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Архитектура Аудит Военная наука Иностранные языки Медицина Металлургия Метрология Образование Политология Производство Психология Стандартизация Технологии |
Text 14. Theories of Business Cycles
There have been many theories attempting to explain the cause of business cycles. One early explanation was that the business cycle resulted from sunspots, those solar flares on the surface of the sun. This theory was based on an observation that the period between peaks of the business cycle was as long as the period between the peaks of sunspot activity. Weather, and therefore agricultural activity, is affected by sunspots, and variations in agricultural output lead to variations in the total output produced. But the sunspot theory was quietly dropped when a more careful investigation of solar activity revealed a cycle longer than first reported. Another popular business cycle theory stressed variations in the amount of business inventory. It is difficult for a firm to keep inventories at a constant level. This variation in inventory affects investment, and GDP in turn will vary. The inventory theory, however, has a serious flaw. Just because a situation is true for one business it does not mean that the situation is true for all businesses together. While the inventories of one firm are going up, it is likely that those of another firm are going down. These two movements could counteract each other and leave little variation in total inventories. The inventory theory by itself does not explain business cycles. Technological innovations were also suggested as a source of business cycles. At random periods of time, significant inventions have revolutionized a process. Trains, electricity, automobiles, airplanes, and microchips are such major innovations. Their production and use provided a new burst in economic activity and greatly increased income, output, and employment. Not only did the invention and production of the auto itself affect the economy, but so did its many spin-offs. The initial invention then required the building of a vast highway system; an oil supply network of producers, refiners, and distributors; motel systems and more to service the new innovation. At some point the production of autos levels off to a replacement level, the highways are built, and spending is only for maintenance. The result is a decline in income, output, and employment until the economy is sparked by the next innovation. Yet it is difficult to explain why more-or-less-regular business cycles would occur using this theory of random innovations. And since we cannot predict the occurrence of the next innovation, the innovation theory is of little value in forecasting the business cycle. Classical economics was the way of thinking that governed economic thought prior to the 1930s. One of its most influential opinions was that the government should stay out of the macro economy. It was acceptable for government to interfere with certain activities on the micro level, such as the regulation of business to encourage more competitive conditions, or the production of public goods like defense or education; but no government interference should occur on the macro level. This hands-off attitude was called laissez-faire. The classical belief was that any government interference on the macro level would make conditions worse, not better. Thus, the government could do the most good in the macro economy by doing the least. The belief was that the economy has a natural tendency to equilibrium at only one level — full employment — the most desirable of all possible outcomes. Thus any recession and period of unemployment would be limited by the very nature of the business cycle. Left to its own devices, the economy would automatically return to full employment. The classical economists relied on various models to support this belief. One of these models is Say's Law which states that supply creates its own demand. It seems likely that at full employment the cycles are a part of the economy and are bound to occur. Further, Keynes argued that government action could be used to smooth out the previously mysterious business cycle. He pointed out that it is possible to reduce the fluctuations of the business cycle by the use of policy tools. Keynes stated that in certain situations there was no alternative except for deliberate interference by government. Exercise 95. Give Ukrainian equivalents. To result from sunspots, solar flares, observation, agricultural activity, business inventory, at a constant level, GDP, in turn, to counteract each other, at random periods of time; to increase income, output, and employment; more-or-less-regular, to be of little value, to stay out of the macro economy, to interfere with certain activities on the micro level, to encourage more competitive conditions, to have a natural tendency to equilibrium, unemployment.
Exercise 96. Give English equivalents. Причина економічних циклів, сільськогосподарська продукція, валовий продукт, мати серйозний недолік, забезпечити новий поштовх в економічній діяльності, передбачити появу нововведень, впливова точка зору, повна зайнятість, коливання економічного циклу, політичні інструменти.
Exercise 97. Answer the questions. 1. What is one of the early theories attempting to explain the cause of business cycles? What is it based on? 2. What was another popular business cycle theory? Did it make sense? 3. Why were technological innovations suggested as a source of business cycles? 4. Is it possible to explain business cycles using the theory of random innovations? 5. What was one of the most influential opinions in classical economics prior to the 1930s? 6. What activities was it acceptable for government to interfere with? 7. What is the French synonym to “hands-off attitude” in business? 8. What does Say’s Law state? 9. What did Keynes point out?
Exercise 98. Match the terms with their definitions.
Exercise 99. Learn the following words and word combinations.
