist policies.

B.: What are they called?

A.: These economists are called «Monetarists» or more recently «The New Classical Economists». Other economists (so-called «Keynesians») believe that aggregate demand is quite unstable. These economists are in favor of active sta-biization policies.

B.: And what can you say to summarize our discussion?

A.: Despite these disagreements there is an agreement that optimal stabilization policy tends to stabilize nominal GNP.

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

to maintain steady growth aggregate demand

to favor activist / nonactivist policies full employment

stabilization policies long-term policies

temporary changes income elasticity

to smooth consumption to offset changes

X. Change the following sentences into simple ones using the Subjective Infinitive Complex:

1. It is believed that optimal stabilization policy tends to stabilize nominal GNP. 2. It is reported that aggregate demand is stable. 3. It is expected that nominal wages will also decline a lot. 4. It was supposed that the effectiveness of active stabilization policies depended on the expectations of individual consumers and firms. 5. It is said that unemployment will persist.

XI. Change the sentences according to the model:

Model: It proved that you were right.

You proved to be right.

1. It seems that the circumstances have become strange indeed. 2. It seems that this is not the right key. 3. It turned out that the expectations of individual consumers and firms changed. 4. It chanced that he understood how hard it was.

It appeared that this was an area of considerable dispute.

It seems that they don't understand how rapidly the labor
market returns to equilibrium.

XII. Translate into English:

1. Кажуть, що експедиція зібрала дуже цікавий матеріал про природні ресурси цього району. 2. Вважають, що еко­номісти дійшли згоди щодо ефективності грошово-кредит­ної політики. 3. Як повідомляють, податки зростуть. 4. Як відомо, можливість прогнозування є дуже важливою для організації економічної діяльності. 5. Здається, дедалі більше людей цікавляться економічними питаннями. 6. Сталося так, що тимчасові зміни в оподаткуванні вплинули на прибуток.

XIII. Communicative situations:

Speak about macroeconomic coordination problems.

Why do economists disagree on appropriate stabilization
policies? Discuss it.

Lesson 28

THE NATIONAL DEBT

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

treasury bonds — казначейські облігації

e.g. Treasury bonds: Promissory notes (lOUs — I owe you) issued by the U.S. Treasury.

national debt — державний борг

e.g. National debt: Accumulated debt of the government.

liability — відповідальність, заборгованість, борг; пасив

e.g. Liability: An obligation to make future payment; debt. But those same bonds are an asset to the people who hold them.

asset — актив

e.g. Asset is anything having exchange value in the market place; wealth.

internal debt — внутрішній борг

e.g. All of the debt held by U.S. households, institutions, and government entities is referred to as internal debt.

external debt — зовнішній борг

e.g- All of the bonds held by foreign households and institutions is referred to as external debt.

refinancing— рефінансування, додаткове фінансування

e.g. Refinancing: The issuance of new debt is payment of debt issued earlier.

deficit ceiling — максимальний розмір дефіциту

e.g. Deficit ceilings are explicit limitations on the size of the annual budget deficit.

budget deficit — дефіцит бюджету

e.g. The amount by which government expenditures exceed government revenues in a given time period. Is referred to as budjet deficit.

debt ceiling — максимальний розмір боргу

e.g. An explicit, legislated limit on the amount of outs­tanding national debt is a debt ceiling.

II. Give English equivalents of the following:

максимальний розмір дефіциту максимальний розмір боргу

позичати гроші рефінансування

зовнішній борг казначейські облігації

внутрішній борг зменшення боргу

III. Fill in the blanks with appropriate words:

The U.S. Treasury must finance the deficit internal by ... money. borrowing

Approximately 86 per cent of U.S. national asset

debt is .... to eliminate

The national debt represents not only a liabi- bonds lity but an ... . external

... debt can eliminate the initial opportunity of debt-financed spending.

The only way to limit the national debt is ... the budget deficits.

New ... have been issued to replace old ... .

IV. Read and translate the text:

We try to take a closer look at annual budget deficits and the national debt they create. The national debt grew sporadically until World War II, then sky-rocketed. A string of huge deficits in the 1980s increased the national debt to $3 trillion. The U.S. Treasury must finance the deficit by borrowing money. To do so it sells U.S. Treasury bonds.

The first thing to note about the national debt is that it represents not only a liability but an asset as well. Every dollar of national debt represents a dollar of assets to the people who hold U.S. Treasury bonds. Most U.S. bonds are held by government agencies, American households, U.S. banks, in­surance companies and other institutions. They represent internal debt. Approximately 86 per cent of the national debt is internal.

