Vocabulary

Aggregate expenditures/spending – совокупные расходы

Level of prices – уровень цен

Text . The Nation’s Economy. GNP.

Economic Indicators

Economists study different sides of the economy in different ways, they may know how one product market operates, or the way one group of the consumers decides how to spend money. Microeconomics is the part of economics that analyses specific data affecting an economy. Macroeconomics is the branch of economics that analyses interrelationships among sectors of the economy.

Macroeconomists use various methods to measure the performance of the economy. Statistics measure gross national product, or GNP, which is the value of all goods and services produced for sale during one year. All the goods and services produced must be counted, and their value (in dollars and cents) determined. Foe example, every new car and haircut must be included. If a farmer producers 1,000 bushels of apples worth $10 per bushel, that farmer would add $10,000 to the year’s GNP.

In the United States the Department of Commerce computes GNP. Information is collected for every good or service produced in the nation during a year, but not everything ia counted. Three factors limit the types of products counted.

First, only goods and services produced during a specific year are counted. Second, not every product or service produced or sold during the year can be counted. For example, if both the flour the baker used and the bread produced were counted, the flour would be added in twice and so exaggerate the gross national product. To avoid this problem, economists count a product or service only in its final form. They count the baker’s flour in its final product form – as a loaf of bread or cake. Products in their final form are called final goods or services. Third, GNP includes only goods sold for the first time. When goods are resold or transferred, no wealth is created.

One way in which economists measure GNP is the flow-of-product approach. Using this method, they count all the money spent on goods and services to determine total value. Each time a new product is sold, GNP increases. For example, when an individual, a businessman or a government buys a chair for $50, that purchase causes GNP to increase by $50.

Spending for products falls into four categories. The first, and the largest, consumer spending, includes all expenditures of individuals for final goods and services. Called personal consumption expenditures, this category accounts for about 65 % of GNP. The second category includes all spending of business for new capital goods. Since these purchases are investments, this category is called gross private domestic investment. It accounts for about 13% of GNP. The category includes spending of all levels of government. Government purchases goods and services account for about 21% of GNP. The fourth category is net export of goods and services, about 1% of GNP.

Another way of determining GNP is the earning-and-cost approach. This method accounts for all the money received for the production of goods and services, it measures receipts. Figuring gross national product by counting what people receive requires calculating what the entire country earns for the goods it makes and the services it performs. Included in earnings are such things as business profits, wages and salaries, and taxes the government receives for its services. Also counted are interest on deposits, money received as rent, and any other forms of income.

Business and government planners, investors, and consumers make decisions based on their expectations of future economic performance. To help predict expansion or contraction of the economy, government economists identified a number of indicators. They fall into three categories: leading, coincident, and lagging. Leading economic indicators rise or fall just before a major change in economic activity. Coincident economic indicators change at about the same time that shifts occur in general economic activity.

Following and interpreting all economic indicators is time-consuming. The US Commerce Department, therefore , lists a composite index, oe single number, for each of the three sets of indicators. These composite indexes are in average of all the indicators in each category.

Statistics – статистика (наука) + Singular Verb

Statistics – статистические данные + Plural Verb

Task . Give extensive answers to the questions. Use the following expressions to start your answers:

I suppose…; The idea behind the expression…is that…;

It’s essential to…; To sum up what has been mentioned…;

It’s like this… It is impossible to decide whether…;

1. What are two different ways of counting goods and services?

2. What kind of goods and services does GNP count?

3. How to summarize the kinds of goods and services not included in GNP?

4. What is the difference between the subjects of microeconomics and macroeconomics?

5. Why is it useful to have GNP figures available every year?

6. Why are final goods and services emphasized in measuring GNP?

7. What must be included if GNP is figured by counting expenditures?

8. What must be included if GNP is figured by counting income?

9. What are the three categories of economic indicators?

10. What group of economic indicators is related to the present? What makes you think so?

11. Why is personal income a coincident indicator rather than a leading or lagging one?

12. What are the two methods used to determine gross national product?

13. What are the categories of spending included in the flow-of-product approach of measuring GNP”

14. How is a composite index of economic indicators complied?

Text . The Nature and the Causes of the Wealth of Nations

Economics as a Conversation

High Standards of Living

What is economics? I would like to say that economics is a conversation. It is a conversation that has been going on for over two hundred years. The conversation includes professional economists, citizens, managers, and others. The conversation began with Adam Smith’s book The Wealth of Nations. Smith’s topic was: why do some countries have high standards of living?