Exercise 100. Read, translate and give the gist of text 15. Text 15. Unemployment Not everyone who wants a job can find one. On one day in any recent year, around 900,000 men and 600,000 women in the United Kingdom are unemployed. During a recession, unemployment rises above this level and during an expansion, it falls below this level. Macroeconomists study unemployment to determine methods to control this serious economic problem. An internationally recognized definition of unemployment is a state in which a person does not have a job but is available for work, willing to work and has made some effort to find work within the previous four weeks. The total number of people who are unemployed on this criterion plus the number of people employed is called the workforce. The unemployment rate is the percentage of the people in the workforce who are unemployed. Unemployment means lost production for the economy and loss of income for the individual. One type of unemployment is frictional unemployment, which includes those people who are not employed because they have been fired or have quit their job. Cyclical unemployment follows the cycles of the economy. For example, during a recession, spending is low and workers are laid off because production needs are reduced. Structural unemployment occurs when a job is left vacant because a worker does not have the necessary skills needed or a worker does not live where there are available jobs. Some unemployment is due to seasonal factors; that is, employees are hired only during certain times of the year. To help lessen the problem of unemployment, the government can use its powers to increase levels of spending by consumers, businesses, and the government itself and by lowering taxes or giving tax incentives, which makes available more money with which to purchase goods and services. This in turn puts more laid-off workers back to work.
Exercise 101. Give English equivalents. Безробіття, ринок праці, безробітний, робоча сила, рівень безробіття, фрикційне безробіття, циклічне безробіття, структурне безробіття, сезонне безробіття, звільняти, наймати, покинути роботу, скорочені робітники, податкові пільги.
Exercise 102. Complete the sentences with the types of unemployment.
Exercise 103. Classify the following as frictional, seasonal, cyclical, or structural unemployment. 1. Aunt Ettie fires her elderberry pickers at the end of the season. 2. Cousin Clyde lost his job when the sales of his firm and other firms went down. 3. Cousin Katy got tired of the cold, quit her job in Cleveland last week, and found a new job in Orlando. She starts next month. 4. Barney went to school to be a blacksmith and cannot find a job.
Exercise 104. Fill in the blanks with the words from the box.
Those employed and those unemployed but looking for work make up the__________. The percentage of the work force that is unemployed is measured by the_______________. When workers cannot find full-time jobs equal to their skills, they are classified as _____________.The major types of unemployment are ______________, __________, __________, and ___________. People who are voluntarily between jobs compose _____________ unemployment. Workers laid off during the off season compose ___________ unemployment. When the economy slows down, __________ unemployment occurs. When people lack the qualifications for the available jobs, we experience ________ unemployment. We may have a 5 or 6 percent unemployment rate yet some economists may call this full ______________.
Exercise 105. Answer the questions. 1. Why do macroeconomists study unemployment? 2. What is unemployment? 3. What is called workforce? 4. What is unemployment rate? 5. What are the four types of unemployment? 6. What can the government do to help lessen the problem of unemployment?
Exercise 106. Translate into English. 1. Безробіття - це стан, коли людина не має роботи, хоча є працездатною, бажає працювати и доклала певних зусиль для пошуку роботи. 2. Рівень безробіття – це відсоток працездатного населення, які не мають роботи. 3. Безробіття означає втрачене виробництво для економіки та втрачений дохід для окремої особи. 4. Циклічне безробіття виникає внаслідок коливань економіки. 5. Фрикційне безробіття виникає, коли робочі тимчасово знаходяться без роботи в результаті зміни місця праці. 6. Структурне безробіття — виникає в результаті зміни структури економіки, наприклад, внаслідок технологічної революції. 7. Сезонне безробіття — результат природних коливань кліматичних умов протягом року або коливань попиту.
Exercise 107. Learn the following words and word combinations.
Exercise 108. Read, translate and give the gist of text 16. Text 16. Full Employment There is always some unemployment – even at full employment. So what do we mean by full employment? Full employment occurs when there is no cyclical unemployment – when all the unemployment is frictional and structural. The unemployment rate at full employment is called the natural rate of unemployment. There can be quite a lot of unemployment at full employment, and the terms “full employment” and “natural rate of unemployment” are examples of technical economic terms that do not correspond with everyday language. For most people – and especially for unemployed workers – there is nothing natural about unemployment. So why do economists call a situation with a lot of unemployment one of “full employment” and “natural unemployment”? The reason is that the economy is a complex mechanism that is always changing. In 2003, the UK economy employed 28 million people. About a half a million workers retired during that year and more than half a million new workers entered the labour force. All these people worked in several million businesses that produced goods and services valued at more than £1 trillion. Some of these businesses downsized and failed, and others expanded. This process of change creates frictions and dislocations that are unavoidable. And the unemployment the process creates is unavoidable. Natural unemployment and full employment refer to that state of the world in which the unemployment that exists stems from the natural frictions and dislocations that constantly bombard our lives.