The last major group of bondholders is foreign. All of the bonds held by foreign households and institutions is referred to as external debt. At present, external debt accounts for about 14 per cent of total U.S. debt.

New bonds have been issued to replace old bonds. This refinancing of the debt is a routine feature of the U.S. Treasury's debt management.

The most of America's national debt is internal. External debt, however, poses some special problems and can be a more legitimate worry. External debt can eliminate the initial opportunity of debt-financed spending and impose a real burden on future taxpayers.

The only way to limit or reduce the national debt is to eliminate the budget deficits that create debt. The first step in debt reduction is a balanced annual budget deficit. A balanced budget will at least stop the debt from growing further. A deficit ceiling of zero compels a balanced budget.

Explicit debt ceilings are another mechanism for curbing the national debt. They are at best a substitute for deficit cei­lings. If a limit is set on the national debt, the only way to stay within that limit is to reduce or eliminate the annual federal deficit.

Deficit and debt ceilings are largely symbolic efforts to force consideration of real trade offs, restrain government spending, and change the mix of output.

V. Answer the following questions:

What creates the national debt?

Who bears the burden of the national debt?

What does the national debt represent?

Why does the U.S. Treasury sell its bonds?

How much does the external debt account for?

What are the mechanisms for curbing the national debt?

VI. Define the terms:

budget deficit internal debt

Treasury bonds external debt

national debt refinancing

liability deficit ceiling

asset debt ceiling

VII. Translate into English:

1. Купуючи казначейські облігації, люди позичають гроші урядові. 2. Президент Франклін Рузвельт обіцяв збалансу­вати федеральний бюджет, але не зміг зупинити зростання дефіциту бюджету. 3. У період з 1790 до 1917 року дер­жавний борг США перевищував валовий національний про­дукт лише в роки громадянської війни. 4. Однак після 1917 ро­ку розмір дефіциту різко зріс. 5. Уряд США володіє 1/3 усіх казначейських облігацій. 6. На приватний сектор припа­дає майже половина державного боргу. 7. Іноземні позики підвищують рівень споживання, інвестицій і фінансування. 8. Сполучені Штати Америки використовують позики для фінансування урядових витрат.

VIM. Read and dramatize the following dialogue:

A.: It may be comforting to know that most of the U.S. national debt is owned internally, and much of it by the government itself.

B.; How much of a «burden» does the debt really represent?

A.; It is not so evident. None of the debt has been repaid since you were born. The federal government has borrowed more money each year to finance deficits, adding to accu­mulated debt.

B.: 1 see, the federal government has simply borrowed new funds to pay debts off, but every debt requires debt-servicing.

A.; Yes, with $3 trillion in accumulated debt, the U.S. government must make enormous interest payments each year. In 1991 the U.S. Treasury paid over $173 billion in interest charges.

B.: Who gets the interest payments?

A.: As noted, most of the nation's outstanding debt is internal — that is owned by domestic households and institutions. Therefore most interest payments are made to people and institutions within the United States. Most debt servicing is simply a redistribution of income from taxpayers to bond­holders.

8.: It seems to me that in many cases the taxpayer and bondholder are the same person.

A.: In all cases, however, the income that leaks from the circular flow in the form of taxes to pay for debt servicing returns as interest payments.

S.; As a result, total income is unchanged. Now ! understand why in policy debates, the aggregate size of the national debt is the focal concern. The key policy questions are whether and how to limit or reduce the national debt.

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

to reduce the annual federal deficit to limit national debt

to eliminate the budget deficit to finance the deficit

to get interest payments to impose a burden on

to replace old bonds internal debt

external debt debt ceilings

X. Change the following sentences using participle phrases instead of the subordinate clauses:

Model A : The man who was sitting at the window made an interesting report yesterday. The man sitting at the window made an interesting report yesterday. 1. People who hold bonds and stocks hope to realize a

financial gain from these assets. 2. The U.S. Treasury that finances the deficit, sells U.S. Treasury bonds. 3. Explicit debt ceilings that curb the national debt are another mechanism of economic forces. 4. The federal government that borrows money to finance deficits, adds to accumulated debt. 5. Much of a burden that represents a debt is paid by the government itself.

Model В : The decisions which were adopted at the conference are supported by many scientists. The decisions adopted at the conference are supported by many scientists.

