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Microeconomics and Macroeconomics





Macroeconomic Models

 

A macroeconomic model is an analytical tool designed to describe the operation of the economy of a country or a region. These models are usually designed to examine the dynamics of aggregate quantities such as the total amount of goods and services produced, the total income earned, the level of employment of productive resources, and the level of prices.

The goal of a macroeconomic model is to replicate the main mechanisms of an entire economic system, which may consist of a region (such as the Italian Mezzogiorno), a nation state (such as Poland), or a collection of nation states (such as the 27 members of the EU). The only requirement is that the entity being modeled is large enough to display the distinctive properties that are the subject area of macroeconomics. Of course, it is also possible to construct economic models of other entities, such as a town, a transport system, a cluster of firms, the operation of a particular policy program, etc. However, such models fall outside the category of macroeconomic models.

Macroeconomic models may be logical, mathematical, and/or computational; the different types of macroeconomic models serve different purposes and have different advantages and disadvantages.

Macroeconomic models may be used to clarify and illustrate basic theoretical principles; they may be used to test, compare, and quantify different macroeconomic theories; they may be used to produce "what if" scenarios (usually to predict the effects of changes in monetary, fiscal, or other macroeconomic policies); and they may be used to generate economic forecasts. Thus, macroeconomic models are widely used in academia, teaching and research, and are also widely used by international organizations, national governments and larger corporations, as well as by economics consultants and think tanks.

 

Notes:

tool – инструмент

to replicate – воссоздавать

distinctive properties – отличительные черты, свойства

forecast – прогноз

think tank – экспертно-аналитический центр

 

Unit 3

Types of Economic Systems

A Consumer Economy

A consumer economy refers to an economic system that primarily runs on consumers' spending. In the USA, it is often said and also often disputed that consumers are responsible for 70% of all spending and, therefore, this class of spenders must be constantly stimulated to make money for businesses. There are other classes of spenders that represent a lower amount of spending and are usually ignored by attempts to revitalize the economy. In this economy, some financial experts say consumption is required, while others say production is required to keep the consumer economy satisfied.

A consumer economy simply means that there is an economy where consumers dominate the spending sphere. Instead of businesses, government, pharmaceutical or other spenders, consumers dominate the spending world. For this type of economy to work, consumers must be stimulated to buy products, and products must be produced. To stimulate purchases, the government will usually offer larger tax returns so consumers have more money to spend, which will give businesses more capital so they can create more jobs.



The main principle of a consumer economy is that the consumer must consume. Products must be purchased and used for the economy to function. This economy is so heavily dependent on the cycle of consumption that it can easily break if the consumer refuses to spend money and chooses instead to invest it. To this end, consumers are often given extra money to spend on products to drive the economy. Most other spenders, such as businesses and manufacturers that purchase supplies, often go ignored by these stimulus attempts because they represent a lower percentage of overall spenders.

Others believe a consumer economy is not about consumption but production. If the right product is made, the consumer will purchase it and a variety of different products must be made to satisfy consumer demands. If production stops, there will be nothing to consume, which is what leads many financial experts to state that production is the driving force of a consumer economy.

 

Notes:

spender – лицо, осуществляющее расходы

to revitalize – восстановить активность

 

Unit 4

Scarcity and Choice

The Web as a Sales Tool

There is discussion today about how beneficial the Web is as a sales tool. Many companies, even those with a tremendous presence on the Web, are not making a lot of money. They are positioning themselves for the future, with hopes that buying on-line will become an everyday event.

The question that must be answered is whether the World Wide Web will remain a place of information, or evolve into a profitable marketplace for businesses.

Actually, if you trace the history and growth of the Internet, you will realize that extraordinary progress has been made. In the last decade, the number of personal computers has multiplied to the point that potential sellers of products and services now see tens of millions of customers to whom they can market their products. As consumers become more relaxed and secure about buying on-line, market potential will rise. Because of this potential, banner ads are everywhere: on Home Pages, magazines or “webzines”. “Cyberstores” offer everything from automobiles to vacation cruise.