Exercise 109. Give English equivalents. Повна зайнятість, природній рівень безробіття, робоча сила, зменшуватися, зазнати невдачі, розширюватися, незгоди, порушення, неминучій.
Exercise 110. Give definitions to the terms: unemployment, full employment, natural rate of unemployment, labour force. Exercise 111. Complete the definitions with the words from the box.
In _____________, full employment is a condition of the national __________, where all or nearly all persons willing and able to work at the prevailing ________ and working conditions are able to do so. It is defined either as 0% ___________, literally, no unemployment (the rate of unemployment is the fraction of the ____________unable to find work), or as the level of employment rates when there is no _________ unemployment.
Exercise 112. Discuss the questions. 1) In which countries is the unemployment rate above the natural rate? And in which countries is it below the natural rate? 2) If the unemployment rate is below the natural rate, what do you think will happen to the economy if the government does nothing? 3) If unemployment rate is above the natural rate, what do you think the government of that country should do about it?
Exercise113.Learn the following words and word combinations.
Exercise 114. Read, translate and give the gist of text 17. Text 17. GDP Total economic spending, which includes consumer, business, and government spending, determines the level of the gross domestic product (GDP), which is the market value of all final products produced in a year’s time. GDP is one of the most commonly used measures of economic performance. An increasing GDP from year to year shows that the economy is growing. The nation’s policy makers look at past and present GDPs to formulate policies that will contribute to economic growth, which would result in a steady increase in the production of goods and services. If GDP is too high or growing too rapidly, inflation occurs. If GDP is too low or decreasing, an increase in unemployment occurs. The definition of GDP stresses that we find the value of all final goods. This means that we do not count the production of a good more than once. When we count the value of the intermediate products as well as the value of the final product, we are double counting. This occurs when the value of steel is counted as output along with the value of automobiles. The value of steel has been counted twice — once in its production and again as a part of the value of the automobiles; the iron ore that went into the steel was counted three times. To avoid double counting, only the value of the final good is used to find GDP. Final goods are those sold at retail. The final value includes all the intermediate production that went into the good; therefore, the sum of all the final values measures the total production of the society. We can find GDP from an output approach by adding up the final value of the total output of the economy. Remember that output and income are identical, and so we should also be able to find the same GDP figure by using an income approach. The income approach to GDP is found by adding all income received by the factors of production. Rent, wages, interest, and profit sum together to give the identical GDP figure obtained from the output approach. We think of GDP as a measure of both output produced and income earned. In the future, when we mention income do not think of your paycheque — but think of GDP instead. A third method of finding GDP is the spending or expenditure approach. This approach divides the economy into four sectors and looks at how much each sector spends. The sectors are consumers, business, government, and foreign. Everything that is produced is purchased by one of these four sectors. That which is not purchased, business “purchases” in inventory. Thus, all production is accounted for as the sum of total spending. The sum of all expenditures by consumers, business, government, and the foreign sector makes up the expenditure approach to gross domestic product. Exercise 115. Give English equivalents. Валовий внутрішній продукт, державні витрати, ринкова вартість, кінцеві товари, проміжні продукти, продукція, дохід.
Exercise 116. Match the two parts of the sentences.
Exercise 117. Answer the questions. 1. What is GDP? 2. What is double counting? 3. What approaches can we find GDP by? 4. What does an increasing GDP show? 5. What occurs when GDP is too high/ too low?
Exercise 118. Translate into English. 1. Загальні економічні витрати визначають рівень валового внутрішнього продукту. 2. ВВП- це ринкова вартість всіх кінцевих продуктів, вироблених за рік. 3. Показник ВВП, який збільшується з року в рік, показує, що економіка зростає. 4. Якщо ВВП занадто високий або зростає занадто швидко, має місце інфляція. 5. Якщо ВВП занадто низький або зменшується, підвищується рівень безробіття. 6. ВВП можна визначити трьома методами – виробничим, за доходами та за витратами.
Exercise 119. Learn the following words and word combinations.