1. All of the debt that is held by U.S. households, institutions and government entities is referred to as internal debt. 2. The ways to limit the national debt which were discussed at the conference are worth consideration. 3. The problem of external debt which was touched upon during the round-table talk is considered now. 4. The news which was received yesterday impressed everybody greatly. 5. National debt which is owned internally is referred to as internal debt.

XI. Translate into English using Participle I, Participle II where it is necessary:

1. Робота, яку він розпочав, дуже важлива. 2. Студенти прослухали кілька лекцій про державний борг, які прочитав відомий професор. 3. Як звуть доповідача, який розпові­дає зараз про заборгованість? 4. Представники іноземних фірм сиділи в конференц-залі і обговорювали питання рефінансування об'єктів. 5. Банки та страхові компанії ску­повували облігації, випущені казначейством країни. 6. Рішення щодо зовнішнього боргу, яке було ухвалене на конференції, змінило подальшу політику країни.

XII. Communicative situations:

You are a member of the government of a country N.

Try to limit or reduce the national debt of the country.

Speak about it.

Discuss the government's attempts to curb the national debt.

Lesson 29

FINANClAL MARKETS

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

stock market — ринок капіталу; фондова біржа

bond market — ринок облігацій; ринок довгостроково­го капіталу

e.g. Three major financial markets are the stock market, the bond market and the futures market.

bond — облігація, боргове зобов'язання

e.g. A certificate acknowledging a debt and the amount of interest to be paid each year until repayment.

futures market — ф'ючерсний ринок

e.g. The earliest futures markets were organized to facilitate trading of farm products like wheat and corn.

financial intermediary — фінансовий посередник

e.g. Financial intermediary: Institution (e.g. bank, stock market) that makes savings available to dissavers (e.g. investors).

exchange — обмін; біржа; іноземна вапюта

e.g. There are 11 5 exchanges operating in the 26 countries listed here: Australia, Brazil, Canada, France, India, Japan and many others.

corporation — корпорація, акціонерне товариство

e.g. Corporation is a business organization having a continuous existence independent of its members (owners) and power and liabilities distinct from those of its members.

corporate stock — акціонерний капітал

e.g. Corporate stock represents shares of ownership in a corporation.

shareholder— акціонер

e.g. Shareholders are part owners of the corporation.

dividend — дивіденд

e.g. Dividend is an amount of corporate profits paid out to each share of stock.

capital gain — прибуток від приросту капіталу

e.g. An increase in the market value of an asset is capita! gain.

yield— прибуток з цінних паперів

e.g. Yield is the rate of return on a bond; the annual interest payment divided by the bond's price.

II. Give English equivalents of the following:

фінансовий посередник позичати гроші

фондова біржа акціонерний капітал

давати позику бути поширеним

боргове зобов'язання ринок акцій

ф'ючерсні ринки контролювати компанію щорічні виплати відсотків

IIІ. Fill in the blanks with appropriate words:

Stock markets are one of the insti- to borrow tutions that serve as ... . promissory notes

What people buy and sell on the dividends stock exchanges are ... of corpora- corporation

tions. financial intermediaries

A ... tends to be the largest type demand and supply of enterprise. ownership shares

The corporation may choose to re- keep control tain earnings or pay them out to shareholders as ... .

In the bond market people buy and sell ... .

A bond is issued when an institution wants ... money.

The advantage of borrowing funds is that we can ... of the company.

Stock prices depend upon ... in financial markets.

IV. Read and translate the text:

To answer the questions of what, how and for whom to produce we look at three major financial markets: the stock market, the bond market and the futures market (where everything from frozen pork bellies to U.S. Treasury bonds are traded).

Stock markets are one of the institutions that serve as financial intermediaries. Stock markets help channel savings into investment. Although most people immediately think of Wall Street when they hear «stock exchange» the stock market is highly dispersed. There are 17 different stock exchanges in the United States and over a hundred additional exchanges in other countries.

What people buy and sell on the stock exchanges are ownership shares of corporations. A corporation tends to be the

largest type of enterprise, with average asset values measured in millions of dollars.

The ownership of corporation is defined in terms of stock shares. Each share of corporate stock represents partial ownership of the business. People holding shares of corporations hope to realize a financial gain from these assets. As part owners, shareholders are entitled to any profits the corporation makes.

Shareholders do not necessarily receive their share of the company's profit in cash. The corporation may choose to retain earnings or pay them out to shareholders as dividends. There are two motivations for buying and holding stocks — the expectation of dividends and anticipated capital gains.