The most successful sellers are those that mainly transact business by phone, selling a product that does not have to be present physically. If you know the title or the author of a book you want to buy, it is easier to order it by computer than to go to the bookstore. Besides, you may get a discount, or save sales tax, even though you have to pay for shipping.

An example of growing use of Web technology is the “Extranet”, which is a company’s private link with its corporate customers. (The “Intranet” is the company’s internal network with its employees.) General Electric, the most successful example of extranets, grosses over a billion dollars a year in sales.

 

Notes:

to remain – оставаться

to transact – вести переговоры

link – канал связи, связующее звено

 

 

Unit 5

Demand and Supply

Import and Export

In the recent decade, the world has seen an international trade boom unlike any other in history. Most large corporations earn a great portion of their revenues from their overseas ventures. And many nations owe a large share of their gross national product to the output of firms based beyond their borders.

In the age when many business people are thinking globally, it is just as important to understand the working of the world economy as it is to understand our national economy. Fortunately, the same concepts of supply and demand, deficit and surplus also apply to international business. They just manifest themselves differently.

There are two sides to every trade relationship: buying and selling goods. In international trade, those who buy are importing goods or services from foreign sources; those who sell are exporting products to customers abroad.

The main difference between domestic trade and international trade is the use of foreign currencies to pay for the goods and services crossing international borders. Although global trade is often added up in euros and US dollars, the trading itself involves various currencies.

Whenever a country imports or exports goods and services, there is a resulting flow of funds: money returns to the exporting nation, and money flows out of the importing nation. Trade and investment is a two-way street, and with a minimum of trade barriers, international trade and investment usually makes everyone better off. The balance of trade (the import-export balance) is determined by the relationship between import and export.

In an interlinked global economy, consumers are given the opportunity to buy the best products at the best prices. By opening up markets, a government allows its citizens to produce and export those things they are best at and to import the rest, choosing from whatever the world has to offer.

 

Notes:

overseas ventures – иностранные компании, предприятия

domestic trade – внутренняя торговля

currency – валюта

better off – обеспеченный, состоятельный

balance of trade – торговый баланс

 

 

Unit 6

Opportunity Cost

A University Education and Opportunity Cost

 

Unlike most costs discussed in economics, an opportunity cost isn’t always a number. The opportunity cost of any action is simply the next best alternative to that action. Economists believe that opportunity costs play a fundamental role in people’s lives. For example, many school-leavers consider going to Universities for four or five years after finishing schools. What is the cost of acquiring a University education?

Obviously, the cost of tuition, the cost of books and other supplies, and the cost of living in a hostel represent the money cost of going to University. The other uses of this money might have been put to represent its opportunity costs. But what else is a cost of going to University? If a student didn’t go to University, then he or she would most likely find a job instead.

The money that those who choose University might have earned during their years of study is described by economists as foregone earnings. Foregone earnings represent another, very important cost of a University education.

Thus, the opportunity cost of going to University is the goods and services represented by the money cost of the education, plus the value of the foregone earnings.

 

Notes:

tuition – обучение

foregone earnings – упущенные заработки

 

Unit 7

Money

The System of Cheques in Britain

Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. So, bank-notes and coins are not the most important form of money in developed economies.

In the United Kingdom about 90% of all transactions are settled by means of cheques. But cheques themselves are not money; they are orders to bankers to transfer money from one person to another. The money transferred in this way consists of bank deposits. If there is no money in the form of a bank deposit then any cheques drawn on that account will be worthless.

Cheques were used as early as the second half of the 17th century, but they did not come into general use until the second half of the 19th century. The Bank Charter Act of 1844 put strict limitations on the note issue at a time when the output of goods and services was expanding rapidly. The need for an expansion of the money supply to keep pace with increasing output greatly stimulated the use of bank deposits.

