Text 21. Government Spending

How is the federal budget prepared? The amount of revenue that will be generated from taxes is estimated, and government spending decisions are made. In some cases there are projects that were started in earlier years that require payment to continue — perhaps the purchase of aircraft carriers, or the building of dams or highways, or the provision of welfare benefits. There will be new projects to fund, like special space missions or research projects on energy. When the spending is totaled, it can be compared to the tax revenue. If the revenue is less than spending, a deficit occurs. If the revenue is greater than spending, a surplus results. If the deficit is too large, the budget may be adjusted either by raising taxes or lowering spending. Similarly, if the surplus is too large, expenditures may be increased or taxes lowered.

Government expenditures have the same impact on the economy as consumer consumption or business investment. An increase in any one serves to speed up the economy; a reduction in any one serves to slow down the economy.

Note that the business and consumer sectors cannot spend at will. Investment is dependent on the level of interest, and consumption is dependent on the level of income. This is not true of the government sector. Most government spending is independent of both the interest rate and income. Thus the interest rate and level of income do not keep the government from spending more. However, government too encounters opportunity cost.

Government spending can be used as an economic tool. An increase in government spending increases aggregate demand. What the government purchases, or the reasons for its purchase, make no difference in the impact of its spending. Simply the fact that government has increased spending will increase total spending and therefore the level of aggregate demand. Similarly, a decrease in government spending will reduce the level of aggregate demand.

The ability of the government to tax provides another economic tool. An increase in taxes on consumers will reduce consumption and therefore aggregate demand. The same impact results from an increase in taxes on business. A reduction in taxes on consumers will increase consumption, and a reduction in taxes on business will increase investment. Either reduction in taxes will increase spending and aggregate demand. Thus the ability of the government to tax or spend will affect aggregate demand and the direction of the economy.

The decision to tax and the decision to spend by government can be made independently.

Exercise 140 . Give the order of steps to be taken:

- to determine whether deficit or surplus occurs;

- to total the spending

- to make decisions on further actions (to increase expenditures or lower taxes)

- to estimate the amount of revenue generated from taxes

- to make government spending decisions

- to compare the total spending to the tax revenue

 

Exercise 141. Look up in the dictionary and write down all definitions of the word “will”. Translate the sentences.

1. The business and consumer sectors cannot spend at will. 2. An increase in taxes on consumers will reduce consumption. 3. You’d better make a will. 4. What is lacking is the political will to get anything done about global warming. 5. He claims the police forced him to sign a confession against his will. 6. She was willing herself not to cry. 7.With the best will in the word, I don’t see what I can do more.

 

Exercise 142. Mind that these words can function both as nouns and verbs. Make up sentences to show it.

Impact, result, increase, demand, examine, cost, tax, benefit, purchase, project, pay, aggregate, decrease, level.

 

Exercise 143 . Translate into English.

1. Бюджетно-податкова політика здійснюється через податкові ставки та пільги, розподіл податкових надходжень за рівнями бюджетної системи (місцевим, середнім та центральним), певну структуру витрат, балансування бюджетів тощо.2. Заходами грошової політики є норми банківських резервів та міжбанківських кредитів, норми відсотків за облігаціями та терміни їх випуску, регулювання грошової бази. 3. Завдяки цим заходам досягається збільшення (або зменшення) сукупного попиту, стимулювання (або стримування) виробництва через вплив на кредит та інвестиції тощо.4.У межах соціальної політики як засоби використовуються: диференційоване оподаткування доходів, обов'язкове страхування по безробіттю та втраті працездатності, різні види соціальної допомоги. 5.В результаті цих заходів забезпечується необхідний мінімум споживання, перерозподіляються доходи, обмежується безробіття, гарантується здійснення соціальних програм (підтримки сім'ї, забезпечення житлом, підвищення рівня освіченості та культури тощо). 6. Засобами зовнішньоекономічної політики є податки, проценти за інвестиціями, пільги виробникам, що працюють на експорт, зміни у валютному курсі. 7. Наслідком використання цих засобів може стати стимулювання або обмеження експортних можливостей держави. 8. До типових адміністративних засобів належать: планування обсягів виробництва та цін для підприємств, через які здійснюється природна державна монополія, антимонопольне регулювання та протидія затуханню конкуренції, розробка державних норм та стандартів (мінімальної зарплати, якості виробів, шкідливих викидів у довкілля), ліцензування експорту, консервування частини національних ресурсів, обмеження виробництва щодо деяких його видів чи на певних територіях.

 

Exercise 1 44. Learn the words and word combinations from the text.

market power	– позиція на ринку; влада на ринку
revenue	– дохід

Exercise 145. Read, translate and give the gist of text 22.

