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1. Evolution of Economic Systems, 2 Capitalism, 3 Economic factors in national development, 4 Independence of national economics, 5 Social control of modern industry

1. Hunting-and-Fishing Stage

2. Pastoral Stage

3. Agricultural Stage

4. Handicraft Stage

5. Industrial or Manufacturing Stage.

In the hunting-and-fishing stage, primitive man satisfied his daily needs directly from nature. The hunting tribes moved from one location to another in search of food to sustain them. The fishing tribes were more likely settled in one place as a permanent home.

During the pastoral stage, a man began to domesticate animals and wild grain for his own use. The owner of the sheep, cattle, and goats spent their time in watching over their animals and looking for fresh grassing grounds or for more abundant water supply. During this stage, an individual�s wealth was measured by the size of his herd.

The English manor with a feudal basis predominant from the tenth to the fourteenth century affords a good example of the agricultural stage. The whole country outside of the larger towns was divided into these manors. There was the land outside the village. It was divided into three great fields. One of them was sown with wheat, one with oats or barley or beans, while one was left fallow. Each peasant was obliged to cultivate his land in accordance with the rotation of crops followed by his neighbours.

A peasant had to work two or three days a week - with additional days at planting and harvest time�- on the lord�s pert of the estate. There were small quarterly payments to be made in money, and miscellaneous dues (hens, eggs, oats). There were still other services, of which the most important was carting.

Vocabulary

evolution � ��������, ��������

to suggest � �����������

to occur � ����������

set forth � ����������, �������������

side by side � �����

to exist � ��������

Pastoral Stage � ������������ (��������)

Handicraft Stage � ����� �������� �������

directly from � ������������� � (��)

to sustain � �����������, ��������� ����

a permanent home � ������� ������

abundant � ������� �� ����

herd � �����, �����

manor [�mæn r] � ���������� �����

predominant � ���, �� ��������

affords a good example � �� ������� �������

to sow � ����, �������

oats � ����

barley � �����

fallow � ����� �� �����

to be obliged � ���� �����������

to cultivate � ���������

in accordance with � �������� ��

rotation � ��������� ����������

lords pert of the estate � ����������� ������

miscellaneous dues � ��������� �������

carting � ����������� �� ����.

I. Complete the sentences using the text:

1. In the hunting-and-fishing stage, primitive man satisfied his daily need ... .

2. The fishing tribes were more likely settled in one place ... .

3. During this stage an individual wealth was measured ... .

4. The whole country outside of the larger towns, was divided � .

5. Each peasant was obliged to cultivate his land ... .

6. There were still other series ... .

II. Answer the questions, basing your answers on the text.

1. What do the stages in the development of economic systems suggest?

2. What stages in the development of economic systems can you point out?

3. What way did a primitive man satisfy his daily needs in?

4. At what stage did a man begin to domesticate animals and wild grain?

5. What affords a good example of the agricultural stage?

6. Who was a lord? What rights did he possess?

7. How did each peasant cultivate his land?

8. How many days a week did a peasant have to work on the lord?

III. Say whether these statements are true or false and if they are false, say why.

1. All groups of people developed all the stages set forth below.

2. In the hunting-and-fishing stage, primitive man satisfied his daily needs not only from nature.

3. During the pastoral stage, a man began to domesticate animals and mild grain for his own use.

4. The English manor with a feudal basis predominant from the tenth to the fourteenth century affords a good example of the agricultural stage.

5. The land was divided into three great fields and all were sown with wheat, oats or barley.

6. Each peasant cultivated his land, as he liked.

7. A peasant had to work on the lord�s pert of the estate.

8. There were quarterly payments to be made only in money.

2 Capitalism

1. Private property. This means the exclusive right of an individual to control wealth or income. Economic progress has sometimes been hampered by the fear that a man might not be allowed to read what he had sown.

2. Freedom of enterprise. Free enterprise is the right of a person to make what he likes and as he likes, or to enter any trade or profession.

3. Competition � The system of capitalism is based on competition. Our modern society permits and encourages it. Competition leads to improvements in methods of production and in the articles produced. It results in greater output and lower prices.

4. Profits. Profits are the reward that comes to the entrepreneur as a result of his efforts. If, after paying from the gross receipts of his business all the expenses for wages interest, and rent due to the others, there is something left over, then this belongs to him. Profits are the end result of a capitalist enterprise � a contingent reward, on the degree of success of the business. What leads the entrepreneur to perform his function is, not always profits, but the chance of profits.

5. Laissez-faire. Adam Smith, the father of Economics understood that the well-being of a community was best served by a policy of governmental non-interference in economic affairs. Smith believed that in looking after his own interests a business-man was �led by an invisible hand� to look after the interest of society as a whole. But popular opinion today insist that consumers must be protected from high monopolistic prices, from shabby goods, from dangerous drugs.

Many criticisms have been made of the capitalistic system in modern times. The individual should be prepared to weigh for himself the validity of these criticisms.

One criticism of capitalism is that it leads to an unfair distribution of wealth. Under this system the rich get richer and the poor get poorer. The toil and the want of the labouring classes are means of speeding and piling up the wealth of the capitalist classes.

A somewhat similar criticism of capitalism is that it thinks more of profits than of social welfare. The ability to possess great wealth and secure the income from it without active participation in the management of business is a modern condition. We know the following method of wealth � getting in society: the rendering of service to others or to society for the sake of adequate reward in return, and the acquirement of gain for one-self at the expense of others with practically no service rendered to society. The latter method is now practised with success by the majority of capitalism.

But one might call attention to the case of Henry Ford. He undoubtedly accumulated millions. But at the same time he was a great philanthropist. He satisfied the wants of millions for some form of cheap transportation.

Another inducement of capitalism is that it works without plan. Production and consumption are not co-ordinated. The labour of untold men and women and of their machines is lost. Under the rule of business - as usual, they shoot blindly without aim and without goal. They have knowledge of the consumptive capacity of the country. Each plant is trying to sell all it can.

Capitalism has sometimes been blamed for the frequency of depressions. Over-production results from the lack of a planned economy. Over-production leads to the closing of factories, which, of course, means mess unemployment and all the evils associated with it. The business cycle of booms and panics began with the factory system.

Another change against capitalism is that it has been responsible for the waste of our natural resources. Big business �skims the skims� from the oil gushers, from the wide-veined coal-bearing Rock, and from virgin forests.

Vocabulary

identify � ������������

private property � �������� ��������

exclusive � ����������

wealth � ���������, ��������

income � �����

to hamper � ������������, ��������

freedom of enterprise � ������� ����������

competition � �����������

to permit � ���������

to encourage � ��������, �������

reward � ��������

entrepreneur � ���������

gross receipts � ����� ���������

expenses � �������

a contingent reward � ����������, ��������

laissez - faire [�leisei�f ] � ������� �����������

well-being � ��������

non-interference � �����������

dangerous drugs � ��������� ���

validity � ��������������

toil � ����� �����

to pile up � ��������������

welfare � ��������, ��������

to possess � �������

to secure � �����������, �������������

for the sake of � ������ ������

acquirement � �������, ���������

at the expense � �� �������

to call attention � ���������� �����

undoubtedly � ��� ������

inducement � ������, ��������

consumptive capacity � ����������� �����������

to blame � �������������

oil gushers � ������� �����

to skim � ������� ������, ����������.

I. Complete the sentences using the text:

1. The system of capitalism began ... .

2. Certain features of capitalism are private property, freedom of enterprise ... .

3. Profits are the end result ... .

4. But popular opinion today insists that consumers ... .

5. A somewhat similar criticism of capitalism is that ... .

6. Another inducement of capitalism is that ... .

7. Each plant is trying ... .

8. Capitalism has sometimes been blamed for ... .

9. Over-production leads ... .

10. Another change against capitalism is that ... .

II. Answer the questions, basing your answers on the text.

1. What did the system of capitalism begin with?

2. What does private property mean?

3. What is freedom of enterprise?

4. What is the system of capitalism based on?

5. What does competition lead to?

6 . What are profits?

7. What do profits depend on?

8. How did Adam Smith understand the well-being of a community?

9. What does today�s popular opinion say about consumers� protection?

10. Which are the characteristic features of capitalism?

III. Say whether these statements are true or false and if they are false, say why.

1. The main features of capitalism are competition and profits.

2. Our modern society permits and encourages competition.

3. Profits are the end result of a capitalist enterprise.

4. Smith believed that in looking after his own interests a businessman was �led by an invisible� hand to look after the interest of society as a whole.

5. One criticism of capitalism is that it leads to an unfair distribution of wealth.

6. Capitalism thinks both of profits and of social welfare.

7. Both capitalism and socialism work without plan.

8. Under capitalism each plant is trying to sell all it can.

9. Over-production leads to the closing of factories and mass unemployment.

3 Economic factors in national development

But there are other factors that help to account for the speed or tardiness of a nation�s development. There are the racial traits or customs of the people � the artistic ability of the French, for example, or the leisurely habits of the Latin Americans. In the production and distribution of goods, there is the advantage of an early start; there is the matter of availability of labour and capital, as well as the degree of skill of workers and technicians; and there is the attitude of the government � through its control of tariffs and subsidies � towards economic development.

Until very years, industrial power has been concentrated largely in Anglo-America, Western Europe, and the former USSR. Here were located the so-called �rich� nations, whereas the �poor� or �developing� nations stretched across a great part of the face of the earth. The West has been well aware that the centre of gravity of world problems today is in Asia and Africa. It is in these continents that are required agricultural and industrial development, better education, better housing, and improved health services.

The requirements of the new nations are great. But the resources remain largely undeveloped. The people are still often illiterate but they seek enlightenment and guidance. The responsibility of �rich� nations is still tremendous in spite of what has already been accomplished. The old traditional world is dying; a radical new world is being born.

Vocabulary

to be engaged � ���� ��������

to obtain � ���������, ��������

fuel � ������, ������

luxury � �����, �������� �������

shallow � ����������, ����������

depth � �������

pulp � �������� ����

flour � �������, ����

fertile � �������

tardiness � �����������

trait � �����, ����

advantage � ��������

availability � ����������, ����������

subsidy � �������, �����

to locate � ��������

to be aware � �����, ���� ��������, ������������

gravity � ���������, ����������

to require � ��������, �����������

to improve � ����������, ��������������

to remain � ����������

illiterate � ������������

enlightenment � �������

tremendous � ����������

in spite of � �� ������� ��, ��������

to accomplish � �����������.

I. Complete the sentences using the text:

1. The activities of a man are engaged largely in obtaining ... .

2. But there are other factors that ... .

3. In the production and distribution of goods, there is ... .

4. Until very years, industrial power has been concentrated ... .

5. The West has been well aware that ... .

6. The people are still often illiterate but ... .

7. The old traditional world ... .

II. Say whether these statements are true or false and if they are false, say why.

1. The activities of a man are engaged largely in obtaining two major classes of goods - clothing, shelter.

2. In making provision for six major classes of goods, we depend largely on physical factors.

3. There are only racial traditions or customs of people that help to account for the speed or tardiness of a nation�s development.