Stock prices depend upon demand and supply in financial markets. If demand for the stock increases the stock's price will tend to rise. Similarly, an increasing reluctance of owners to sell would push the stock's price higher.

The bond market operates much like the stock market. The major difference is in the kind of paper traded. In the stock market people buy and sell shares of corporate ownership. In the bond market people buy and sell promissory notes («lOUs» — I owe you). A bond is a written promise to repay a loan. The borrower may be a corporation («corporate bonds»), local governments («municipal bonds»), the federal government («treasury bonds») and other institutions.

A bond is issued when an institution wants to borrow money. The company had great ideas but not enough resources to start production. Previously, the problem was solved by issuing stock. A second alternative for raising necessary funds — is to borrow money. The advantage of borrowing funds is that we can keep control of the company. Lenders are not owners. On the other hand, if we borrow, we have to pay the lenders back, with interest.

Thus the bond market also functions as a financial inter­mediary, transferring available savings (wealth) to those who want to acquire more resources (invest). The critical issue here is the «price» of the bond. At low rates of interest no one is willing to lend funds to the company. The increased willingness to lend funds is reflected in an increased demand for bonds. This increased demand will push up the price of the bond. As bond prices rise their implied effective interest rate (yield) falls.

In futures markets people buy and sell things that are to be «delivered» in the future at prices agreed on today. Futures markets make life easier for the farmer and consumer.

To summarize: The central purspose of financial markets is to help channel the savings of consumers and businesses into productive investments.

V. Answer the following questions:

What is the purpose of financial markets?

What is the function of financial intermediaries?

What is a financial intermediary?

What does each share of corporate stock represent?

What do people buy and sell on the stock exchanges?

What is the largest type of enterprise?

What are the motivations for buying and holding stocks?

What does the stock price depend upon?

What is the difference between the stock market and the
bond market?

When is a bond issued?

What is the futures market?

VI. Define the terms:

capital yield

financial intermediary «start-up» funds

saving dividend

corporate stock corporation bond futures market

VII. Translate into English:

1. У 1988 році компанія «Уолт Дисней» почала перетво­рювати 5000 акрів землі поблизу Парижа, що була під цук­ровим буряком, на величезний парк відпочинку (park and resort). 2. Дпя того щоб оплатити будівництво нового пар­ку, компанія могла б використати власні фонди, позику або випустити новий пакет акцій. 3. Компанія використала всі три механізми фінансування. А. Заснування фондової біржі в Нью-Йорку відбулося в середині XVIII століття, коли мак­лери, продавці та покупці почали збиратися в кав'ярнях на Уолл-стрит. 5. Торгували переважно зерном і рабами. Наприкінці XVIII століття торгівлю було зведено до опе­рацій з урядовими облігаціями. 6. Алекс Гамільтон збагатів на придбанні тоді ще дешевих облігацій і став найбагатшою людиною. 7. У березні 1792 року 24 маклери з семи фірм обрали правління і змінили назву біржі. Кав'ярня Джона-тана стала фондовою біржею. Маклери встановили пра­вила торгівлі, розмір комісійних. У березні 1830 року за один день було продано 31 акцію. Для порівняння: сьогодні на фондовій біржі щодня продається більше ніж 200 міль­йонів акцій.

VIII. Read and dramatize the following dialogue:

A.: Hello, old chap! Haven't seen you for ages. How are you getting on? You look tired,

B.; I've got a problem to solve. I invented a laser scanner that could detect all mechanical, structural or electrical defects in airplanes.

A.: Clearly, this idea has great potential to save lives and reduce the anxieties of travellers.

B,: Yes, and it also might make me a millionaire.

A,: But, to produce Air Scanners you need a manufacturing plant, workers and materials. You will also have to obtain a patent to protect your invention from would-be com­petitors.

B.: Besides, I shall need a research and development lab for continuous testing and improvement as well as a marketing department to demonstrate and sell the scanners.

A.: I see, from a broader economic perspective, what you have here is a resource allocation problem. At present, all of society's land, labor and capital are devoted to the production of other goods and services. Your immediate problem is defined in far simpler terms — hard cash. To acquire real resources — the land, labor and capital that can produce air scanners, you must have some means of payment.

B.: That is the problem of raising start-up funds. I could ask my relatives and friends for a loan, or even go door-to-door in the neighborhood.