Exercise 120. Read, translate and give the gist of text 18. Text 18. Consumption The largest part of GDP is consumer expenditure, or consumption. Consumers are households buying goods and services for consumption. Consumption is the purchase of goods and services by households. We buy food, clothing, entertainment, transportation, and so much more. Purchases of financial securities and other forms of personal “investment” are not counted as consumption since we cannot eat them, live in them, drive them, or in other ways consume them. These purchases are not consumption but merely a transfer of assets between individual consumers or between consumers and business, and are a form of saving. Consumption was defined as the yearly total of all purchases of goods and services by consumers. Consumption is more than consumption by an individual household; consumption is an aggregate, a macro concept. Macro is concerned with the total consumption of all consumers. What causes consumption to rise or fall? The main factor is income, real GDP. The direct relation between the level of income and the level of consumption is shown by the consumption function. John Maynard Keynes was one of the first to point out this consumption relation. Generally, we expect people to buy more goods and services as income rises. As income rises, so does consumption. As income falls, so does consumption. Income is an important determinant of the level of consumption. But beware of the fallacy of composition. We are not concluding that aggregate consumption goes up as aggregate income rises just because one person consumes more as income rises. We are concluding that the macroeconomic variable consumption is directly related to the macroeconomic variable income. This is a simple but rather important observation. The level of total income will determine the amount of total consumer spending.
Exercise 121. Give English equivalents. Споживчі витрати, купівля, цінні папери, активи, заощадження, функція споживання, вирішальний фактор.
Exercise 122 Answer the questions. 1. Who are consumers? 2. What is consumption? 3. Why are purchases of financial securities not counted as consumption? 4. What does consumption function show? 5. What is the relation between the level of income and the level of consumption? 6. What will the level of total income determine?
Exercise 123. Translate into English. 1. Найбільшу частину валового внутрішнього продукту складають споживчі витрати. 2. Споживання - це купівля товарів та послуг домашніми господарствами. 3. Купівля фінансових цінних паперів та інші форм особистих інвестицій не вважаються споживанням. 4. Функція споживання показує пряме співвідношення між рівнем доходу та рівнем споживання. 5. Коли дохід зростає, люди купують більше товарів і послуг. 6. Коли дохід падає, рівень споживання також зменшується.
Exercise 124. Complete the text with the words from the box.
Two major views of economics are __________ and __________economics. The study of the individual parts of the economy is _______________. The study of the economy as a whole is _____________. Our focus is now on macroeconomics. What society earns through production is called _________. The total income of the economy is equal to the total ________. The total dollar value of all final goods and services produced during the year is measured by _________. The GDP figure can also be found through the ________ approach and the ____________ approach. The income approach adds all income to the resource owners, rent as well as _________, ________, and _________. Total spending of the four sectors of the economy yields the _____________ approach. Purchases by consumers is ________________.
Exercise 125. Read, translate and give the gist of text 19. Text 19. Investment Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in the form of interest, income, or appreciation of the value of the instrument. Investment is related to saving or deferring consumption. An investment involves the choice by an individual or an organization such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time. When an asset is bought or a given amount of money is invested in the bank, there is anticipation that some return will be received from the investment in the future. Investment is a term frequently used in the fields of economics, business management and finance. It can mean savings alone, or savings made through delayed consumption. Investment can be divided into different types according to various theories and principles. While dealing with the various options of investment, the defining terms of investment need to be kept in mind. Investment in terms of Economics According to economic theories, investment is defined as the per-unit production of goods, which have not been consumed, but will however, be used for the purpose of future production. Examples of this type of investments are tangible goods like construction of a factory or bridge and intangible goods like 6 months of on-the-job training. In terms of national production and income, Gross Domestic Product (GDP) has an essential constituent, known as gross investment. Investment in Terms of Business Management According to business management theories, investment refers to tangible assets like machinery and equipments and buildings and intangible assets like copyrights or patents and goodwill. The decision for investment is also known as capital budgeting decision, which is regarded as one of the key decisions. Investment in Terms of Finance In finance, investment refers to the purchasing of securities or other financial assets from the capital market. It also means buying money market or real properties with high market liquidity. Some examples are gold, silver, real properties, and precious items. Financial investments are in stocks, bonds, and other types of security investments. Indirect financial investments can also be done with the help of mediators or third parties, such as pension funds, mutual funds, commercial banks, and insurance companies. Personal Finance According to personal finance theories, an investment is the implementation of money for buying shares, mutual funds or assets with capital risk. Real Estate According to real estate theories, investment is referred to as money utilized for buying property for the purpose of ownership or leasing. This also involves capital risk. Commercial Real Estate Commercial real estate involves a real estate investment in properties for commercial purposes such as renting. Residential Real Estate This is the most basic type of real estate investment, which involves buying houses as real estate properties.