Like many long-running conversations, the economic conversation has wandered a bit from one topic to another, and sub-conversations have split off and rejoined the main stem. What sort of conversation is it? At its best, economics is a “reasonable dialogue”.

If our major orientation is toward Classical Economics, accordingly, we will define economics as Adam Smith did, as “an enquiry into the nature and causes of the wealth of nations”.

We can recognize at least five causes that might lead to greater wealth: increase in the supply of resources, especially through investment; discovery of new techniques of production and new supplies of natural resources; increases in the division of labour; improvements in the allocation of resources; and increased use of the resources already available. Modern economics has a lot to say about the last two of these.

If we want to be as scientific as we can, and get scientific answers, we should put nothing beyond criticism and discussion. Assumptions and definitions of terms should be open to criticism, and carefully chosen in the light of critical reasoning. (In practice, careful definitions of terms are especially important in economics.) This broadly critical approach is what we call “reasonable dialogue”.

Notes and Commentary

A “reasonable dialogue” – «здравый, разумный, аргументированный) диалог» (зд. диалог в широком смысле слова: обмен мнениями, дискуссия).

Vocabulary

Classical economics – классическая экономическая теория

Read the following text. Work in pairs.

1. Design questions to find out about your partner’s attitude towards the possible ways of reaching universal opulence.

2. Ask your partner these questions to get his/her opinion.

Text . UNIVERSAL OPULENCE

All economic systems proclaim that they want, in the words of Adam Smith, “a well-governed society”, “the universal opulence which extends itself to the lowest ranks of the people”, and “the great multiplication of the productions of all the different arts”.

When the production of goods and services for the market grows bigger, this is what we call “economic growth”. If production grows fast enough, then we’ll have more production per person; and this is called a “rise in the standard of living”. When Adam Smith talked about “the wealth of nations”, modern economists would talk about a high and rising standard of living.

What can lead to “the great multiplication of the productions of all the different arts”, in other words, to growing production?

Here are some of the things that may help a nation to become more productive and thus “wealthier”. The different items on the list may overlap and are certainly interdependent. So, the causes of growing production are:

• increase in quantities of resources available;

• discovery of new technologies;

• increases in the division of labour and specialization;

• improvements in the allocation of existing resources;

• increases in the rate of use of existing resources.

The first three causes were also the ones which Adam Smith stressed, but above, they are not in the order of importance that Smith gave them. We now know that they follow the more modern approach when resources come first. And Smith put the division of labour first.

Thus, the view of economic growth we are discussing a relatively modern one. Adam Smith had a different view – not necessarily contrary to the modern view, just different. It will be worthwhile to digress a bit and review what the founder of our science had to say about the growth of production.

Like modern economists, Smith believed that the standard of living – “the wealth of nation” – could rise only if the productivity of labour rose. For Smith, the most important force leading to a rising standard of living was division of labour.

What most people associate with Adam Smith is the idea of the “invisible hand” – the idea that free markets restrain prices to some “natural” price. Indeed Smith’s discussion of the “invisible hand” comes quite early in The Wealth of Nations, but it is not the first topic Smith takes up. The very first topic Smith takes up is the division of labour.

Smith is sure that increasing the division of labour increases productivity. In one of the most famous passages in the book, Smith illustrates this tendency by a description of work in a pin factory. Smith writes:

“One man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds at the top for receiving the head; to make the head requires two or three operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper, and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands…I have seen a small manufactory of this kind where ten men only were employed, and where…each person…(averaged) four thousand eight hundred pins a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each (of) them make twenty, perhaps not one pin a day.”

Having established a specially in the manufacture of pins, a nation would then have to establish a trading relationship with another country that specialized in some other product; without trade, the benefits of specialization cannot be realized. It may be to the advantage of that country to specialize in pins even if other countries can produce pins at a lower cost, if the first country can produce pins more efficiently than it can produce other goods; that is it has a comparative advantage. Quite simply: each producer has a “comparative advantage” in doing what it does best – and trading for the rest.