This most developed form of money (bank deposit) consists of entries in the bank ledgers, or more likely nowadays, of records on computer tapes. The greater part, in value terms, of the payments made each day are carried out by adjustments made to the totals in different bank deposits. A payment from one person to another merely requires that the banker reduces the amount in one deposit and increases in another. Transferring money, therefore, has become little more than a kind of bookkeeping exercise, the money itself does not consist of some physical tangible commodity.

Notes:

to transfer – переводить (о деньгах)

to come into use – начинать употребляться

to keep pace with – не отставать от

entry – запись

ledger – главная книга (в бухгалтерии)

bookkeeping – бухгалтерия

 

Unit 8

Markets and Prices

 

Market Research

 

Millions of pounds are spent each year on market research. Nearly 10% of the price we pay for goods in the shops is spent on it.

What is market research? By definition, it is a systematic collection and analysis of data, which is based on the customer’s attitude, needs, opinions and motivation within the context of political, economic and social influences. Market research is always necessary, because to reduce risk, any organization needs to know about the market for a product or service it is going to launch.

Market research makes a positive contribution to business by helping in the decision-making process. There are many different types of market research. Here are the main ones:

1. Market and sales research. It estimates the size of new markets and their potential growth, identifies market segments and trends.

2. Product research. Its purpose is to investigate the customer’s attitude to new products, to find alternative uses for existing products and to generate new ideas for new products.

3. Research on promotion and advertising. It helps to choose the right advertising medium, analyses the effectiveness of advertising and evaluates present sales techniques.

The market research process is a five-step application of the scientific method that includes:

1. Defining the problem.

2. Analyzing the situation.

3. Getting the necessary data.

4. Processing the data.

5. Solving the problem.

As for the information a marketing researcher is interested in, there exist its 3 main sources:

1. Information within the company, such as sales figures, is known as internal information.

2. Information external to the company, such as government reports or published marketing reports, is known as secondary information.

3. The third information source, often characterized by market research opinion polls, is known as primary information.

 

Notes:

launch – выпускать на рынок (товар или услугу)

 

Unit 9

 

Factors of Production

Labour

Labour, in economics, is some effort necessary to satisfy human needs. It is one of the three leading elements in production, the other two being land (natural objects) and capital.

In industry, labour has a great variety of functions, which may be classified as follows: production of raw materials, as in mining and agriculture; manufacturing in the widest sense of the word, or transformation of raw materials into objects serviceable to humans; distribution, or transference of useful objects from one place to another, as determined by human needs; operations involved in the management of production, such as accounting and clerical work; and personal services such as those rendered by physicians and teachers.

Many economists distinguish between productive and unproductive labour. Productive labour consists of those kinds of exertion that produce utility embodied in natural objects. Unproductive labour, like that of the musician, is useful but does not add to the material wealth of the community. As a result of the Industrial Revolution at the end of the 18th century, most workers were employed in large factories and similar undertakings. Those workers were not protected from economic exploitation or from the consequences of illness, disability, or unemployment. In the early decades of the 19th century, increasingly prevalent ideas of freedom caused great changes in the conditions of labour. Workers began to form trade unions and cooperative societies that enabled them to participate in many types of political activities and to protect themselves by political and economic means. Laws for the regulation of labour are now intended not to fix wages as formerly, but to protect the workers.

Notes:

raw – сырьевой

exertion – усилие, физическая нагрузка

utility – польза, полезность

conditions – условия

 

 

Unit 10

Forms of Business

Large Corporations in the USA

Although there are many small and medium-sized corporations, bigger business units are needed to perform certain services in the vast economy. Large corporations can supply goods and services to a greater number of people across a wider geographic area than small businesses. They serve consumers across the nation and across the world. Corporate products tend to cost less per unit sold. Moreover, consumers benefit from the availability of corporate “brand names”, which they recognize as guaranteeing a certain level of quality wherever purchased.

Large corporations also have the financial strength to research, develop and produce new goods. Their scientific know-how, innovation and technical capability are critical to maintaining the nation’s competitiveness and productivity.