A.: This method of raising funds is not likely to achieve your goals. Fortunately for you and other budding entrepreneurs most households save some fraction of their income. This flow of saving creates an enormous pool of loanable funds. Your problem is how to tap that pool to get enough funds to start building Air Scanners.

В.: I know that financial intermediaries make the job of acquiring start-up funds.

A.: A true «start-up» company like Air Scanners has nothing more than a good idea, a couple of dedicated employees and Big Plans.

В.: І cannot but mention that to fund these plans, the company can sell shares of itself. The individuals who buy the newly issued stock are putting their savings directly into the corporation's accounts. When our corporation is formed, I shall inform you. You may buy corporation's shares and become an owner.

A.: And I shall stand to profit from the corporation's business

or take my lumps if the company fails. В.; І must say because the company is incorporated, you are

at a risk only for however much money you pay for your

shares. A.: You've got a point there. I have to go. And let's hope

for the best.

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

financial intermediary corporate stock

to acquire start-up funds shareholder

to realize financial gains stock market

to keep control over company to hold shares

to pay the lenders back to channel savings

X. Change the following complex sentences into simple ones using the Objective Participle Complex:

Model: I saw them as they were working at the stock

market.

I saw them working at the stock market. 1. I noticed them as they were trying to sell their bonds. 2. We heard them as they were discussing the advantages of the futures markets. 3. He observed as they were making plans for acquiring start-up funds. 4. She watched him, as he was meeting financial intermediaries. 5. I noticed him as he was greeting shareholders. 6. We watched the people as they were exchanging currency.

XI. Paraphrase the following using the Objective Participle Complex:

Model: The reporter took a photo of him.

He had his photo taken.

1. A financial intermediary makes savings available to dis-savers. 2. The corporation pays out the dividends to the shareholders once a month. 3. Those who borrow money will pay the lenders back. 4. The Bank offerred a company start-up funds. 5. The individuals have bought the corporation's issued stock.

XII. Translate into English:

1. Ми спостерігали, як студенти спухали лекцію про фінансові ринки. 2. Студенти слухали, як лектор пояснював

loo •

функції фінансового посередника. 3. Акціонери слухали, як керівники підприємства обговорювали можливості випуску нових акцій. 4. Мені виплатили дивіденди. 5. Вам надали стартовий капітал? 6. Робітникам продали акції підприємства.

ХIII. Communicative situations:

Discuss the formation of any corporation.

Imagine the situation when there are no financial inter­
mediaries. Discuss it.

You are the chief of the corporation «... and company».
What will you produce?

What first steps must be taken to become a millionaire? Speak about it.

Lesson 30

INTERNATIONAL FINANCE

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

slope— нахил

e.g. The demand for foreign exchange is likely to have downward slope, while the supply of foreign exchange will have the usual upward slope.

exchange rate — валютний курс

e.g. An exchange rate is simply the price of one currency in terms of another.

demand for foreign exchange — попит на іноземну ва­люту

supply of foreign exchange — пропозиція іноземної ва­люти

e.g. We should recognize that the demand for foreign exchange is likely to have the familiar downward slope, while the supply of foreign exchange will have the usual upward slope.

appreciation of currency — підвищення валютного кур­су, ревальвація валюти

e.g. The other side of depreciation is appreciation, an increase in value of one currency as expressed in another country's currency.

foreign-exchange market — ринок іноземної валюти

e.g. Places where foreign currencies are bought and sold are foreign-exchange markets.

gold standard — золотий стандарт

e.g. Under a gold standard each country determines that its currency is worth so much gold.

balance-of-payments deficit — дефіцит платіжного ба­лансу

e.g. A balance-of-payment deficit is an excess demand for foreign currency at current exchange rates.

balance-of-payments surplus — активне сальдо платіжного балансу

e.g. Balance-of-payments surplus is an excess demand for domestic currency at current exchange rates.

gold reserve — золотий запас

e.g. Stocks of gold held by a government to purchase foreign exchange are gold reserves.

flexible exchange rate — гнучкий валютний курс

e.g. With flexible exchange rates, the quantity of foreign exchange demanded always equals the quantity supplied, and there is no imbalance.

changes in product availability — коливання в забезпе­ченні ринку товарами

relative interest — rate changes — відносні коливання відсоткової ставки за вкладом

e.g. The important sources of exchange rate changes are: relative income changes, relative price changes, changes in product availability,

relative interest — rate changes.