Specialization allows a person, business or nation to specialize in those endeavours that they do best, instead of striving for self-sufficiency. This benefits us in two ways: first, a greater variety of goods and services are available; and second, they are available at a lower cost. The growth of trade leads to wider competition, allowing countries to benefit from their comparative advantage and raising living standard everywhere. Trade is an engine for economic growth because it enables an economy to take advantage of specialization, and increases and improves the trade-offs confronting society.

Notes and Commentary

Wrought (v, past participle) archaic; the same as “worked”

Vocabulary

Universal opulence – всеобщее благоденствие\ процветание\ богатство

Manufactory (n) –завод, мастерская, фабрика

Manufactory (n) – производство, изготовление, обработка

Self-sufficiency (n) – самообеспеченность, самостоятельность, экономическая замкнутость.

The title of the next text is: “Types of Resources”.

1. Say what you expect the text to be about. Refer to the chart for the information about the text. (If you don’t know the meaning of the terms, make use of the Vocabulary.)

2. Enlarge upon all of the types of resources. Use your background knowledge and tell the class everything you know about and associate with these issues.

Types of Resources

Natural resources; renewable resources; minerals; commodity markets

Human resources non-renewable resources; crops; commodities futures

commodities

Vocabulary

Natural resources – природные ресурсы

Human resources человеческие ресурсы

Renewable/replenishable resources возобновляемые ресурсы

Non-renewable resources невозобновляемые ресурсы

Mineral(n) полезные ископаемые

Crop(n) зерновая культура

Commodity (n) товар (как объект продажи и бартера)

Commodity market товарно-сырьевая биржа

Futures (n, pl) фьючерсные соглашения\сделки; товары, поставляемые по фьючерсным сделкам

Task

Scan the text and:

1. say if you were successful in guessing its content from the title and the chart.

2. Point out the information that has remained uncovered by you.

3. Speak of the facts you couldn’t even imagine to discover in the text.

4. Highlight one of the new ideas, find more information on the problem and discuss it with your classmates.

5. Take notes filling in the table below with pertinent data:

1. first look back at the example (in the text) of the phenomenon under discussion;

2. then give an example of your own illustrating the same phenomenon.

6. Present your examples to the whole class. Compare your examples with the ones provided by your classmates. Discuss the specifics of the problem with the partners. Ask them to give reasons to support their answers.

Text . TYPES OF RESOURCES

There are several causes of growing production among which modern economists attribute special importance to resources.

Recources are things that can be used to provide the means to satisfy wants – in other words, they are not resources until people are able to use them. Because human wants are very diverse and extend from basic physical requirements such as food and shelter, through to ill-defined aesthetic needs, resources encompass a vast range of items. It is the intellectual resources of a society – its ideas and technologies – that determine which aspects of the environment meet that society’s needs, and therefore become resources. In the 19^th century, uranium was simply a curiosity used only in the manufacture of coloured glass. Today, with the advent of nuclear technology, it is a vital energy resource. Though minerals such as coal and iron ores tend to dominate the perception of resources, the concept also embraces less tangible things such as beautiful landscapes and pleasant climates.

Resources are often categorized into human resources, such as labour supplies and skills, and natural resources, such as climate, fossil-fuels, and water. Natural resources are divided into those which are non-renewable and others that can be replenished (renewable). Non-renewable resources are things like coal, copper, ores, and diamonds, which exist in strictly limited quantities. Once consumed, they will not be replenished within the time-span of human history. In contrast, water supplies, timber, food crops, and solar power and similar resources can, if managed properly, provide a steady yield virtually for ever. These are termed replenishable or renewable resources, which may, in turn, be continuous (where supply is largely independent of people’s actions) or flow (where supply is dependent on people’s actions). However, inappropriate use of renewable resources can lead to their destruction, as, for example, when a fishery or forest is over-utilized and totally consumed.

Demands for resources as made by present-day societies are causing concern among many people, who consider that the present and future demands of industrial societies cannot be sustained for more than a century or two, and that once a resource base fails to meet a society’s needs that society will collapse.

However this view is not universally held, and other authorities contend that such analysis misunderstand the nature of resources. Resources for future generations will, they believe, be determined by the level of knowledge of future societies, and cannot be properly assessed by our current perceptions. As knowledge increases, new technologies will emerge, enabling materials that are currently of little importance to become valuable resources. The resource base can therefore expand as societies become better able to harness their environment to meet their needs.