4. So-called �rich� nations were located in Anglo-America, Western Europe.

5. The west has been well aware that agricultural and industrial development, better education, better housing and improved health services are required in Asia and Africa.

6. The requirements of the new nations are not great.

7. The responsibility of �Rich� nations for the new nations is still tremendous.

8. The old traditional world is dying: a radical New World is being born.

III. Answer the questions basing your answers on the text:

1. What are the activities of a man engaged in?

2. Why do we depend on physical factors in making provision?

3. What helps us to account for the speed on tardiness of the nations development?

4. What is very important for production and distribution of goods?

5. Where are developing nations located?

6. What are the major problems of developing countries?

7. Why is the responsibility of �rich� nations still tremendous?

4 Independence of national economics

1/ Nations associated in G.A.T.T. (General Agreement on Trade and Tariffs). Many countries entered this Agreement and made tariff concessions to one another. The first Agreement was in 1947.

2/ E.F.T.A. (European Free Trade Association). Members of this Association reduced duties on most industrial goods produced and sold among themselves.

3/ L.A.F.T.A. (Latin American Free Trade Association). Its members agreed to remove customs duties and other trade barriers at a minimum reduction rate of eight per cent annually.

4/ A.P.L.A. (Alliance for Progress with Latin American). This alliance was sponsored by President Kennedy in 1961. Its aims were partly humanitarian and partly to offset the influence of Cuba.

So long as Latin American partners did not expropriate American owned properties, they could receive large United States foreign appropriation for their economic development.

5/ E. E. C. (European Economic Community) or the common Market. This group came into existence on January 1, 1958.

Western Europe has rolled up its sleeves and gone to work. The results has been an economic miracle. Shattered by war, countries that once were enemies have banded together and the economic community is growing as strong as steel that rolls from its factories. At the outset there were six members - the Netherlands, Belgium, Luxembourg, France, West Germany and Italy. The aim of the E.E.C. was to abolish all obstacles to economic growth � to secure a completely tariff-free internal Community. Tariffs were not all to be abolished at one time, but on a gradual basis. But common tariffs were to be placed on goods coming into the Community from other countries.

In the first three years of its existence industrial production rose by 25 per cent compared with 13 per cent in Great Britain and 8 per cent in the United States. Foreign capital flowed into the Community in increasing quantities. Some 500 American firms - big stores, automobile plants, oil companies, etc. moved in and established themselves in the Common Market. Most jobs became available almost immediately, wages improved. Other countries watched this transformation worth more than passing interest; several supplications for membership in the Community were made.

Vocabulary

to be alone � ���� ��������, �������

to establish � �������������, �����������

to bring about � ����������, ���������

concession � ��������, ���������

to reduce � ����������, ���������

a minimum reduction rate � ��������� ����� ��������

annually � ������

alliance � ����

partly to offset � �������� ������������

foreign appropriation � �������� �����������

to come into existence � ������ ��������

to roll up sleeves � ���������� ������

an economic miracle � ��������� ����

shattered by war � ������ ����� �����

at the outset � ��������

to abolish all obstacles � ������� �� ���������

to become available � ����� ���������

several supplications � ������� �������.

I. Fill in the missing words or phrases.

1. Regional groups of many countries have therefore been established ... � ... of economic integration.

2. Members of E.F.T.A ... on most industrial goods produced and sold among themselves.

3. Members of L.A.F.T.A agreed ... and other trade barriers.

4. The aims of A.P.L.A were partly ... and partly ... the influence of Cuba.

5. At the outset there were ... the Netherlands, Belgium, Luxembourg, France, West Germany and Italy.

6. The aim of the E.E.C. was ... to economic growth � ... internal Community.

7. Foreign capital ... in increasing quantities.

8. Most jobs became ... most immediately, wages... .

II. Say whether these statements are true or false and if they are false, say why.

1. After World War II many nations realised to integrate but not to be alone.

2. Five regional groups have been established to provide some measures of economic integration.

3. Latin American partners could receive large foreign appropriation for their economic development.

4. Western Europe has rolled up its sleeves and gone to work but there was no success.

5. At the outset there were six members in the economic community.

6. The aim of the E.E.C. was to abolish all obstacles to economic growth.

7. Common tariffs were abolished on goods coming into the Community from other countries.

8. In the first three years of its existence the community achieved a great progress.

9. American capital flowed into the Community, there appeared new jobs.

III. Answer the questions basing your answers on the text:

1. What have many nations come to realise since the World War II?

2. How many regional groups have been established?

3. What was the aim of establishing regional groups?

4. Why could Latin American partners receive large foreign appropriation for their economic development?

5. What countries were the first members in the economic community?

6. What was the aim of the E.E.C.?

7. Were all tariffs abolished at one time?

8. Prove that the economic community has been a great success since the first years of its existence?

5 Social control of modern industry

The story of conditions in the early English factories has been told many times. But it may be prudent to recall the facts once again. There are still some people opposed to social control of industry. The use of men, women, and children by factory owners at the beginning of the 19-th century had all the earmarks of slave ownership starvation brought the wives and daughters of the workmen to the factories and there was no worry about wearing them out. Half-naked women were harnessed to draw carts in the mines through passages two feet seven inches high. Children of eleven worked twelve to fourteen hours a day in factories.

There was often the same food for the children that the master gave his pigs. Irons were fastened to the ankles of women and girls to keep them from running away. There were adults broken down from toil at thirty years of age and the suicide rate was high. Probably no form of human slavery was ever worse than this.

In the face of such evils changes have been making for human betterment. There has been an improving trend in public morality. Modern democratic governments make their economic systems serve the best interests of their citizens. All people should have equality of opportunity. The state should safeguard the health and well being of its men, women, and children. The individual should be free to choose his own work without interference, have the right to own property, and receive the just reward of his labour.

Vocabulary

to follow the prompting of self-interest � ���������� �������� ��������������

unrestrained � �����������, �����������

prudent � �����������

to recall � ���������, ����������

opposed � ��������� ����� ������

earmark � �����, ������

starvation � �����

to harness � ���������

to draw carts � ������� ����

passage � ������, �����

ankle � ������� (�� ���)

the suicide � ������������

break down � ��������� ����������

evil � ����, ���

equality of opportunity � ������ �����������

to safeguard � ���������, �����������

just reward � ����������� ����������

I . Complete the sentences using the text:

1. There are still some people opposed ... .

2. Half-naked women were harnessed to draw ... .

3. Irons were fastened to the ankles of ... .

4. In the face of such evils ... .

5. Modern democratic governments make ... .

6. The state should safeguard ... .

II. Say whether these statements are true or false and if they are false, say why.

1. Adam Smith didn�t believe that wealth could be most rapidly increased and most fairly distributed.

2. There are a lot of people opposed to social control of industry.

3. The use of men, women and children by factory owners at the beginning of the 19-th century had all the earmarks of slave ownership.

4. Children had to work to fourteen hours a day in factories.

5. There was often the same food for the children that the master gave his pigs.

6. Probably no form of human slavery was ever worse that this.

7. There has not been an improving trend in public morality.

8. Modern democratic governments make their economic systems serve the best interests of their citizens.

9. All people should not have equality of opportunity.

10. The state should safeguard the health and well being of its men, women and children.

III. Answer the questions basing your answers of the text:

1. What was Smith�s opinion as a believer in the doctrine known as laissez-faire?

2. Why may it be prudent to recall the facts of conditions in the early English factories?

3. What can you say about the conditions in the early English factories?

4. What were the conditions of children�s labour?

5. What is the role of modern democratic governments on the control of modern industry?

6 Public revenue in Canada, 7 The national debt, 8 National income and distribution, 9 Taxes, 10 The enigma of production in the modern world

Personal and corporation taxes were introduced during the First World War. They were modest in proportion at the outset. The sales tax was introduced in 1920 and for some years it was the largest revenue producer. It replaces customs duties as the major revenue factor.

The personal income tax is the chief source of revenue of the Federal government. Most people concede that income is the best measure of an individual�s ability to pay. The income tax is a direct tax. It can not be shifted. It is progressive in character, which means that the rate is higher on the higher incomes. Further, it is a classic tax. The rates can be quickly changed, if the government needs more money. One defect of the income tax is of course the fact that some people who should do so, make no returns at all or make false returns on their tax sheets. It is thus necessary for the government to keep an army of officials to check on dishonesty. Corporation income taxes are also a lucrative source of income. And the big companies are taxed heavily.

Vocabulary

to get revenue � ���������� ����� �����

customs duties � ����

excise duties � �������� ���

sales taxes � ������� � �������

corporation income taxes � �������, �� ���������� � ������ ����������

succession duties � ������� �� ����� �����������

to concede � �������������, ���������

to shift � �����(��), ���������(��)

returns � ����������, ������������

dishonesty � ���������

a lucrative source of income � ������ ������� ������

I . Complete the sentences using the text:

1. A way back in 1914 there were only ... .

2. There were no sales taxes ... .

3. Personal and corporation taxes ... .

4. The sales tax was introduced in ... .

5. The personal income tax is ... .

6. One defect of the income tax is ... .

7. Corporation income taxes are also ... .

II. Say whether these statements are true or false and if they are false say why:

A way back in 1914 there were already a lot of sources of federal revenue.

There were sales taxes, corporation income taxes, income taxes before the First World War.

The sales tax was introduced during the First World War.

The sales tax is the chief source of revenue of the Federal government.

The income tax is a classic tax.

All big companies are levied heavily. III. Answer the questions, basing your answers on the text:

1. What are all governments busy with in Canada?

2. How many sources of federal revenue were there in 1914?

3. When were personal and corporation taxes introduced?

4. When was the sales tax introduced and how large was it?

5. Which is the chief source of revenue of the Federal government?

6. What tax can be called direct and elastic?

7. What is the defect of the income tax?

8. How do we call the tax levied on the big companies?

7 The national debt

What is a national debt? It is the money borrowed by the government of the country. From whom is it borrowed? It is borrowed from insurance companies, from trust companies and banks from large corporations which often invest their surplus funds in government bonds and from individuals.

If governments always had surpluses year by year in their financing, there would be no national debts. The national debt of a country is made up of the sum total of all deficits it has experienced in the past, less any surpluses it has enjoyed. Sometimes confusion arises over the terms gross debt and net debt. The gross national debt is the total obligations of the government. The net debt is obtained by subtracting the amount of the government�s assets from the gross debt.