Exercise 126. Answer the questions. 1. What is the main purpose of investment? 2. What choice does an investment involve? 3. In what fields is the term “investment” usually used? 4. What can investment represent in terms of tangible and intangible goods? 5. What is investment in terms Finance? Exercise 127. Find the synonyms in the text: investment, profit, goods, securities. Exercise 128 . Give the definition of the following terms: GDP, tangible goods, intangible goods, leasing, renting, mutual funds, return on investment, net profit.
Exercise 129. Learn the following words and word combinations.
Exercise 130. Read, translate and give the gist of text 20. Text 20. Taxes As the saying goes, taxes, like death, are certain. Taxes are paid by both consumers and business. Before consumers make any consumption or saving decision, taxes are taken out of their income. When there are taxes, the consumer makes the consumption decision based on disposable income, where disposable income is income after taxes. This is true for the individual consumer as well as all consumers together at the macro level. Total tax collections are subtracted from income to yield disposable income. Disposable income can be either spent or saved by consumers. The impact of taxes is to reduce the income available for spending and therefore lower consumption. Similarly, saving will also be lower at each level of income because part of the income that would be saved now goes for taxes. The consumption function describes how consumption changes when income changes. This information is summarized in the marginal propensity to consume, which is the change in consumption due to a change in income. There are many kinds of taxes on individuals, but all have the same effect of reducing consumption. As long as the consumer does not save every added dollar of income, an increase in taxes will cause consumption to fall. If the consumer saves every extra dollar of income, an increase in taxes will make only saving fall. In every other case, part of the money paid in higher taxes may come from saving, but the remainder will come out of consumption. A reduction in taxes will have the opposite effect on consumption. Lower taxes are like an increase in income - suddenly there is more disposable income. Some of the increase in income that would have been tax payments may go into saving, but part will go into additional consumption. Thus a change in taxes will have an effect on consumption and also, as we know, on the level of income. Taxes have the identical effect on investment as on consumption. An increase in taxes reduces investment; a reduction in taxes increases investment. Taxes have the potential to change the level of income, as does government spending. Exercise 131. Complete the sentences according to the text. 1. The saying goes … 2. Taxes are paid by … 3. Taxes are taken out of income … 4. The consumer’s consumption decision is based on … 5. Disposable income is … 6. MPC is … 7. All taxes have the same effect on … 8. Taxes have the potential …
Exercise 132. Make sure you know the following word-combinations: to impose / levy a tax; to collect taxes; tax assessment; tax revenue; individual income tax; profits tax; tax rate; tax evasion; heavy tax; to lower / reduce tax rates; after tax; before tax; tax on land; real estate tax; property tax; death tax; highway tax; payroll tax; unemployment tax; single tax; taxation, taxpayer; be liable to tax; tax collector.
Exercise 133. Match the terms and their definitions.
Exercise 134. Put questions to the underlined word-combinations. 1. He already pays 40% tax on his income. 2. The total tax burden has risen only slightly. 3. The government has introduced tax incentives for fuel-efficient cars. 4. They may be taxed at a higher rate. 5. Cigarettes are heavily taxed in Britain. 6. The individual is taxed on the amount of dividend received.
Exercise 135. Give English equivalents. Приймати рішення про заощадження, окремий споживач, дохід після виплати податків, знизити рівень доходів, вплив, гранична схильність до споживання, податкові виплати, однаковий вплив, протилежний результат, державні витрати, спричиняти падіння.
Exercise 136. Translate into English. 1. Податок - це виплати, якими держава обкладає людей, корпорації та інші економічні суб’єкти (тобто фізичні та юридичні особи). 2. Завдяки податкам, держава має кошти для своєї діяльності. 3. Податки носять примусовий характер. 4. Існує багато типів податків: на додану вартість, землю, нерухомість, спадок, прибуток, транспортний збір тощо. 5. Податкова політика в кожній державі відрізняється. 6. Податкові надходження контролюються податковими інспекторами з податкового управління.
Exercise 137 . Discuss in groups. 1. Taxes, like death, are certain. 2. Evading the payment of taxes.
Exercise 138. Learn the following words and word combinations.
Exercise 139. Read, translate and give the gist of text 21. |
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