Minerals are substances with a regular atomic structure and a composition that lies within defined limits. The term is also used to mean any material that is extracted from the earth.

Crops are plants grown for human use. Over 80 crops are grown worldwide, providing people with the majority of their food, and supplying fibers, rubber, pharmaceuticals, dyes, and other materials. Four main groups of crops are readily identifiable: food crops, forage crops, fiber crops, and miscellaneous crops.

Commodities are essentially things produced for sale. They may be consumer goods like radios, or producer goods such as copper bars. Commodity markets deal in raw or semi-raw materials that can be stored for considerable periods without deterioration. They developed to their present form in the 19^th century, when industrial growth facilitated trading in large, standardized quantities of raw materials. Most markets encompass trading in “commodity futures”, which is trading for delivery several months ahead. Major commodity markets exist in Chicago, Tokyo, London, and elsewhere. Most trade relates to cereals and metals. “Softs” is a term used for most materials other than metals.

Vocabulary:

Want (n) – потребность

Intellectual resources – интеллектуальные ресурсы

Fossil (a) - ископаемый

fossil (n)- полезное ископаемое

Food crops – пищевые зерновые культуры

Forage crops – фуражные пищевые культуры

Fiber crops – технические зерновые культуры

Miscellaneous crops – смешанные зерновые культуры

Consumer goods- потребительские товары

Producer goods – производственные товары

Task

Some of the ideas of the Text below have already been revealed in the preceding text. And, at the same time, there are new items, new thoughts, and new approaches to the problem under consideration. Read the text to gather the data on the types of resources and their scarcity.

1. Make a comment to support and expand the tenet (догмат) that resources are scarce. Give a well-reasoned answer. Refer to the parts of the text to confirm your viewpoint. Use various reference material and your background knowledge. Provide examples.

2. Listen to one of your classmates explain that the problem of scarcity is one of the main postulates of economics.

3. Lead a discussion on the subject. Begin your speech with:

Let us add a further insight to the meaning of…

Let us raise issues that warrant further thought…

Let us suggest new concepts worth applying in the future…

Text . RESOURCES ARE SCARCE

The four economic resources that economies use to produce goods and services are land, labour, capital, and entrepreneurial ability. These resources are limited in availability, or “scarce”, and participants in an economy pay for their use. These payments are called resource payments. Specific types of payments are made for the use of each resource. Resource payments made to the owners of land are called rents. Premium paid to the contributors of labour are wages and salaries. Interest income, in a strict economic sense, is the resource payment for the use of capital. The resource payment made for the use of entrepreneurial ability is known as profit.

The first category, land, refers to more than just acreage. As a resource, the term “land” includes the qualities and materials above, on, and below the surface: warm, sunny climates, and even plant and animal life. Some components of the land resource hardly seem scarce. For instance, power derived from the light and heat of the sun seems inexhaustible. Other land resources are renewable: we can replant trees cut down for wood products, clean and recycle water polluted in manufacturing processes, and restock fish taken from our lakes and rivers. Other resources, however, such as minerals, are nonrenewable.

The second scarce resource is labour. Labour includes both mental and physical exertion. When a banker extends a line of credit to a small business, approves an automobile loan, or opens a new account, the banker’s actions constitute labour. When a professor gives a lecture or grades an exam, when a carpenter builds a house or a contractor paves a new highway, or when a songwriter writes a song and a singer sings it – all of these events are included in the calculation of labour. The only activity commonly considered labour that economists exclude from their definition is the managerial function of a business. Management is usually considered part of the entrepreneurial resource.

The third scarce resource is capital. Economists use this term in a different fashion from bankers. By capital, economists do not mean money, but the goods and services used to produce articles of consumption. When economists discuss capital goods, they mean products such as tools or machinery, and delivery channels such as bridges or roads – products that are used to generate other products or facilitate consumption. The premium paid to the owner of capital goods is called income. You should be careful not to confuse the economic meaning of this term with the banking definition of interest income as a return for certain types of deposits at assigned maturities.