In the USA, a corporation is a specific legal form of organization of persons and resources chartered by one of the 50 states for the purpose of conducting business. When people and resources are brought together, the result in the eyes of the law – is a person (Indeed, the Latin word “corpus” means “body” or “person”). A US corporation, distinct from any individual human being, may own a property, sue or be sued in the court and make contracts. For this reason, a corporation is an ideal vehicle for the conduct of business by many smaller enterprises as well as larger ones.

The corporate form of business is a more flexible instrument for large-scale economic activity than the sole-proprietorship or partnership.

First, the corporation itself has legal standing, it safeguards its owners. Second, the owners of shares of stock have limited liability; they are not responsible for debts. Third, corporate stock is transferable. An owner of stock can sell his or her holdings at any time or pass the stock along to heirs.

Note:

to sue – подавать в суд

heir – наследник

A Business Plan

 

Life may be very chaotic when you are starting or running a small business. The telephone calls to make, the letters to write, the decisions to take – all the day-to-day emergencies can push aside the sort of long-term strategic planning which is essential to keep your enterprise on the right track.

Doing a business plan before you start your firm is vital because it will spotlight potential problems before they arise and suggest ways to solve them – saving your time, money and headaches. A business plan consists of organized answers to a series of carefully thought-out questions vital to starting any successful company. Assembling this plan will be your first opportunity to manage your new business.

When people talk about a business plan they are usually referring to a formal written document. A written document helps to focus your thinking and gives you something to refer to later. Doing a business plan you write long-term objectives, estimates and forecasts on paper. There is nothing like writing something down to help clarify your mind and reveal your uncertainties and weaknesses.

But a business plan is more than a document, it is the entire process you go through to clarify and evaluate your prospective company. Once you have put down your plan, do not necessarily accept that it is set in concrete. Forecasts and objectives change as new bits of information and your better experience emerge.

As it is important for your plan to look professional, you may consider seeking advice and help on its production. This is available from enterprise agencies and training courses, accountants and corporate finance specialists. If your forecasts are likely to be fairly complicated and need changing, you might consider using a computer programme designed to enable you to produce forecasts and to examine the effect changes will have on the results.

Notes:

to spotlight – сделать что-либо центром внимания; выдвинуть на первый план

to manage – управлять, руководить

to refer to something – ссылаться на что-либо

to evaluate – оценить

to be set in concrete – быть неизменным, не подлежать изменениям

 

Unit 11

Government and Business

The Government Role in the Chinese Economy

 

The Chinese economy has grown immensely in the past few years, and a big part of that is because of the government and the changes it has made in the economic structure of the country. Today China has the fastest growing economy on the planet and it is expected to become the strongest and largest economy in the world by the middle of the 21-st century or even earlier. At its current rate of growth, analysts see China replacing the US as the world’s top economy in about a decade. “It’s realistic to say that within 10 years China will be roughly the same size as the US economy”, says Tom Miller of GK Dragonomics, a Beijing-based economic consultancy.

It’s a growing force and it all began in 1978 when the government made the decision to lessen its restrictions and bring in more free enterprise in the economy and business. So, since 1978 the government’s role in the economy has fallen greatly, while the role of private enterprises has grown. In 1994, the pricing system was changed to allow free price movements. By the mid 1990s China was well on the path of opening up its economy. Export was flooding out and China was given the title of “the world’s factory”. Taking advantage of its huge population, China began to move up in the ranking of the world’s top economies.

But nevertheless, the government still maintains an active role in the economy. The government’s management of the economy is involved through a top-down chain of command with hundreds of ministries, commissions, administrations, bureaus, and corporations. Direct control of the economy by the government is done through designating physical output quotas, while indirect control is done through affecting market incentives.

Over the past 35 years, Chinese companies have begun to gain more and more independence from the government in a range of activities. Together with this, large-scale construction, as well as important industries and services are still managed heavily by the government through direct management and 1/3 of the country’s GDP is still generated through government-controlled industries.