Vocabulary

government expenditures � ������ �������

a fiscal year � ��������� ��

current revenues � ������ ��������

emergency � ������������ ����

debt � ����, �������������

to borrow � �������� ����� � ������

insurance company � �������� �������

trust company � �������� �������

surplus funds � ��������� �����

government bonds � ������ ��������

gross debt � ������� ����

net debt � ������ ����

to obtain � ����������, ��������, ���������

to subtract � �������

government assets � ������ ������

I. Complete the sentences using the text:

1. In theory, government expenditures ... .

2. Between 1930 and 1950 , the united States ... .

3. A national debt is the money borrowed by the government of the country from ... .

4. The national debt of a country is made up of ... .

5. The gross national debt is ... .

6. The net debt is obtained by ... .

II. Say whether these statements are true or false and if they are false, say why.

1. Government expenditures in a fiscal year are made out of current revenues from taxation for that year.

2. In practice governments spend more than they take in because of war or national emergency.

3. National debt is the money borrowed by the government of the country.

4. This money is borrowed only from large corporations.

5. If governments had surpluses year by year in their financing, there would be no national debts.

6. The national debt of a country is made up of the sum total of some deficits it has experienced in the past.

7. The gross national debt is the total obligations of the government.

8. The net debt is obtained by adding the amount of the government�s assets to the gross debt.

III. Answer the questions, basing your answers on the text.

1. What should government expenditures in a fiscal year be made out of?

2. Is it normal to have an unbalanced budget?

3. What is a national debt?

4. What is the national debt of a country made up of?

5. What is the gross national debt?

6. What is the net debt obtained by?

8 National income and distribution

Now the process of sharing this national income, among those who helped to produce it, is called distribution. A large share goes to the workers in the form of wages or salaries. But there are other groups who receive their rewards for their part in the productive prices. There are the owners of natural resources who receive their rents; there are the capitalists who get interesting their bonds or mortgages; and there are the entrepreneurs or operators of enterprises whose reward is in the form of profits.

Total disposable income is not exactly the same as total national income. Most of the disposable income is used in the purchase of goods and services. But part of it represents personal savings. People cannot dispose of the full amount that they have earned by their labour or by their investments as they may wish, because of heavy direct taxes, chiefly income taxes. On the other hand, some families are able to add to their disposable incomes by receiving pensions or family allowances from the government. To sum up, disposable income refers to the total income that people are actually free to spend or save as they choose.

Vocabulary

gross national product � ������� ������������ �������

to define � ���������, �������������

to estimate � ���������

deductions � �����������

depreciation � ������������, �����������

remainder � �������

to share � ��������

distribution � �������, �������

national income � ������������ �����

wages � �������� ����� ��������

salary � �������� ����� ���������� ( ����� )

productive prices � ��������� ����

owners of natural resources � �������� ��������� �������

rent � �����, ������, �����

mortgage � �������

entrepreneur � ���������

enterprise � ����������

profit � ��������

total disposable income � ��������� �����, ���� ����� ��������������

to dispose of � ��������������

allowances from the government � ����� �� �������, �� ��� ������ �� �����

to spend money � ��������� �����

to save money � ������������ �����

to choose � ��������

I. Complete the sentences using the text:

1. The gross national product is usually defined as ... .

2. Now the process of sharing this national income ... .

3. There are the owners of natural resources who ... .

4. Total disposable income is ... .

5. Disposable income refers to ... .

II. Say whether these statements are true or false and if they are false, say why.

1. The gross national product is usually defined as the estimated dollar value of all goods and services produced within a counting in a given year.

2. Distribution is the process of sharing the national income among those who helped to produce it.

3. There are many groups of people who receive their rewards for their part in the productive prices.

4. Total disposable income is the same as total national income.

5. Some families are able to add to their disposable incomes by receiving pensions or family allowances from the government.

6. Disposable income is concerned with the total income that people spend or save as they choose.

III. Answer the questions, basing your answers on the text:

1. How is the gross national product defined?

2. What deductions are made from this gross national product?

3. What is distribution?

4. What rewards do people receive depending on their part in the productive process?

5. Where is the disposable income used?

6. What is disposable income?

9 Taxes

There are the following theories in accordance with which taxes may be levied:

a/ There is the benefit theory. According to it, the more benefit you get from the government, the more you ought to pay. Those are in various ways dependent, such as detectives or those who go to free clinics, should pay the greater part of the taxes. This theory is, of course, largely impractical.

b/ There is the equal-distribution theory. Each person should pay the same tax, say a 3 per cent rate. If a person had an income of $ 1,200 a year, he would pay $ 36; if his income were $ 12,000 a year, he would pay $ 360. The trouble here is that the person who pays the $ 36 could probably ill afford it, whereas the person who paid the $ 360 scarcely miss it out of his large income. Proportional taxes do not distribute the burden of taxation equitably.

c/ There is the ability theory. Adam Smith expressed this theory nearly two centuries ago: �The subject of every state ought to contribute toward the support of the government as nearly as possible in proportion to their respective abilities, that is, in proportion to the revenue which they respectively enjoy under the protection of the state�.

In general, there are two kinds of taxes, direct and indirect. The property taxes are direct, as also income taxes and inheritance taxes. A direct tax is one that cannot be shifted from the person upon whom it is levied to somebody else. An indirect tax is one which may be, and usually is, shifted from the persons upon whom it is levied. The sales tax is an indirect tax. It is levied, not directly on the individual, but on goods which the individual purchases. And some people are not aware that they are paying it. The excise tax on wines, spirits, and cigarettes is a �hidden� or indirect tax. Governments enjoy large revenues from the liquor business. Indeed those individuals who purchase liquor are paying more to the government in taxes than to the distilleries who manufacture it.

Governments often prefer to raise money by indirect taxes because they are less noticeable and seem less burdensome. Indirect taxes are sometimes levied on luxury goods on the theory that those who can afford these luxuries should pay for the privilege of enjoying them.

The income tax, it has been said previously, is a direct tax. It is progressive in character, which means that the rate is higher on the higher incomes. Further, it is an elastic tax. The rates can be quickly changed if the government needs more money. One defect of the income tax is, of course, the fact that some people make no returns at all or make false returns on their tax sheet. It is this necessary for the government to keep a small army of officials to check on dishonesty.

Corporation income taxes are also a lucrative source of income and the big companies are likewise taxed to such an extent that as a rule the shareholders get less of the profits made by them than do the public treasures.

Vocabulary

a compulsory charge � ���������� �����

to impose � ��������������, ��������� (���������, ����� � �. �.)

to levy � ������� �������

benefit theory � ����� ����

equal-distribution theory � ����� ������ ��������

ill afford � ��������� ��������

burden � �����

ability theory � ����� ����������� (�������)

respective � ���������

to protect � ��������

to be aware � ������������, �����

excise tax � �������� ���

to raise money � ��������� �����

luxury goods � ������� ������

previously � �����

treasure � �����.

I. Complete the sentences using the text:

1. A tax has been defined as � .

2. According to the benefit theory � .

3. Proportional taxes do not � .

4. Adam Smith expressed that the subject of every state � .

5. A direct tax is � .

6. An indirect tax is � .

7. The income tax is progressive in character, which means � .

8. One defect of the income tax is � .

II. Answer the questions, basing your answers on the text:

1. What is a tax?

2. What does the benefit theory say?

3. What does the equal-distribution theory say?

4. What does the ability theory say?

5. What kinds of taxes are there?

6. What is a direct tax?

7. What is an indirect tax?

III. Say whether these statements are true or false and if they are false, say why.

1. A tax has been defined as a compulsory charge imposed upon persons and businesses for purposes.

2. There are three theories in accordance with which taxes may be levied.

3. The benefit theory is rather practical.

4. There are two kinds of taxes, direct and indirect.

5. The sales tax is levied on goods, which the individual purchases.

6. Governments prefer to raise money by direct taxes.

7. The income tax is progressive and elastic.

8. Corporation income taxes are also a lucrative source of income.

10 The enigma of production in the modern world

But in most parts of the modern world, people have little or no idea of how to make the dozens of different things they use in the course of a single day. Nor, if they could not buy them at a store, would they know how to set about getting them. From where come the cups and saucers and knives and forks and spoons that we use for breakfast? Do we still get sugar from Cuba or have we some other source of supply? Do our stores get their oranges from Greece or Spain, Egypt or Algeria or some from each of these regions? Do we continue to get our coffee from Brazil? And, if so, why does its price fluctuate so much?

In the world of today, the relationship between work and wants is much less direct than it used to be. We spend our time making goods for sale, but we seldom use these goods for ourselves. We specialise in this modern economy and this specialisation has enabled us to enjoy things of which our grandfathers never dreamed. Old people saw the first automobiles, aeroplanes, telephones at the beginning of our century. In their childhood there were no electric refrigerators, no radios, no television sets, but there were moving pictures (without sound).

But the production picture is still far being perfect in its entirety. There are many thousands haunted by the fear of the future and the unemployment it may bring. There are still more thousands living in unsanitary, overcrowded houses and suffering from an enormous amount of misery and disease.

Need we experience all this poverty? Are we producing as efficiently as possible? Are we producing the things that people really ought to have? Is specialisation always a good method of production? Should we allow foreign countries produce some things for us or should we purchase only those things manufactured in our own country? Should some industries have a monopoly in their productive fields? Should a government plan production for us or can it be safely left to private enterprise? These are some of questions for which economists should be seeking to find the answers.

Vocabulary

enigma � �������

to set about � ���������� �� ������

to fluctuate � ����������

perfect �����������

entirety �������

to haunt � ������������

fear � �����

unemployment � ���������

to suffer � ���������

enormous � ����������

misery � ����, �����

disease � �������

poverty � ������

to seek � ������

I. Complete the sentences using the text:

1. There was a time when each family produced for itself � .

2. But in most parts of the world, people have � .

3. We specialise in this modern economy and this � .

4. There are still more thousands living in � .

5. Should we allow foreign countries produce � .

6. Should a government plan � .

II . Say whether these statements are true or false and if they are false, say why.

1. There was time when there was enough to eat as each family produced for itself most of the things it needed.

2. People have little idea of how to make the dozens of different things they use in the course of a single day.

3. We spend our time making goods for ourselves.

4. Old people saw electric refrigerators, radio, television sets in their childhood.

5. There are still a lot of people living in sanitary overcrowded houses.

6. There are a lot of questions for which economists should be seeking to find the answers.

III. Answer the questions, basing your answers on the text:

1. Was there a time when people produced most of the things they needed for every day life?

2. Do people h

3. A ve any idea of how to make different things they use in the course of a single day?

4. What can you say about the relationship between work and wants in the world of today?

5. Why are there many thousands haunted by the fear of the future?

6. What questions should economists be seeking to find the answers?

11 Market, 12 Monopolies, 13 Elasticity of supply and demand, 14 Utility, 15 Price

In a free market, competition takes place among sellers of the same commodity, and among those who wish to buy that commodity. Such competition influences the prices prevailing in the market. Prices inevitably fluctuate, and such fluctuations are also affected by current supply and demand.