II. Give English equivalents of the following:

національна валюта попит на іноземну валюту

вартість валюти надмірний попит на Іноземну валюту

підвищення валютно- дефіцит платіжного балансу

го курсу ліквідувати коливання валютного
гнучкий валютний курс курсу

III. Fill in the blanks with appropriate words:

1. Depreciation of currency refers to the fact narrowing

that one currency has become ... in foreign currency

terms of another one. fix

Appreciation is ... in value of one curren- an increase су as expressed in another country's cu- cheaper rrency. gold standard

One way to eliminate fluctuations in exchange rates is to ... their value.

To fix exchange rate, each country may define the worth of its currency in terms of ... .

A balance-of-payments deficit is an excess demand for ... at current exchange rates.

Government may buy and sell foreign exchange for the purpose of ... exchangerate movements.

IV. Read and translate the text:

International trade would be inefficient without foreign exchange markets. We are able to exchange dollars for any national currency we may desire. Thus an exchange rate is simply the price of one currency in terms of another.

We should recognize that the demand for foreign exchange is likely to have familiar downward slope, while the supply of foreign exchange will have the usual upward slope.

Exchange-rate changes have their own terminology. Depreciation of a currency refers to the fact that one currency has become cheaper in .terms of another currency.

The other side of depreciation is appreciation, an increase in value of one currency as expressed in another country's currency. Whenever one currency depreciates, another currency must appreciate.

Exchange rates change for the same reasons that any market price changes. Among the important sources are

Relative income changes.

Relative price changes.

Changes in product availability.

Relative interest-rate changes.

Speculation.

All of these kinds of changes are taking place every minute of every day, thus keeping foreign-exchange markets active.

Places where foreign currencies are bought and sold are foreign-exchange markets.

Significant changes occur in currency values, however, only when several of these forces move in the same direction at the same time.

One way to eliminate fluctuations in exchange rates is to fix their value. To fix exchange rates, each country may simply proclaim that its currency is «worth» so much in relation to that of other countries. The easiest way to do this is for each country to define the worth of its currency in terms of some common standard. The standard that has been most popular is gold. Under a gold standard, each country determines that its currency is worth so much gold.

In 1944 the value of the U.S. dollar was defined as being equal to 0.0294 ounces of gold, while the British pound was defined as being worth 0.0823 ounces of gold. This exchange rate between British pounds and U.S. dollars was fixed at 1 pound = $2.80.

The excess demand for pounds implies a balance-of-payments deficit for United States: more dollars are flowing out of the country than into it. A balance-of-payments deficit is an excess demand for foreign currency at current exchange rates. The same disequilibrium represents a balance-of-payments surplus for Britain, because its outward flow of pounds is less than its incoming flow. Balance-of-payments surplus is an excess demand for domestic currency at current exchange rates. With flexible exchange rates, the quantity of foreign exchange demanded always equals the quantiting supplied, and there is no imbalance.

Government may buy and sell foreign exchange for the purpose of narrowing rather than eliminating exchange-rate movements. Such limited intervention in foreign-exchange markets is referred to as managed exchange rates, or, more popularly «dirty floats».

V. Answer the following questions:

What makes international trade so easy?

What is an exchange rate?

Give examples of exchange-rate terminology.

What are the reasons for the exchange rate changes.

What is the only way to eliminate fluctuations in exchange rate?

In what terms does each country define the worth of its currency?

What does the excess demand for any currency imply?

VI. Define the terms:

exchange rate demand for foreign exchange

depreciation supply of foreign exchange

gold reserves foreign-exchange markets

appreciation balance-of-payments deficit

gold standard balance-of-payments surplus

VII. Translate into English:

1. Якби Японія вжила заходів до стимулювання внутрішньої економіки, то споживачі витрачали б менше грошей на імпорт, корпорації вкладали б капітал в японські підпри-емства, а не в американські. 2. Зменшення попиту на 1 до­пар прискорить падіння його курсу порівняно з японською єною. 3. Як результат ціни на американські товари в Японії падають, а ціни на японські товари в Америці зростають. 4. Валютний курс — це головний механізм перерахунку вар­тості однієї національної валюти відносно іншої. 5. Валютний курс $1 = DM1,6 означає, що 1 долар коштує 1,6 німецьких марок і його можна купити на ринку іноземної валюти за такою ціною. 6. У 1987 році Сполучені Штати Америки ра­зом із головними торговими партнерами витратили близько $100 мільйонів, щоб запобігти падінню долара. 7. Протягом усього цього періоду відбуваються постійні дискусії щодо «справжньої» вартості долара і щодо того, яка країна має вживати заходів для забезпечення цієї вартості. 8. Зміни у курсі валют не завжди є бажаним явищем. Виробники товарів на експорт не хотіли б, щоб вартість валюти зростала (підвищення вартості); імпортерам і туристам не подобає­ться, коли вартість валюти знижується (падіння вартості).