 

Notes:

free enterprise – свободное предпринимательство

open up - активизировать

output quotas – нормы выработки

Unit 12

Corporate Culture

 

SOL’s Approach to Corporate Culture

 

As one of northern Europe’s most admired companies, SOL Cleaning Service, located in Helsinki, Finland, isn’t what you might expect. The company’s headquarters positively “explodes” with color, creativity, and chaos. Smart in bright red-and- yellow uniforms, staff hurry about, carrying laptops and the latest smart phones, as well as vacuum cleaners. All this might seem tailor-made for creative organizational types (such as software designers or advertising executives), but SOL competes in a basic and unglamorous business – industrial cleaning. It’s a high-energy, knowledge-driven organization whose business is washing hospital floors, making hotel beds, and sweeping grocery store aisles.

This is a company in which people work when they like, and flexibility is strongly tested. The philosophy of its chairman and owner is: “In a service business, if you are not happy with yourself, how can you make the customer happy?” Answering that question has made SOL wildly successful. What does the company do differently to “clean up” in an industry notorious for low wages and terrible service?

SOL is characterized by five corporate values. First, hard work has to be fun, that’s why the company’s culture is built around optimism and good cheer. SOL’s logo – a yellow happy face – is plastered on everything: from the company’s stationery to the most important financial statements. Employees enjoy the freedom of minimal rules and regulations; there are no titles, individual offices, or set working hours; and the company has eliminated all perks and status symbols.

Second, there are no low-skill jobs. The company invests significant amounts of time and money in training employees. SOL’s staff study topics such as time management, people skills, and budgeting. Training is focused on turning cleaners into customer service specialists.

Third, people who set their own targets shoot for the stars. SOL employees have significant amounts of responsibility and authority. The company’s supervisors, each of whom leads a team of up to 50 cleaners, work with the teams to create their own budgets, do their own hiring, and negotiate their own deals with customers.

The fourth value is loose organizations need tight measures. Although the chairman believes in employee autonomy, she is a fanatic about performance measurement and accountability. The company measures performance frequently, and most of these measures focus on customer satisfaction.

Finally, SOL believes that great service demands cutting-edge technology. In fact laptops and other gadgets are standard equipment for all supervisors at SOL. The company uses its intranet for scheduling training, relaying news, and informing employees about upcoming company events.

 

Notes:

headquarters – штаб-квартира

flexibility – гибкость

notorious – (зд.) пользующийся дурной славой, печально известный

perks – льготы, привилегии

accountability – подотчётность

cutting-edge technology – передовая технология

Unit 13

Employment

 

Satisfiers and Motivators

 

It’s logical to suppose that things like good labour relations, good working conditions, good wages and benefits, and job security motivate workers. But in “Work and the Nature of Man”, Frederick Herzberg argued that such conditions don’t motivate workers. They are merely “satisfiers” or, more importantly, “dissatisfiers”. “Motivators”, on the contrary, include things such as having a challenging and interesting job, recognition and responsibility, promotion, and so on.

However, even with the development of IT technologies, there are and always will be plenty of boring, mindless, repetitive and mechanical jobs in all sectors of the economy, and lots of unskilled people who have to do them.

So how do managers motivate people in such jobs? One solution is to give them some responsibilities, not as individuals but as part of a team. For example, some supermarkets combine office staff, the people who fill the shelves, and the people who work on the checkout tills into a team and let them decide what product lines to stock, how to display them, and so on. Other employers ensure that people in repetitive jobs change them every couple of hours, as doing 4 different repetitive jobs a day is better than doing only 1. Many people now talk about the importance of a company’s shared values or corporate culture, with which all the staff can identify: for example, being the best hotel or restaurant chain, or airline, or making the best, the safest, the most user-friendly, the most ecological and the most reliable products in a particular field. Such values are more likely to motivate workers than financial targets, which ultimately only concern a few people. Unfortunately, there is just a limited number of such goals to go round, and by definition, not all the competing companies in an industry can seriously claim to be the best.