Whenever people who are willing to sell a commodity contact people who are willing to buy it, a market for that commodity is created. Buyers and sellers may meet in person, or they may communicate in some other way: by telephone or through their agents. In a perfect market, communications are easy, buyers and sellers are numerous and competition is completely free. In a perfect market there can be only one price for any given commodity: the lowest price which sellers will accept and the highest which consumers will pay. There are, however, no really perfect markets, and each commodity market is subject to special conditions. It can be said, however, that the price ruling in a market indicates the point where supply and demand meet.

Vocabulary

extension � ���������, �����������

ancient � �����, ������

various commodities � ��������� ������

fixed geographical location � �������� ���������� ���������

a set of conditions � ���� ����

to permit � ���������

to prevail � ����������

inevitably � ��������

in person � ��������

a perfect market � ���������� �����

I. Complete the sentences using the text.

1. The term �market is an � .

2. Markets such as the world sugar market the gold market and the cotton market do not � .

3. In a free market competition takes place � .

4. Buyers and sellers may meet � .

5. In a perfect market there can be only � .

6. The price ruling in a market indicates � .

II. Say whether these statements are true or false and if they are false, say why.

1. The term market is an extension of the ancient idea of a place where people gather to buy and sell goods.

2. Today the world sugar market has a fixed geographical location.

3. In a free market competition takes place among sellers of the same community.

4. Buyers and sellers can communicate only by telephone.

5. In a perfect market competition is completely free.

6. There are no really perfect markets.

7. The price ruling in a market indicates the point where supply and demand meet.

III. Answer the questions, basing your answers on the text:

1. What does the term �market� mean?

2. How can you define the present world sugar market the gold market and the cotton market?

3. In what market does competition influence the prices?

4. When is a market created?

5. In what way can buyers and sellers communicate?

6. How can you define a perfect market?

7. What does the price ruling in a market indicate?

12 Monopolies

State planning and central control of the economy often mean that a state government has the monopoly of important goods and services. Some countries have state monopolies in basic commodities like steel and transport, while other countries have monopolies in such comparatively unimportant commodities as matches. Most national authorities monopolise the postal services within their borders.

A different kind of monopoly arises when a country, through geographical and geological circumstances, has control over major natural resources or important services, as for example with Canadian nickel and the Egyptian ownership of the Sues Canal. Such monopolies can be called natural monopolies.

They are very different from legal monopolies, where the law of a country permits certain producers, authors and inventors a full monopoly over the sale of their own products.

These three types of monopoly are distinct from the sole trading opportunities which take place because certain companies have obtained complete control over particular commodities. This action is often called �cornering the market� and is illegal in many countries. In the USA anti-trust laws operate to restrict such activities, while in Britain the Monopolies Commission examines all special arrangements and mergers which might lead to undesirable monopolies.

Vocabulary

unrestricted � �����������

cause � ������� (����������)

steel � ����� (�����)

matches � ������

national authorities � ������� ������ �����

within their borders � � ����� ���� �������

geographical and geological circumstances � ��������� �� �������� ���������

to corner � ����������� ����� � ������������� �����

market corner � �������� ������

special arrangements and mergers � ������� �ᒺ������.

I. Complete the sentences using the text:

1. A situation when there may only be one seller or a very limited number of sellers is called � .

2. It is possible to distinguish in practice � .

3. State planning and central control of the economy mean � .

4. Most national authorities monopolise � .

5. A geographical or geological monopoly arises when a � .

6. Three types of monopoly are distinct from � .

7. Cornering the market is � .

II. Say whether these statements are true or false and if they are false, say why.

1. Free competition and large numbers of sellers are always available in the real world.

2. A �monopoly� is when there is only one seller or a very limited number of sellers.

3. It is possible to distinguish two kinds of monopoly.

4. State planning means that a state government has the monopoly of important goods and services.

5. Natural monopoly arises when a country, through geographical and geological circumstances has control over major natural resources or important services.

6. Obtaining complete control over particular commodities by certain companies is called �cornering the market�.

7. �Cornering the market� is illegal in many countries.

III. Answer the questions, basing your answers on the text:

1. What are not always available in the real world?

2. What is a monopoly?

3. What are the first three kinds of monopoly?

4. What examples of important state monopolies are given?

5. What are Canadian nickel and the Suez Canal examples of?

6. What are certain inventors permitted by law to have?

7. What happens when certain companies obtain complete control over particular commodities?

8. What do the Americans call their anti-monopoly laws?

9. What does Britain use to restrict special arrangements.

13 Elasticity of supply and demand

People very seldom have everything they want. Usually we have to decide carefully how we spend out income. When we exercise our choice, we do so according to our personal scale of preferences. In this scale of preferences essential commodities come first (food, clothing, shelter, medical expenses etc.), then the kind of luxuries which help us to be comfortable (telephone, special furniture, insurance etc.), and finally those non-essentials which give us personal pleasure (holidays, parties, visits to theatres or concerts, chocolates etc.). They may all seem important but their true importance can be measured by deciding which we are prepared to live without. Our decisions indicate our scale of preferences and therefore our priorities.

Elasticity of demand is a measure of the change in the quantity of a good, in response to demand. The change in demand results from a change in price. Demand is inelastic when a good is regarded as a basic necessity, but particularly elastic for non-essential commodities. Accordingly, we buy basic necessities even if the prices rise steeply, but we buy other things only when they are relatively cheap.

Vocabulary

elasticity � �����������

to be related to � �����������

willingness � ���������

a means of exchange � ���� �����

to spend out income ���������� �����

to exercise one�s choice � ���������� ����

scale of preferences � ����� �������

personal pleasure � �������� ��������

priority � ��������

in response to � � ������� ��

to regard � �������

accordingly � ����� �����

to rise steeply � ����� ��������

relatively cheap � ������� ����� .

I. Complete the sentences using the text:

1. Economists define �demand� as a � .

2. Money has no value in itself, but � .

3. We spend out income according to our � .

4. Elasticity of demand is � .

5. Demand is inelastic when � .

6. We buy basic necessities even if � .

II. Answer the questions, basing your answers on the text:

1. What is elasticity of supply response to?

What is the definition of demand?

How is demand indicated?

What is money?

What do we do when we exercise our choice?

What comes second in our scale of preferences?

What is our third priority?

What is elasticity of demand?

When is demand inelastic? III. Say whether these statements are true or false and if they are false, say why.

1. When people offer money for particular goods, they indicate that a demand exists.

2. Money is usually valuable in itself.

3. People do not usually have everything they want.

4. Basic needs come before luxuries.

5. Our decisions on how to use our money show what we need most and what we are willing to do without.

6. Demand for essential commodities is always elastic.

14 Utility

A point in time comes when the financial sacrifice is greater than the satisfaction of eating bananas. The consumer will therefore stop buying bananas at the current price. The bananas are unchanged; they are no better or worse than before. Their marginal utility to the consumer has, however, changed. If the price had been higher, he might have bought fewer bananas; if the price had been lower, he might have bought more.

It is clear from this argument that the nature of a commodity remains the same, but its utility changes. This change indicates that a special relationship exists between goods and services on the one hand, and a consumer and his money on the other hand. The consumer�s desire for a commodity tends to diminish as he buys more units of that commodity. Economists call this tendency the Law of Diminishing Marginal Utility.

Vocabulary

to bargain over prices � ���������� ��� ����

in advance � �������

to satisfy � ������������

satisfaction � �����������

to lose money � �������� �����

successive purchase � ����� �������

the financial sacrifice � �������� ������

the current price � ������� ����

marginal utility � �������� ���������

to diminish � ������������

I. Complete the sentences using the text:

1. It is possible for an individual to bargain � .

2. A consumer will go on buying bananas for � .

3. If the price had been higher, he � .

4. The nature of a commodity remains the same, but � .

5. The tendency when the consumer�s desire for a commodity tends to diminish as he buys more units of that commodity is called �

II. Answer the questions, basing your answers on the text:

1. Prices are fixed in most economic systems, but what is possible in some systems?

2. What is the individual generally unable to change?

3. Under what conditions will a consumer go on buying a commodity?

4. What does the consumer show by buying more bananas?

5. What happens with each successive purchase?

6. At what point will the consumer stop buying the commodity at the current price?

7. What remains unchanged with each purchase?

8. What has changed when this point is reached?

9. Under what conditions might he have bought more?

10. What does a consumer�s desire tend to do?

III. Say whether these statements are true or false and if they are false, say why.

1. In the majority of systems prices are fixed but in the minority it is possible to bargain.

2. It is generally possible for the individual to change the prices of the commodities he wants.

3. We know that a consumer�s satisfaction is greater than his financial sacrifice if he goes on buying a commodity at the current price.

4. When a consumer becomes dissatisfied at paying the current price, he pays less.

5. The financial sacrifice becomes too great when the quality of the commodity gets worse.

6. The consumer will probably buy more if the price falls.

7. If the prices rise, the consumer will probably buy less.

8. If the price remains the same, the consumer will reach a point when his sacrifice is greater than satisfaction.

9. The utility of a product stays the same, but its nature changes.

10. The Law of Diminishing Marginal Utility is the name which economists give to the tendency for a consumer�s desire to diminish as he buys more units.

15 Price

Price may refer either to one unit of a commodity (unit price) or to the amount of money payable for a specified number of units or for something where units are not applicable, e. g., for five tons of coal (total price) or for a specific painting by Rembrandt.

Prices perform two important economic functions: they ration scarce resources, and they motivate production. As a general rule, the more scare something is, the higher its price will be, and the fewer people will want to buy it. Economists describe that as the rationing effect of prices. In other words, since there is not enough of everything to go around, in market system goods and services are allocated, or distributed, based on their price.

Price increases and decreases also send messages to suppliers and potential suppliers of goods and services. As prices rise, the increase serves to attract additional producers. Similarly, price decreases drive producers out of the market. In this way prices encourage producers to increase or decrease their level of output. Economists refer to this as the production-motivating function of prices.

Prices may be either free to respond to changes in supply and demand or controlled by the government or some other (usually large) organisations.

Vocabulary

securities � ���� ������

application � ������������, ��������

interest rate � ��������� ������

exchange rate � ���� �����

to ration � ���������

scarce resources � ����� �������

scarce � ����������

to go around � ����������� �������

to drive out � ���������

to encourage producers � ��������� ���������

level of output � ����� �������.

I. Complete the sentences using the text:

1. In economics the term �price� denotes � .

2. Interest rate is � .

3. Exchange rate is � .

4. Prices perform � .

5. The production � motivating function of prices means �

6. Prices may be either free � .

II. Answer the questions, basing your answers on the text:

What does the term �price� denote in economics?

How is the price normally restricted in commercial practice?

What is interest rate?

What is exchange rate?

What may the price refer to?