VIII. Read and dramatize the following dialogue:

A.: The demand for foreign currency originates in many ways. First and foremost, there is a demand for imported pro­ducts.

8.; In fact, to acquire French wines, German cars or Japanese stereo equipment we need foreign money.

A.: Yes, I quite agree with you. Foreign travel by Americans also generates a demand for foreign currency.

в.; Certainly, when you are travelling, you need foreign currency to pay for transportation, hotel rooms, food and anything else you wish to buy and can afford. Even if you use U.S. dollars or traveler's checks on occasion, the recipients of such money will exchange them for local money.

A.: One can't but mention that U.S. corporations demand foreign exchange too. General Motors builds cars in Ger­many, Coca-Cola produces Coke in China, Exxon produces and refines oil ail over the world. In nearly every such case, the US firm must first build or buy some plant and equipment, using another country's factors of production. This activity requires foreign currency and thus becomes another component of our demand for foreign currency.

6.; And what about investment opportunities? It's of common knowledge that foreign producers often make direct investments in the United States.

0-193

7. 193A.; For instance Shell and BP gas stations are a familiar example of direct foreign investment, as are foreign auto plants such as Honda in Ohio and Volvo in Virginia. In making such investments, foreign firms must first demand US currency that can be used to buy US factors of production.

S.; And sooner or later, the foreign firms will want to take some of their profits back to their own banks and stock-holders.

A.: Yes, in doing so, they create a demand for foreign currency as they convert the dollars they have earned in the United States into the currencies their stockholders and creditors can spend at home.

6.; Foreigners have the same demand for U.S. dollars that we have for foreign currencies. In other words, demands for U.S. dollars represent a supply of foreign currencies. That is to say, foreigners offer to exchange (supply) foreign currency when they desire (demand) U.S. dollars.

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

foreign-exchange markets to exchange currency

the demand for foreign currency the supply of foreign exchange

exchange rate domestic prices

to eliminate fluctuations to fix exchange rates

gold standard flexible exchange rates

X. Change the following complex sentences into simple ones using the Absolute Participle Complex:

Model: As the weather was fine, we went for a walk. The weather being fine, we went for a walk. 1. As the problem was complicated, we decided to meet again on the following day. 2. As there was one way to eliminate fluctuations in exchange rates, each country had to define the «worth» of its currency. 3. As the US dollar was equal to 0.0294 ounces of gold, the British pound was defined as being worth 0.0823 ounces of gold. 4. As the exchange rate was flexible, the quantity of foreign exchange demanded equalled the quantity supplied. 5. As it was a ba!ance-of-payment deficit, there was an excess demand for foreign currency at current exchange rates.

XI. Read and translate these sentenses. Pay attention to the use of the Absolute Participle Complex:

1. It being Saturday, everyone went out of town. 2. Time permitting we shall meet tomorrow. 3. The conference over,

the delegation returned to the country. 4. His voice trembling, he tried to explain everything. 5. Weather permitting, we'll spend our weekend in the forest.

XII. Translate into English using the Absolute Participle Complex:

1. Якщо курс валюти однієї країни знизиться, курс валю­ти іншої країни зросте. 2. Оскільки було складно визначити валютний курс, ми вирішили ретельніше проаналізувати ситуацію. 3. Коли все було вирішено, учасники конференції залишили зал засідань. 4. Через те що телефон був не­справний, я не міг зателефонувати вам.

XIII. Communicative situations:

Speak about gold-exchange standard.

Speak about the sources that influence exchange rates.

Lesson 31

INTERNATIONAL TRADE

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

trade deficit — дефіцит торговельного балансу

e.g. The amount by which the value of imports exceeds

the value of exports in a given time period is a trade deficit.

trade surplus — активне сальдо торговельного балансу

e.g. The amount by which the value of exports exceeds the value of imports in a given time period is a trade surplus.

domestic industries — національна економіка e.g. Microeconomic resistance to international trade arises from the fact that imports mean fewer jobs and less income for

some domestic industries.

mix of output — номенклатура продукції

e.g. Trade not only alters the mix of output but also redistributes income from import-competing industries to export industries.

embargo — ембарго

e.g. An embargo is nothing more than a prohibition against trading particular goods.

tariff — тариф

e.g. One of the most popular and visible restrictions on trade is the tariff, a special tax imposed on imported goods.

quota — квота

e.g. A country can impose quotas, restrictions on the quantity of a particular good that may be imported.

trade-adjustment assistance — компенсація втрат від міжна­родної торгівлі

e.g. Compensation to market participants for losses imposed by international trade is a trade-adjustment assistance.