                  Text 22. Revenue and Market Structure

Firms frequently make decisions that affect the revenue of other firms. For example, when a firm changes the price of its good, not only will it affect its own revenue, but it may affect the revenue of other firms as well. This ability to control price is called market power. Market power relates the revenue of one firm to another. The extent to which firms possess market power varies and depends on the market structure of the industry.

Market structure refers to the elements of market organization that affect the behavior of the firms. Three elements identify the market structure: the number of firms in the market, freedom of entry, and the degree to which the product is standardized.

First, what effect will the number of firms in the market have on market power? As the number of firms in a market increases, the control any one firm is likely to have over price decreases. Suppose that there is only one firm in the market. Then the firm can choose a price and sell the quantity demanded by the market. In that sense the firm is the market. As soon as there is more than a single firm, each firm suddenly comes under pressure in its choice of price. If one firm sets price above the other firm, the low-price firm has an advantage.

The freedom of entry, or the ease with which a firm is able to enter the market, determines the number of firms in the market. Easy entry means that a firm can obtain the necessary technology and resources to become a seller in the industry.

Another element that determines market structure is how standardized the product is. A product is standardized if the consumer cannot distinguish the output of one firm from the output of another. The products seem identical. Two farmers growing the same grade of wheat produce a standardized product. On the other hand, cars produced by one firm are readily distinguishable from cars produced by another firm. Cars are a differentiated, not a standardized, good. The more standardized the good, the harder it will be for any producer to control the price. If your good is differentiated, you are able to control price. Because your good is different, you know that some consumers will pay a higher price. If the products are differentiated, the firm has some power over price.

Exercise 146. Give Ukrainian equivalents.

To make decisions, to affect the revenue, to possess market power, freedom of entry, to determine, affect the behavior of the firms, low-price firm, on the other hand, obtain the necessary technology and resources.

Exercise 147. Answer the questions.

1. What are the elements of market structure that generate market power? 2. What effect will the number of firms in the market have on market power? 3. What role does the freedom of entry play for the firm? 4. What is the difference between standardized and differentiated products? 5. How does the degree to which the product is standardized control the price?

 

Exercise 148. Complete the sentences with words from the text.

1. The ability of a firm to control price is called ... 2. As the market power of firms increases, the revenues of the firms become related. 3. The amount of market power depends upon the market ... 4. The elements of market structure include the number of ..., the freedom of ..., and the degree to which the product is ... 5. As the number of firms in a market increases, the control any one firm is likely to have over price … 6. The freedom of entry is the ease with which a firm is able to … the market. 7. A product is standardized if the consumer cannot distinguish the … of one firm from the output of another. 8. The products seem identical.

Exercise 149. Translate into English.

1. Влада на ринку – це здатність контролювати ціни на ринку, вона може змінюватися та залежить від структури ринку. 2. Три елементи, що визначають структуру ринку, включають в себе кількість фірм на ринку, вільний вихід на ринок та ступінь стандартизації продукції. 3. Чим більше стандартизований продукт, тим важче виробникові контролювати ціну. 4. Якщо одна фірма встановлює ціну нижчу за іншу, то фірма з нижчою ціною має вищі обсяги продаж та прибутки. 5. Вільний доступ до технологій та ресурсів дозволяє фірмам вільно виходити на ринок.

 

Exercise 150 . Complete the multiple-choice tests.

1. Revenue is:

a. a fee paid on borrowed assets.

b. income that a company receives from the sale of goods and services to customers.

c. the total amount of money the firm spends.

d. none of the above.

 

2. If there are many firms in a market, then it is likely that:

a. all firms have market power.

b. no one firm can control price.

c. the product is an essential one.

d. there are barriers to entry.

 

3. Which product is standardized?

a. Grade A eggs.

b. Subcompact cars.

c. Size medium shirts.

d. Left-handed baseball gloves.

 

4. The freedom of entry determines:

a. the opportunity cost.

b. money and inflation.

c. the number of firms in the market.

d. fixed and floating rates.

 

5. A product is standardized if :

a.  it is used for non-business purposes.

 b. it is sold at, or below, the retail price.

c. stores charge less than the wholesale price.

d. the consumer cannot distinguish the output of one firm from the output of another.

 

Exercise 151. Practise “ever and never + Present Perfect”. Write questions using the prompts. See the example.

            e.g. you/ever/be/one of the conferences?

            Have you ever been to one of the conferences?

1. you/ever/be/Kyiv before? 2. you/ever/work for international company? 3. you/ever/learn English? 4. you/ever/eat/sushi? 5. you/ever/ visit Germany? 6. you/ever/ organize conference like this?

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