 

Notes:

checkout till – касса (в магазине)

user-friendly – удобный для пользователя

 

Unit 14

Globalization

 

Global Organizations

 

International businesses have been around for a long time. Siemens, for instance, was selling its products in many countries in the 19-th century. Ford Motor Company set up its first overseas sales branch in France in 1908. By the 1920s, other companies, including Fiat, had gone multinational. But it wasn’t until the mid-1960s that multinational corporations (MNCs) became commonplace. These corporations – which maintain significant operations in two or more countries simultaneously but are based in one home country – inaugurated the rapid growth in international trade.

The expanding global environment has extended the goals of MNCs to create an even more generic global organization called the transnational corporation (TNC). This type of organization doesn’t seek to replicate its domestic success by managing foreign operations from its home country. Rather, decision making at TNCs takes place at the local level. Nationals typically are hired to run operations in each country. The product or marketing strategies for each country are uniquely tailored to that country’s culture. Nestle, for example, is a transnational company. With operations in almost every country on the globe, it is the world’s largest food company, yet its managers match the company’s products to its consumers. Thus, in parts of Europe Nestle sells products that are not available in the USA or Latin America.

Many large, well-known companies are moving to globalize their management structure more effectively by breaking down internal arrangements that impose artificial geographical barriers; this global type of organization is called a borderless organization. The borderless organization can be said to approach global business from the geocentric perspective. For instance, IBM dropped its organizational structure based on the country and reorganized into some industry groups.

Managers of multinational, transnational, and borderless organizations have become increasingly global in their perspectives and accept the reality that national borders no longer define ways of doing business efficiently and effectively.

 

Notes:

replicate – повторять, копировать

impose – навязывать

artificial – искусственный

 

Unit 15

The First Modern Economists

 

The Basics of Adam Smith’s Works

 

In 1759, Adam Smith published his first work “The Theory of Moral Sentiments”. He continued making extensive revisions to the book up until his death. Although “The Wealth of Nations” is widely regarded as Smith's most influential work, it is believed that Smith himself considered “The Theory of Moral Sentiments” to be a superior work.

In the work, Smith critically examines the moral thinking of his time, and suggests that conscience arises from social relationships. His goal in writing the work was to explain the source of mankind's ability to form moral judgements, in spite of man's natural inclinations towards self-interest. Smith proposes a theory of sympathy, in which the act of observing others makes people aware of themselves and the morality of their own behavior.

Scholars have traditionally perceived a conflict between “The Theory of Moral Sentiments” and “The Wealth of Nations” - the former emphasizes sympathy for others, while the latter focuses on the role of self-interest. In recent years, however, some scholars have argued that no contradiction exists. They claim that in “The Theory of Moral Sentiments”, Adam Smith develops a theory of psychology in which individuals seek the approval of the "impartial spectator" because of their natural desire to have outside observers. Rather than viewing “The Wealth of Nations” and “The Theory of Moral Sentiments” as presenting incompatible views of human nature, some scholars regard these works as emphasizing different aspects of human nature that vary depending on the situation.

But these views ignore that Smith's visit to France (1764–1766) changed radically his former views and that “The Wealth of Nations” is an inhomogeneous convolute of his former lectures. Before his voyage to France in “The Theory of Moral Sentiments”, Adam Smith refers to an "invisible hand" which ensures that the gluttony of the rich helps the poor, as the stomachs of the rich are so limited that they have to spend their fortune on servants. After his visit to France, Smith considers in “the Wealth of Nations” (1776) the gluttony of the rich as unproductive labour. The micro-economic view in the traditions of Aristotle, Puffendorf and Hutcheson, Smith's teacher, – elements compatible with a neoclassical theory – changed to the macro-economic view of the classical theory that Adam Smith learned in France.

 

Notes:

theory of sympathy – теория сочувствия, сострадания

contradiction – противоречие, несоответствие

impartial spectator – беспристрастный наблюдатель

compatible – совместимый

gluttony – обжорство

 

 









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