II. Give English equivalents of the following:

заборона торгівлі окремими за певний період

товарами активне сальдо торговель-

обмеження на кількість імпорто- ного балансу

ваних чи експортованих товарів податок на імпорт

обмежувати міжнародну тор- зазнати збитків ГІВЛЮ змінювати номенклатуру продукції

III. Fill in the blanks with appropriate words:

During 1989 the USA imported more than equal exported and so had a ... trade balance. produce

If the United States has a trade deficit with the increases rest of the world, then other countries must deficit have an offsetting trade .... fewer

Imports must ... exports, since every good less exported by one country must be imported negative by another. surplus

A negative trade balance is called a trade ...

When countries engage in international trade, they are expressing commitment to specializa­
tion and the reason is: specialization ... total output.

Two countries that trade can together ... more output than they could in the absence of trade.

Imports mean ... jobs and ... income for some domestic industries.

IV. Read and translate the text:

After examining the arguments for and against international trade, we try to draw some general conclusions about optimal trade policy.

U.S. imports represent 9 percent of total GNP. These imports include the consumer items as well as capital equipment, raw materials and food. While the country is buying goods and services from the rest of the world, foreigners are buying U.S. exports.

U.S. exports represent 7 percent of total output. As the figures indicate, U.S. imports and exports were not equal in 1989. Quite the contrary: the USA had a large imbalance in the trade flows, with many more imports than exports. The trade balance is computed as the difference between exports and imports: that is

trade balance = exports — imports.

During 1989 the USA imported more than exported and so had a negative trade balance. A negative trade balance is called a trade deficit.

If the United States has a trade deficit with the rest of the world, then other countries must have an offsetting trade surplus. On a global scale, imports must equal exports, since every good exported by one-country must be imported by another.

When countries engage in international trade, they are expressing the commitment to specialization, and the reason is: specialization increases total output.

Two countries that trade can together produce more output than they could in the absence of trade. So, the gain from trade will be increased world output and thus a higher standard of living in both countries.

Although the potential gains from world trade are perhaps clear, we must recognize one central fact of life: some producers have a vested interest in restricting international trade. Micro-economic resistance to international trade arises from the fact that imports mean fewer jobs and less income for some domestic industries. Exports represent increased jobs and incomes for other industries. Thus on a microeconomic level there are gainers and losers from international trade. Trade not only alters the mix of output but also redistributes income from import-competing industries to export industries.

Resistance to trade emanates from workers and firms that must compete with imports. Even though the country as a whole stands to benefit from trade, these individuals and companies may lose jobs and incomes in the process.

The means of restricting trade are many and diverse. Embargoes are outright prohibitions against import or export of particular goods. Quotas limit the quantity of a good impor-

ted or exported. Tariffs discourage imports by making them more expensive. Trade-adjustment assistance is a mechanism for compensating people who incur economic losses as a result of international trade, thus it represents an alternative to trade restrictions. To summarize: International trade permits each country to concentrate its resources on those goods it can produce efficiently. This kind of productive specialization increases world output.

V. Answer the following questions:

What do US imports include?

What are the gains from international trade?

What does resistance to international trade mean?

What are the means of restricting trade?

What is trade-adjustment assistance?

What is the role of specialization in the increasing of the
total output?

In what sense does international trade restrain the exercise
of domestic market power?

VI. Define the terms:

trade surplus imports

trade deficit trade-balance

exports embargo

gainers and losers tariff

quota import-competing industries

VII. Translate into English:

1. За відсутності зовнішньої торгівлі ціни на внутрішньому ринку залежатимуть від попиту та пропозиції в межах краї­ни. 2. Тарифи зумовлюють підвищення цін на внутрішньому ринку та зменшення кількості проданих товарів. 3. Квоти обмежують імпорт, надаючи можливість вітчизняним ви­робникам підвищувати ринкові ціни. 4. Згідно із статистич­ними даними, в 1989 році обсяг імпорту США перевищу­