What two important functions do prices perform?

What can you say about the rationing effect of prices?

What do you know about the production - motivating function of prices?

May prices be free to respond to changes in supply and demand? III. Say whether these statements are true or false and if they are false, say why.

1. In economics the term �price� denotes the consideration in cash for the transfer of something valuable.

2. In commercial practice it is normally restricted to the amount of money payable for goods, services and securities.

3. Interest rate is the price paid for borrowing money for a period of time.

4. Exchange rate is the price of one currency in terms of another.

5. Price may refer only to one unit of commodity.

6. Supply and demand determine prices in a market economy.

7. Prices perform many important functions.

8. In a market economy goods and services are allocated or distributed based on their prices.

9. Price decreases drive producers out of the market.

10. Prices are always controlled by the government.

16 Labour and capital, 17 Money, 18 Banks, 19 Aggregate supply, 20 Aggregate supply

The capital which people provide to help new businesses is an accumulation of previous surpluses on previous business activities. In this way the past is used to finance the future. Such capital is accumulated by a deliberate policy of saving surpluses. This policy may be personal and individual, or it may be public and collective. As such, it is common to both the capitalistic and communistic systems. In both systems, a certain part of the profits is �ploughed back� into the system in order to create capital.

In general terms, capital can be defined as (1) a factor of production (for example, machinery or cash); (2) the assets possessed by a person, a company or a nation. Land, houses and shares in a business are capital. In terms of the state, all railways, docks, roads, airports and state funds of money are part of the nation�s capital.

Vocabulary

employer � ������������

at a negotiated rate � �� �������� ����� (�����)

surplus � ��������

to accumulate � ������������

employee � ���������

accommodation � ���������

machinery � ������� ������������

to bear the risk � ����������

to justify � �������������

to earn profits � ��������� ��������

previous surpluses � �������� ��������

a deliberate policy � ���������� �������

�ploughed back� � ����������� �����.

I. Complete the sentences using the text:

1. Labour is any � .

2. Profit is the � .

3. Most businesses need capital in order to � .

4. The employers and the providers of capital bear � .

5. The capital which people provide to help new businesses is an ..

6. A deliberate policy of saving surpluses may be � .

7. Capital can be defines as � .

II. Answer the questions, basing your answers on the text

1. What is profit?

2. At what point does an employer obtain his surplus?

3. Who may he be required to share it with?

4. What do most businesses need?

5. Why is there always an element of risk in providing capital?

6. Who bears the risk?

7. What justifies the risk?

8. How is the past used to finance the future?

9. What do people plough back into the system?

10. Why is it ploughed back?

11. What examples of private capital are given?

12. What examples of public capital are given?

III. Say whether these statements are true or false and if they are false, say why.

1. Labour is work performed by an employer at a negotiated rate.

2. The expenses of a business are part of its surplus.

3. Usually new businesses need capital.

4. Because businesses may not always be successful, there is always risk involved in financing them.

5. Employers and employees share the risk in financing new enterprises.

6. The surpluses, which people provide to help new businesses arise from previous economic activities.

7. Communistic economies also have policies of saving surpluses.

8. A nation�s capital in economic terms is the city where the government is situated.

17 Money

According to their convertibility, currencies can be grouped into three general categories: �convertible currencies�, �semi-convertible currencies�, and �non-convertible currencies�. Convertible currencies are those which can be freely bought and sold in the foreign exchange markets, at the rates of exchange prevailing at the time of purchase or sale. Semi-convertible currencies can be bought and sold only through the local central bank, at predetermined rates of exchange. A large number of third-world currencies fall into this category. Transactions are limited to commercial deals. Non-convertible currencies are those whose circulation is restricted by the local monetary authorities. The rates of exchange are artificially pegged, usually at a level much higher than the rates prevailing on the black market, or parallel market, which inevitably develops. Most Eastern European countries had non-convertible currencies.

In practice, there are three main convertible currency areas: the U.S. area, which comprises essentially the U.S. and Canadian dollars; the European area, with the currencies of Western Europe; and the Asian area, with the Japanese yen and the Hong Kong, Malaysian, and Singapore dollars. The governments of these countries allow unregulated purchases and sales, and the amounts of money exchanged in the foreign exchange markets are very large.

The world�s major currency is the U.S. dollar, followed by the pound sterling, the D-mark, and the Japanese yen. The importance of the U.S. dollar stems from a number of factors, some domestic and some international: the United States has the world�s largest capital market, and there are more dollars in the world than all other major currencies put together. Invoicing for raw materials and commodities, especially oil, gas, and wheat, is in U.S. dollars. It is also interesting to note that the dollar is by far the largest component of the foreign currency reserves held by the world�s major central banks (reserve currency).

Vocabulary

in economic sense � � ��������� ����� ����

convertibility � ��������������

foreign exchange market � ����� ����� ������

to predetermine � �����������

commercial deal � ���������� �����

to be artificially pegged � ������ �����������

to comprise � ������, ����������

to stem � ���������

invoicing � ������������

�. Complete the sentences using the text:

1. The term �currency� is applied to � .

2. According to their convertibility, currencies can be grouped into.

3. Convertible currencies are those � .

4. Semi-convertible currencies can be � .

5. Non-convertible currencies are those� .

6. In practice, there are three main convertible currency areas � .

7. The world�s major currency is � .

II. Answer these questions, basing your answers on the text:

1. What is the term �currency�, in its economic sense, applied to?

2. What three general categories can currencies be grouped into?

3. What are convertible currencies?

4. How can semi-convertible currencies be bought and sold?

5. What currency falls into this category?

6. What are non-convertible currencies?

7. What countries have non-convertible currencies?

8. In practice what three main convertible currency areas are there?

9. What is the world�s major currency?

10. What can you say about the importance of the U.S. dollar?

III. Say whether these statements are true or false and if they are false, say why.

1. The term �currency� in its general economic sense is applied to the money of a particular country.

2. According to their convertibility, currencies can be grouped into three general categories: convertible, semi-convertible and non-convertible currencies.

3. Convertible currencies can be freely bought and sold in the foreign exchange markets.

4. Most European countries have non-convertible currencies.

5. In practice, there are three main convertible currency areas.

6. The world�s major currency is the U.S. dollar.

7. The United States has the world�s largest capital market.

8. The term �currency� sometimes refers to paper money only.

9. It is interesting to note that the dollar is by the largest component of the foreign currency reserves held by the world�s major central banks.

18 Banks

1. Central banks are responsible for an adequate supply of legal tender, i. e. of banknotes and coins that have to be accepted in settlement of debts. Usually, the central bank is the sole note-issuing bank in a particular country. The minting of coins in frequently the responsibility of a separate institution under the control of a central government department (e.g., the Royal Mint in Great Britain).

2. Central banks are bankers� banks, i.e. they perform certain tasks for commercial and specialised banks, just as these banks perform services for their own clients. Commercial banks keep accounts with the central bank. These accounts may be used to settle the net positions resulting from the clearing of cheques and credit transfers. Moreover, the commercial banks borrow directly or indirectly from the central bank, especially if funds are not available from other sources, the central bank acting as a lender of last resort. In addition, central banks are frequently charged with supervising and regulating the banking system of the country in which they operate.

3. A central bank also acts as a banker to its government, typically managing the national debt, handling or superintending the issue of government stocks and Treasury bills, making, shorter advances to the government, providing advice on financial matters, etc.

4. More importantly, central banks are concerned with the implementation of monetary policies. They regulate a country�s money supply by open-markets operations, by calling for special deposits (U.S.: legal reserves), by influencing interest rates, and by operating direct controls on bank lending. But they are also active on the external front, intervening in the foreign exchange markets to control the rates of exchange, and generally managing the external aspects of monetary policy, such as exchange controls, foreign exchange reserves (including Special Drawing Rights), etc.

In performing these tasks, central banks in different countries enjoy different degrees of autonomy from their governments. The Bank of England, for instance, is closely controlled by the Treasury, which since 1946 has had statutory powers to give directions to it. The Federal Reserve System of the United States, on the other hand, is able to steer a much more independent course.

Vocabulary

a wide range of powers � ������ ����� �����������

to be responsible for � ���� ������������ ��

legal tender � �������� �������� ����

settlement � ��������

to issue � ���������

clearing � ���������� ����������

last resort � ������ ���������

to be charged with supervising � ������ ����� �������

to handle � ��������, ����������

to superintend � ���������, ���������, ���������

to provide advice � �������� ������

implementation � ���������, �������

money supply � ������ �������

external � �������

to interfere � ����������

for instance � ���������

to steer � �����, ����������, ��������

independent course � ���������� ����

�. Complete the sentences using the text:

1. Every country needs a central institution with � .

2. Central banks are responsible for � .

3. Central banks perform certain tasks for � .

4. A central bank also acts as a banker to � .

5. Central banks regulate a country's money supply by � .

6. The bank of England is closely controlled by � .

7. The Federal Reserve System of the United States is able to .

II. Answer these questions, basing your answers on the text:

1. What does every country need to look after its monetary system?

2. What central banks do you know?

3. Central banks are responsible for an adequate supply of legal tender, aren�t they?

4. Are central banks bankers �or producers� banks?

5. Where do the commercial banks borrow from?

6. Does a central bank also act as a banker to its government?

7. What do central banks regulate?

8. Central banks in different countries enjoy different degrees of autonomy from their governments, don�t they?

III. Say whether these statements are true or false and if they are false, say why.

1. Usually, the central bank is the sole note - issuing bank in a particular country.

2. The minting of coins is exclusively the responsibility of a separate bank.

3. Central banks perform certain tasks for commercial and specialised banks.

4. These accounts may be used to settle the net positions resulting from the clearing of cheques and credit transfers.

5. The commercial banks borrow directly or indirectly from each other.

6. A central bank typically manages the national debt.

7. Central banks are not concerned with the implementation of monetary policies.

8. A central bank regulates a country's money supply.

19 Aggregate supply

A number of factors affect an economy�s aggregate supply. Two of these are the quantity of resources used in production and the quality of these resources. For example, an economy must have an adequate supply of natural resources and capital goods to be productive.

It also needs a skilled and highly motivated labour force. A third factor affecting aggregate supply is the efficiency with which the resources are combined. If they are combined in a productive way, aggregate supply will increase.

In order to measure aggregate supply, statistics must be kept. To keep with this task economists use national income accounting � a system of statistics that keeps track of production, consumption; saving and investment in the economy. National income accounting also makes it possible to trace long-run trends in the economy and to form new public policies to improve the economy.

The most important economic statistics kept in the national income accounts is Gross National Product (GNP). This is the dollar measure of the total amount of final goods and services produced in a year. It is one of the most important and comprehensive statistics kept on the economy�s performance.

Vocabulary

aggregate supply � ������� ����������

a skilled labour force � ����������� ������ ����

efficiency � 䳺����, �����������

track � ������, ����

to trace � ������������

Gross National product (GNP) � ������� ������������ �������

comprehensive � ��������, ��������.