The forth factor of production is entrepreneurial ability. Some authors include entrepreneurial ability in the labour category. However, the entrepreneurial function in business is so important that it deserves separate study. Of the four scarce resources, entrepreneurial skill may be the most important. Entrepreneurial ability is the driving force behind all business ventures. The entrepreneur must identify a need and seek an opportunity to fill it. The entrepreneur must obtain and combine the other factors of production in a way that produces a good or service. The entrepreneur must market and sell this product or service to the consumer. After all, the entrepreneur must risk money, time, and reputation on the success of his or her venture.

Vocabulary

Entrepreneurial ability/skill – предпринимательская способность\»жилка»

Scarce (a) oграниченный

Scarcity of resources - oграниченность\нехватка ресурсов

Resource payments ресурсные платежи (платежи за пользование ресурсами)

Rent (n) рента

Premium (n) денежное вознаграждение, премия

Interest income доход в виде процентов

Credit (n) кредит

Account (n) счет в банке

Calculation (n) вычисление; расчет

Capital goods средства производства; товары производственного назначения; инвестиционные товары

Return (n) прибыль

Deposit (n) депозит; вклад в банке

Maturity (n) срок платежа

Venture (n) ( рискованное) предприятие

Task

Discuss the following questions with a partner. In giving your answers, try to enlarge upon the ideas behind the statements.

Did you know that:

1. management is usually considered part of the entrepreneurial resource?

2. Economists use the term “capital” in a different fashion from bankers? By capital, economists do not mean money, but the goods and services used to produce articles of consumption.

3. The premium paid to the owner of capital goods is called interest income? You should be careful not to confuse the economic meaning of this term with the banking definition of interest income as a return for certain types of deposits at assigned maturities.

4. Of the four scarce resources, entrepreneurial skill may be the most important?

As you know labour is the scarce resource.

Before you read

Discuss these questions with your partner.

• In what situation(s) do you think a worker can ask for a lot of money?

• In what situation(s) can an employer pay less money to workers?

What Are Corporate Ethics?

Corporate ethics are a set of beliefs to which a company adheres that govern its behavior in the ways it conducts business. Some corporations have well defined ethical parameters and others don’t, or they sacrifice ethical behavior to profit and determine that gaining profit and power are the most desired motives. When discovered in this type of activity, there is often a strong backlash that results in losing profits. This suggests that even if the decision to adopt defined corporate ethics is purely motivated by profit, it may be good business.

The ways companies conduct business are multiple and complex, and corporate ethics may operate on numerous levels. Ethical considerations can determine how a corporation competes at the business level with other corporations. Are they aggressive, and prone to change their minds or drop allegiances with other companies for their own benefits, or does the corporation cheerfully compete with and support the efforts of its competitors?

Another way corporate ethics get expressed is through the care a corporation takes in interacting with customers or people on other levels. Decisions about how customers are treated are important, but decisions on what type of responsibility the corporation plays in protecting the environments of people are valuable too. A company that routinely releases chemicals into the environment can have great customer service, but its actions suggest the bottom line is not protecting the people that it serves. Many corporations now take great pains to promote sustainability, and these efforts are well received by customers and neighbors.

Employee relations is a different aspect of corporate ethics. Are employees provided with decent living wages and health care access? If profits go down, does the company immediately lay off workers to satisfy shareholders, or does it work to retain people’s jobs in difficult economic times? How a corporation handles this is variable and is one of many ethical dilemmas all corporations face.

Ethics are not easy, and might be considered as a series of judgment calls. A corporation must engage ethically with multiple parts of itself, other competitors, and the public, deciding what to do when ethical responsibilities conflict. Following corporate ethics in one way might prevent satisfying some other part of the corporation: for example, laying off employees to satisfy shareholders or using more polluting chemicals to save on costs to save employee jobs. Such decisions are difficult to make. Nevertheless, corporations that take a strong stance on ethical operation must try to negotiate each judgment call, while remaining true to their ethical code.

When a company does not have a code of corporate ethics, its behavior tells others what the corporation considers ethical. Constantly negative and only profit-induced decisions can be greatly disparaged by the public. Additionally, employees come to work with moral codes of their own, and might find it challenging to adopt a conflicting code at work. It is true, that many people sacrifice personal ethics in order to work or fail to see the obvious discrepancies between personal and business ethics.