�. Complete the sentences using the text:

1. Aggregate supply is the total amount of goods and � .

2. There are two factors that affect an economy's aggregate supply, they are � .

3. Aggregate supply needs a skilled and � .

4. A third factor affecting aggregate supply is �

5. The most important economic statistics kept in the national income accounts is � .

6. Gross National product is � .

II. Answer these questions, basing your answers on the text:

1. What do economists study?

2. What does the term �aggregate supply� mean?

3. How many factors affect an economy�s aggregate supply? What are they?

4. When will aggregate supply increase?

5. What must be kept in order to measure aggregate supply?

6. What is national income accounting?

7. What helps to trace long-run trends in the economy and form new public policies? What is it aimed at?

8. Gross National Product is the dollar measure of the total amount of final goods and services produced in a year, isn�t it?

III. Say whether these statements are true or false and if they are false, say why.

1. Economists study only the amount of goods and services brought to market by a single producer.

2. Aggregate supply is the total amount of goods and services produced by the economy in a given period.

3. There are three factors that affect an economy's aggregate supply.

4. If three factors are combined in a productive way, aggregate supply will decrease.

5. Economists use national income accounting to measure aggregate supply.

6. National income accounting helps to trace long-run trends in the economy.

7. National income accounting encourages the economic improvement.

8. Gross National Product is the dollar measure of the total amount of final goods and services produced in a year.

20 Aggregate supply

In general, businesses would like to produce at full capacity and sell all their output at high prices. However, in certain circumstances, prices and spending levels may be depresses so businesses might find they have excess capacity. Under other conditions, such as during a wartime boom, factories may be operating at capacity as businesses scramble to produce to meet all their orders.

Aggregate supply depends on the price level that businesses can charge as well as on the economy�s capacity or potential output. But what determines potential output? Potential output is determined by the availability of productive inputs (labour and capital being the most important) and the efficiency with which these inputs are combined (that is, the technology of the society).

National output and the overall price level are determined by the twin blades of the scissors of aggregate supply and demand.

Aggregate supply curve shows the relationship between the output firms would willingly supply and the aggregate price level, other things equal. The AS curve tends to be vertical at potential output in the very long run but may be relatively flat in the short run.

Vocabulary

price level � ����� ����

the productive capacity of the economy � ��������� ��������� ��������

the level of the costs � ����� �������

in certain circumstances � �� ������ ��������

to depress � ����������, ���������

excess capacity � ������� ���������

wartime boom � �����������, ��������� �����

to scramble � ��������

productive inputs � ��������� �������

twin blades of the scissors � ������ � ����� ������

aggregate supply curve � ����� ������� ����������

flat � �����, �������

�. Complete the sentences using the text:

1. Aggregate supply refers to � .

2. Aggregate supply depends upon � .

3. In certain circumstances, prices and spending levels may be � .

4. Potential output is determined by � .

5. National output and the overall price level are determined by �.

6. Aggregate supply curve shows � .

II. Answer these questions, basing your answers on the text:

1. What does aggregate supply refer to?

2. What does aggregate supply depend upon?

3. In general, businesses would like to produce at full capacity and sell their output at high prices, wouldn�t they?

4. What is potential output determined by?

5. What does aggregate supply curve show?

6. What is the AS curve in the short run?

7. What is the AS curve in the long run?

III. Say whether these statements are true or false and if they are false, say why.

1. Aggregate supply refers to the total value of goods and services that firms would willingly produce in a given time period.

2. Aggregate supply is a function of available inputs, technology, and the price level.

3. Businesses would like to produce at full capacity and sell their output at high prices.

4. Aggregate supply depends primarily upon potential output.

5. Potential output is determined by the efficiency of labour only.

6. National output and the overall price level are determined by aggregate supply and demand.

7. In the long run AS curve is vertical and indicates that businesses will supply potential output whatever the level of prices.

8. In the short run, because of the inflexibility of rages and prices, the AS curve is upward-sloping, showing that businesses will supply more output at a higher price level.

21 GNP, 22 Aggregate demand, 23 Aggregate demand, 24 Inflation, 25 Economic growth

The most important items included in the GNP calculated under the expenditure (or flow-of-product) method are: personal consumption (durable and non-durable consumer goods and services), gross private domestic investment, government expenditure on goods and services, and net exports of goods and services. The GNP can also be calculated by adding up all types of income (such as wages, salaries, rents, profits, etc.) and depreciation (income method), or by adding up the values added by the industries composing the economy (output method).

Although the GNP is a very useful concept, its usefulness as a measure of national welfare and in international comparisons is increasingly being called into doubt by economists. The GNP has been criticised because it fails to include the value added by non-market activities (e.g., the work of housewives) and value of leisure, while, on the other hand, it does include �regrettable� � i.e., expenditure intended to remedy some evil which might never have come into existence but for activities leading to a higher GNP (e.g., treatment of occupational diseases, anti-pollution expenditure). Furthermore, the GNP fails to account for the unwanted by-products (�bads�, or externalities�, in economic jargon) of the economic process, which certainly have to be taken into account when assessing the net benefit of this process to society as a whole. The prime example is certainly pollution.

Another shortcoming is that the GNP does not allow for the wealth - creating effect of consumer durables, which are treated as consumer expenditure (and not as investment). Is this misleading practice really only due to accounting problems, or at least also to a reflection of our �throw-away� society?

To remedy some of these defects, different measures of national welfare have been developed, of which the most important are NNW (net national welfare) and indices based on social indicators (e.g., number of cars and telephones, suicides, child mortality, etc.).

Vocabulary

the total value � �������� �������

deduction � ��������, ��������, ��������

to depreciate � �����������

depreciation charge � ����� �������� �������

intermediate input � ��������

to exclude � ���������, ��������

duplication � ��������

current prices � ������ ����

constant prices � ������ ����

deflator � �������� (����������, ��������)

leisure � �������

pollution � �����������

regrettables � ��������

to remedy � �����������, ����������

externalities � ������ ���������

to assess � ��������� ����� ��� �������������

net benefit � ������ ��������

shortcoming � ����, ������

net national welfare � ������ ������������ ��������

indices � �������.

�. Complete the sentences using the text:

1. The gross national product is the total � .

2. The GNP at current prices is called � .

3. The most important items included in the GNP calculated under the expenditure method are: � .

4. The GNP fails to account for � .

5. Another shortcoming is that � .

6. To remedy some of these defects � .

II. Answer these questions, basing your answers on the text:

1. What is the definition of GNP?

2. What does �Gross� mean?

3. What does �final�mean?

4. How is the GNP at current prices called?

5. How is the GNP at constant prices called?

6. How may the real GNP be calculated?

7. What items are included in the GNP calculated under the expenditure method?

8. Why has the GNP been criticised?

9. What are the shortcomings of the GNP?

10. What different measures of national welfare have been developed to remedy these defects?

III. Say whether these statements are true or false and if they are false, say why.

1. The gross national product is the total value at current or at constant prices � of all final goods and services produced by a nation's economy in a year.

2. The GNP at current prices is called the "nominal GNP".

3. The GNP at constant prices is called the "real GNP".

4. There are two methods of calculating the GNP.

5. The GNP is a very useful concept.

6. The GNP has no shortcomings.

22 Aggregate demand

Microeconomics is the branch of economics that deals with decision-making and other behaviour by these individual units. Another branch of economics, known as macroeconomics, deals with large groups or aggregates. Because GNP deals with the output of the country as a whole, it is macroeconomic concept.

As a first step in understanding the macroeconomic we think of the economy as being made up several different parts called sectors. These sectors represent individuals, business, government and foreign markets. The sum of expenditures of these sectors is known as Aggregate Demand.

One sector of the macroeconomics is the consumer sector. The basic unit in this sector is the household, which is made up of all persons who occupy a house, apartment, or room.

A second sector is the business, or investment sector. It is made up of proprietorships, partnerships, and corporations. It is the productive sector responsible for bringing the factors of production together to produce output.

A third sector in the macroeconomics is the government, or public sector. It includes the local, state and federal levels of government.

The foreign sector is the fourth sector of the macroeconomics. It includes all consumers and producers external in the United States.

The United States, for example, exports computers, aeroplanes, and farm products to foreign buyers. It also imports a large number of different items from foreign countries. It makes no difference whether foreign buyers are governments or private investors or if purchases are made from governments or private individuals. They all are part of the foreign sector.

Vocabulary

an advanced country � ������ ��������� �����

to involve � ��������, ���������

decision - making � ��������� �����

decision making units � ��������� ���������� �������, ��� ������� ������ �������� ������.

aggregate demand � �������� �����

household � ������ ������������

It makes no difference � �� ���� ������.

�. Complete the sentences using the text:

1. Microeconomics is the branch of � .

2. Macroeconomics deals with � .

3. Macroeconomic is made up of several different parts called � .

4. Aggregate demand is � .

5. One sector of the macroeconomics is � .

6. A second sector is � .

7. A third sector in the macroeconomics is � .

8. The fourth sector includes � .

II. Answer these questions, basing your answers on the text:

1. What does microeconomics deal with?

2. Macroeconomics deals with large groups or aggregates, doesn�t it?

3. Why is GNP (Gross National Product) considered as macroeconomic concept?

4. What is known as Aggregate Demand?

5. What do the sectors of the macroeconomic represent?

6. What is the basic unit in the consumer sector of the macroeconomics?

7. What is the business or investment sector made up of?

8. Is the business sector of the economy responsible for bringing the factors of production together to produce output?

9. What does the macroeconomics government or public sector include?

10. Does the foreign sector of the macroeconomics include all consumers and producers external in the United States?

11. Does it make any difference whether foreign buyers are governments or private investors?

III. Say whether these statements are true or false and if they are false, say why.

1. Microeconomics is the branch of economics that deals with decision- making making units � individuals, businesses and governments.

2. Macroeconomics deals with large groups or aggregates.

3. Macroeconomics is made up of two sectors.

4. The household is the basic unit in macroeconomics.

5. The business sector is the productive sector responsible for bringing the factors of production together to produce output.

6. Public sector includes the government.

7. The foreign sector includes all consumers and producers internal in the United States.

8. Foreign buyers should be private investors or private individuals.

23 Aggregate demand

1. Consumption . It is determined by disposable income, which is personal income less taxes. Other factors affecting consumption are long-term trends in income, household wealth, and the aggregate price level. Aggregate demand analysis focuses on the determinants of real consumption (that is, nominal or dollar consumption divided by the price index for consumption.)

2. Investment. Investment spending includes purchases of structures and equipment and accumulation of inventories. The major determinants of investment are the level of output, the cost of capital (as determined by tax policies along with interest rates and other financial conditions), and expectations about the future. The major channel by which economic policy can affect investment is through monetary policy.

3. Government spending . A third component of aggregate demand is government spending on goods and services: purchases of goods like tanks or road-building equipment as well as the services of judges and public-school teachers. Unlike consumption and investment, this component of aggregate demand is determined directly by the government�s spending decisions.

4. Net exports. A final component of aggregate demand is net export, which equals the value of exports minus value of imports. Imports are determined by domestic income and output, by the ratio of domestic to foreign prices, and by the foreign exchange rate of the dollar. Exports (which are imports of other countries) are the mirror image of imports, determined by foreign incomes and outputs, by relative prices, and by foreign exchange rates. Net exports, then, will be determined by domestic and foreign incomes, relative prices, and exchange rates.

Vocabulary

aggregate quantity � ������� �������

long-term trend � ������������� ���������

determinant � ���������� ������, ��������

accumulation of inventories � ����������� �����

along with � ����� �

road - building equipment � ���������� ��� ���������� ����

net export � ������ �������

domestic income � �������� �����

ratio � ���������

the mirror image � ���������� �����������.

�. Complete the sentences using the text:

1. Aggregate demand is � .

2. Aggregate demand has � components.

3. Consumption is determined by � .

4. Aggregate demand analysis focuses on � .

5. Investment spending includes � .

6. Government spending is determined � .

7. Net export equals � .

8. Imports are determined by � .

9. Exports are determined by � .

II. Answer these questions, basing your answers on the text:

1. What is aggregate demand?

2. What components has aggregate demand?

3. What is consumption determined by?

4. What does aggregate demand analysis focus on?

5. What purchases does investment spending include?

6. What are the major determinants of investment?

7. Unlike consumption and investment, government spending is determined directly by the government�s spending decisions, isn�t it?

8. What is net exports?

9. What are imports determined by?

III. Say whether these statements are true or false and if they are false, say why.

1. Aggregate demand is the desired spending in all product sectors.

2. Aggregate demand has the following components: consumption, distribution, investment, and government spending.

3. Consumption is determined by disposable income, which is personal income less taxes.

4. Aggregate demand analysis focuses on the determinants of real consumption.

5. Investment spending equals the value of exports minus the value of imports.

6. The major determinants of investment are the level of output, the cost of capital and expectations about the future.

7. A third component of aggregate demand is government spending on goods and services.

8. Aggregate demand is determined directly by the government's spending decisions.

9. Exports are the mirror image of imports.

10. Net exports will be determined by domestic and foreign income, relative prices and exchange rates.

24 Inflation

To get around the problem of distortions by inflation, economists construct a price index - a statistical series that can be used to measure changes in prices over time. It is not hard to construct a price index. First of all a base year - a year that serves as the basis of comparison for all other years - is chosen.

Second a �typical� market basket of goods is selected. These are goods representative on the purchases which will be made over time. The advantage of this market basket concept is that it captures the overall trend in prices.

Lastly, the price of each item in the market is recorded and then totalled. The total represents the prices of the market basket in the base year and is assigned a value of 100 percent. The prices for each year that follows also must be recorded and totalled to find the new index number. This procedure is repeated until the price index is finished.

Price indices can be constructed for a number of different goods, while others do the same for agricultural products. Of all these measures, the consumer price index and the producer price index are especially important.

The consumer price index reports on price changes for about 400 frequently used consumer items. The 400 goods and services it uses are taken from 85 areas around the country. Some of items are surveyed in all the areas, while others are sampled in only a few.

The producer Price Index measures price changes of commodities at all stages of production. It uses a sample of 34000 commodities and has a base year.

Vocabulary

distortion � �����������, �����������

to get around � ��������, �������

to construct � ������������, ��������

the market basket of goods � ������������ �����

to capture � �����������

to total � �������� �������

to assign � ����������, �����������

the consumer price index � ������������ ������� ������

the producer price index � ������� ������ ���������

to survey � ��������, ������������

to sample � ����� ������

�. Complete the sentences using the text:

1. A major problem with GNP is that it is subject to distortions because � .

2. To get around the problem of distortions by inflation economists � .

3. The advantage of the �market basket� concept is that � .

4. The total represents the prices of the market basket in the base year and � .

5. The consumer price index reports on � .

6. The producer price index measures price changes of � .

II. Answer these questions, basing your answers on the text:

1. What is a major problem with GNP?

2. Does output grow with inflation?

3. What is a price index?

4. What is a base year and what does it serve for?

5. What is a �market basket�?

6. Can you describe the procedure of finding the price index?

7. Why are the price indices constructed?

8. What does the consumer price index mean?

9. What does the producer price index measure?

III. Say whether these statements are true or false and if they are false, say why.

1. With inflation output appears to grow from one year to the next.

2. Economists construct a price index to get around the problem of distortions by inflation.

3. It is hard to construct a price index.

4. A base year is chosen to construct a price index.

5. A "typical" market basket of goods is selected to construct a price index.

6. The price of each item in the market is recorded and then totalled to construct a price index.

7. Price indices can be also constructed for agricultural products.

8. The consumer price index and the producer price index are very important for constructing a price index.

9. The producer price index measures price changes of commodities at all stages of production.

25 Economic growth

Economic growth brings about a higher standard of living - the quality of life based on the possession of necessities and luxuries that make life easier. A major feature of a free enterprise economy is its ability to increase real per capita output enough over time to allow people to raise their standard of living.

In the end it also allows people to have more free time because they will not need to work as many days as before to earn the same income. With more free time, they can enjoy more hobbies and recreational, family, and cultural activities.

Economic growth allows government at all levels to carry out its tasks more easily.

For example, at present, the burden of national defence is heavy. This means there is less money available for social welfare and other domestic items. Economic growth helps solve domestic problems. Like most other countries of the world, our country is faced with a certain number of social problems. Poverty, lack of education, inadequate medical care, and economic insecurity all are problems with which the economy must deal. Most of these stem from economic need. A greater output of goods and services means more jobs and more income for more people. This is the root of many problems.

Economic growth depends on the ability of the economy to produce output. A number of factors are involved. Most important, however, is the quantity and the quality of the three factors of production - land, labour and capital. Their availability, and the way in which they are organised, will determine how the economy grows.

Vocabulary

to carry out � ����������

domestic problems � ������� ��������

to bring about � ����������, ���������

a standard of living � ����� �����

per capita output � ������ ����������� �� ���� ���������

recreation � �������, ���������

national defence - ����������� �������

social welfare - ��������� ��������

to face with � ���������

lack of education � ��������� �����

economic insecurity � ��������� ������������

to stem from � �������� �

�. Complete the sentences using the text:

1. Economic growth is important to � .

2. A major feature of a free enterprise economy is its ability to increase real per capita output to � .

3. A greater output of goods and services means more � .

4. Economic growth depends on � .

II. Answer these questions, basing your answers on the text:

1. What is the meaning of economic growth?

2. Does economic growth bring about a higher standard of living?

3. What characterises a free enterprise economy?

4. Do people have more free time with economic growth?

5. What could people do having more free time?

6. Does economic growth allow government to fulfil its tasks more easily?

7. What social problem is the country faced with? What is the cause of these problems?

8. What does economic growth depend on?

9. What factors are necessary for economic growth?

10. Will the factors of production determine the way of economic growth?

III. Say whether these statements are true or false and if they are false, say why.

1. Economic growth benefits a country's economy and political system.

2. Economic growth helps government carry out its work and solve domestic problems.

3. Economic growth brings about poverty, misery and disease.

4. Economic growth allows people to have more free time.

5. Economic growth helps solve domestic problems.

6. Poverty, lack of education, inadequate medical care and economic insecurity all are problems with which the economy must deal.

7. The economy growth will be determined by the way the three factors of production are organised.

26 Economic growth, 27 Economic growth, 28 Unemployment, 29 Unemployment, 30 Unemployed and employed

Economic growth represents the expansion of a nation�s production- possibility frontier (or PPF).

PPF shows the maximum amounts of production, that can be obtained by an economy, given the technological knowledge and quantity if inputs available.

Economic growth is not just an abstract concept. It is vital for the citizens of a country because economic growth, in terms of growth of output per capita, means growing real wages and rising living standards.

Economic growth usually proceeds slowly. Even the most prosperous economies only grow 2-3 per cent a year. Nevertheless economic growth rates like compound interest - a steady growth rate of 2 per cent each year will result in a significantly larger and healthier economy in only ten years.

Economists usually study economic growth over long periods of time. For example, economic historians have discovered that over the last century the average annual growth rate for the Japanese economy is less than two points larger than Great Britain�s. This small difference has resulted in Japan�s emergence as an international economic powerhouse. Meanwhile, Great Britain has fallen from its position as the world�s strongest economy to one that is struggling.

Vocabulary

the annual rate of increase � ������� ����� (�����) ���������

expansion � ����������

production-possibility frontier � ������ (���� ����������� �����������)

amounts of production � ������ �����������

vital � ������ ��������

to proceed � ����, ������

prosperous economies � ���������� ��������

the average annual growth rate � ������� ����� ����� �����.

�. Complete the sentences using the text:

1. Economic growth may be defined as � .

2. Economic growth represents � .

3. Economic growth is vital for � .

4. Economic growth usually proceeds � .

5. Economists usually study economic growth over� .

II. Answer these questions, basing your answers on the text:

1. How may economic growth be defined?

2. How is it usually measured?

3. What does economic growth represent?

4. What does production possibility frontier show?

5. Is economic growth an abstract concept?

6. Economic growth usually proceeds slowly, doesn�t it?

7. How do economists usually study economic growth?

8. What have economic historians discovered?

III. Say whether these statements are true or false and if they are false, say why.

1. Economic growth may be defined as an increase in the total output of a nation over a period of time.

2. Economic growth represents the expansion of a nation production - possibility frontier.

3. Economic growth is an abstract concept.

4. One goods measure of economic growth is real per capita GNP.

5. Economic growth usually proceeds quickly.

6. Economists usually study economic growth over long periods of time.

7. Economists have discovered that over the last century the average annual growth rate for the Japanese economy is less than two points larger than Great Britain's.

27 Economic growth

The stock of capital equipment grows when business invests in tools, machinery, buildings and facilities. In the United States investment in capital goods has been a steady 10 percent of GNP for the past three years. But during the same time period, the Japanese have invested over 16-19 percent of their GNP in capital goods. It helps explain why the Japanese economy is growing faster than the U.S. economy.

Investment can be aimed at increasing productive capacity or at research and development (R&D). R&D can be used to develop new products (product innovation) or to develop new processes to cut the cost of production and improve productivity. Both product and process innovation are important.

The U.S. spends twice as much on product innovation than on process innovation. The Japanese do just the opposite. They spend twice as much on process innovation as they do on product innovation. This may be one reason why the Japanese are beating the U.S. in the ability to develop a better mousetrap and bring that mousetrap to the market faster than we do.

The Japanese and other foreign competitors do not just build a cheaper mousetrap because they have lower labour costs. Half of American trade deficit world-wide comes from industries overseas that pay their workers more than the same industries in the U.S. pay their workers. Process innovation leads to reduced manufacturing costs which can be an important reason for increased market share and profits.

Vocabulary

a growing labour force � ��������� ������ ����

productivity � ������������� �����

previous decades � �������� ����������

capital goods � ������ �����������

the stock of capital equipment � ���� (�����) ������ �����������

to be aimed at � ���� ��������� ��

product innovation � ��������� ��������

to cut the cost of production � ������� ������� �����������

to improve productivity � ��������� �������������

mousetrap � ���������

to reduce manufacturing �osts � �������� ��������� �������

process innovation � ������ ���������.

�. Complete the sentences using the text:

1. Economic growth can occur as a result of � .

2. The stock of capital equipment grows when � .

3. Investment can be aimed at � .

4. The U.S. spends twice as much on � .

5. Process innovation leads to � .

II. Answer these questions, basing your answers on the text:

1. What can occur as a result of a growing labour force, additions to the nation�s stock of capital equipment, and improved productivity?

2. Why is the United States labour force not growing as fast as in previous decades?

3. The rate women are entering the work force is slowing, isn�t it?

4. When does the stock of capital equipment grow?

5. What helps explain why the Japanese economy is growing faster than the U.S. economy?

6. What can investment be aimed at?

7. Does the U.S. spend twice as much on product innovation or on process innovation?

8. Process innovation leads to reduced manufacturing costs, doesn�t it?

III. Say whether these statements are true or false and if they are false, say why.

1. The "baby boom" generation has already entered the work force.

2. The USA has invested over 19 per cent of GNP in capital goods for the past three years.

3. R & D can be used to develop product innovation or to develop process innovation.

4. The Japanese spend twice as much on product innovation than on process innovation.

5. The Japanese are beating the USA in the ability to develop a better product as they spend twice as much on process innovation as on product innovation.

6. Half of American trade deficit world-wide comes from industries overseas.

7. Industries overseas pay their workers less than the same industries in the USA do.

8. Reduced manufacturing costs can be an important reason for increased market share and profits.

28 Unemployment

Two measures are used to determine the success people have in finding employment, or work. The first is unemployment rate. The second is the employment rate.

The most popular measure of unemployment is the unemployment rate, which is determined by dividing the number of unemployed persons by the total number of persons in the civilian labour force.

As a statistical measure, the unemployment rate does have some limitations. For one, it does not count those people who have looked for work so long that they have become discouraged and have stopped looking. During recessions, many people become so frustrated that they simply �drop out� of the labour force. A person who does not have a job is not classified as �unemployed� if he or she did not make an effort to find a job within the past four weeks.

Another limitation is that the unemployment rate counts persons as fully employed even though they hold part-time jobs.

The employment rate is a measure of the people actually working as opposed to the number willing available to work.

To determine the employment rate the number of employed persons is divided by the total population less those people in the armed forces in such institutions as hospitals and prisons, and under the age of 16.

One advantage of this measure is that it is relatively easy to compile. Another advantage is that it includes those people who tried to find a job became discouraged, and have stopped looking for the time being. If enough people stop looking for work because they are discouraged, unemployment rate goes down. The employment rate is not affected, however, because these unemployed people already are counted as part of the population available for work.

Vocabulary

unemployment � ���������

unemployment rate � ����� ���������

employment rate � ����� ���������

limitations � ���������

to look for � ������

to become discouraged � ���������� �����

recession � ���� ���������

to become frustrated � �������� ���������

to make an effort � ��������� �������

part-time job � ��������� ������

to compile � ��������

�. Match each term in Column A with its definition in Column B:

Column A

Column B

1. Unemployment

2. Unemployment rate

3. Labour force

4. Recession

5. Employment rate

6. Employed

7. Unemployed

a. The bottom of the business cycle; a period of Law business activity and high unemployment.

b. Measure of the people actually working as opposed to the number willing and available to work.

c. Indicator of economic activity that compares the number of people in the labour force to the number looking for work; percentage of the labour force unable to find jobs.

d. Measure of the number of people registered as looking for work but without a job.

e. The number of people working or looking for work.

f. People without jobs who are looking for work.

g. People who perform any paid work, as well as those who have jobs but are absent from work because of illness, strikes or vacations.

II. Answer these questions, basing your answers on the text:

1. . What does the concept of unemployment relate to?

2. What measures are used to determine the success people have in finding work?

3. How is the unemployment rate determined?

4. What limitations does the unemployment rate have as a statistical measure?

5. Why do people �drop out� of the labour force?

6. Can a person without a job be classified as �unemployed�?

7. What persons are counted as fully employed?

8. How do we determine the employment rate?

9. What are the advantages of the employment rate as a statistical measure?

10. What happens to the rate of employment and unemployment if enough people stop looking for work?

III. Say whether these statements are true or false and if they are false, say why.

1. Unemployment is the state being out of work.

2. Three measures are used to determine the success people have in finding work.

3. The most popular measure of unemployment is the unemployment rate.

4. The unemployment rate has some limitations.

5. A person who does not have job is classified as "unemployed".

6. The employment rate is a measure of the people actually working as opposed to the number willing available to work.

7. There are two advantages of this measure.

8. The unemployment rate goes up if enough people stop looking for work.

29 Unemployment

�Seasonal unemployment� is due to the seasonal pattern of work in some industries, most markedly in tourism, agriculture, and construction. It is extremely difficult, if not impossible, to eliminate seasonal unemployment, although careful planning of work in the building industry and, the encouragement of a second �season� in tourism may help to mitigate the problem.

Frictional and seasonal unemployment, although involving a considerable waste of resources and much hardship, are not the real problem. This cannot be said of short-term �cyclical� and long-term �growth-gap� unemployment, which are both caused by a deficiency of demand.

�Structural unemployment� is not due to any lack of jobs, but to a mismatch between the type and/or location of jobs offered and the qualifications and/or location of the job seekers. Some economists regard the geographical element of structural unemployment, and some even structural unemployment as a whole, as a special variety of

frictional unemployment. Whatever classification so used, structural unemployment is characteristic of periods with rapid and profound structural changes in the economy. Suggested remedies are: retraining, increased geographical mobility (retraining and relocation grants), short-term and medium-term labour market forecasts, information campaigns on job opportunities, etc...

�Technological unemployment� results from the replacement of workers by labour-saving machines, computers, microprocessors, etc., or to use the appropriate economic jargon, from an increase in the capital-labour ratio. Here again, economic growth will probably not be sufficient to absorb the redundant workers, and a shorter working week may be the only solution. The main fears in connection with this measure are that it will push up costs or reduce aggregate demand. This need not happen if the reduction in working hours does not exceed productivity gains, and real wages are neither increased nor decreased.

Vocabulary

in view of the complexity � � ����� ���� ���������

job-seekers � �, �� ������� ������

economic friction � �������� ���������

to speed up � ������������

to eliminate � ���������, ����������

to mitigate � ����������, �����������

frictional unemployment � ���������, ��������� ����������� �����������

to be sufficient � ���� ��������

to absorb the redundant workers � ��������� ������ ��������.

�. Complete the sentences using the text:

1. The imperfections of the labour market is responsible for �

2. Seasonal unemployment is due to � .

3. Short-term and long-term unemployment are both caused by a�

4. Structural unemployment is not due to any lack of jobs, but to �

5. Technological unemployment results from the � .

II. Answer these questions, basing your answers on the text:

1. . What are the reasons of �frictional unemployment?�

2. How can �frictional unemployment� be reduced?

3. In what industries can �seasonal unemployment� take place?

4. Is it difficult to eliminate �seasonal unemployment?�

5. What does the �structural unemployment� result from?

6. How do economists regard the geographical element of �structural unemployment?�

7. What are the suggested remedies?

8. What does �technological unemployment� result from?

9. How can �technological unemployment� be solved?

III. Say whether these statements are true or false and if they are false, say why.

1. In view of the complexity of the economic system there should always be some unemployment.

2. Temporary, unavoidable unemployment is described as "frictional unemployment".

3. It is difficult to eliminate "seasonal unemployment".

4. Some economists regard the geographical element of "structural unemployment" as a special variety of "frictional unemployment".

5. "Structural unemployment" is the result of profound and structural change in the economy.

6. "Technological unemployment" results from technological changes in the economy.

7. The government's responsibility is to help individuals whose jobs have been replaced by computers, robots or other complicated machines.

30 Unemployed and employed

The survey divides the population 16 years and older into three groups:

Employed . These are people who perform any paid work, as well as those who have jobs but are absent from work because of illness, strikes, or vacations.

Unemployed . This group includes people who are not employed but are actively looking for work or waiting to return to work. More precisely, a person is unemployed if he or she is not working and (a) has made specific efforts to find a job during the last 4 weeks, (b) is laid off from a job and is waiting to be recalled, or (c) is waiting to report to a job in the next month. To be counted as unemployed a person must do more than simply think about work or, for example, contemplate the possibility of making a movie or being a rock star. A person must report specific efforts (like visiting local firms of answering want ads) to find a job. Those who are either employed or unemployed are in the labour force.

Not in the labour force. This includes the 34 percent of the adult population that is going to school, keeping house, retired, too ill to work, or simply not looking for work.

Vocabulary

monthly headlines � ����� ���������

data on work and unemployment � ��� ��� ������ �� ���������

random � ����������

survey � �����, ����������

more precisely � ���� ����� (������)

lay-off � ����� ����������� ��������� ����� ��������� ������

to contemplate � ������������, �����������

to find a job � ������ ������

adult population � ������� ���������

retired � ���������.

�. Complete the sentences using the text:

1. Data on work and unemployment are among the most� .

2. The data are collected monthly in a procedure known as � .

3. Employed are people who � .

4. Unemployed include people who � .

5. To be counted as unemployed a person must do more than � .

6. Those who are either employed or unemployed are � .

II. Answer these questions, basing your answers on the text:

1. What groups can the population be divided into?

2. Who falls into the group of �employed�?

3. When is a person counted as unemployed?

4. What is labour force?

5. What category of people is not included in the labour force?

III. Say whether these statements are true or false and if they are false, say why.

1. Data on work and unemployment are among the most carefully designed and comprehensive economic data the nation collects.

2. The data are coll

3. ected yearly in a procedure known as random sampling of the population.

4. The survey divides the population 16 years and older into three groups.

5. Employed are people who actively looking for work or waiting to return to work.

6. Unemployed are people who have jobs but are absent from work because of illness, strikes, or vacancies.

7. To be counted as unemployed a person must do more than simply think about work.

8. Those who are either employed or unemployed are in laboured force.

Employed include also the adult that study, keep house, retired, look for work, or is simply ill