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БЕЛОРУССКИЙ ГОСУДАРСТВЕННЫЙ УНИВЕРСИТЕТ

Кафедра английского языка гуманитарных факультетов

ENGLISH
for Economists

Минск
2004
Авторы-составители:
Тихомирова Л. Б., Князева Н. И., Рунцова Э. В., Кутыркина Т. П., Амелина Ю. М.,
Журавлева Л. П., Кудис С. П., Хведченя Л. В., Толстоухова В. Ф.

Под общей редакцией кандидата филологических наук Н. И. Князевой


и кандидата экономических наук Е.Э.Васильевой

Рецензенты:
Кандидат филологических наук, доцент С. В. Викулова
Кандидат педагогических наук, доцент Г. П. Савченко

Утверждено на заседании
кафедры английского языка гуманитарных факультетов
протокол № 1 от 22 сентября 2004 г.

English for Economists/ Английский язык для студентов экономи-


ческих специальностей/ Авт.-сост.: Л.Б. Тихомирова, Н.И. Князева,
Э.В. Рунцова и др. – Мн.: БГУ, 2004. – 291 с.

Пособие предназначено для студентов экономических специальностей неязы-


ковых вузов. Оно имеет профессионально ориентированную направленность и
включает в себя основные вопросы макро- и микроэкономики, международной тор-
говли, делового администриврования. Пособие составлено на основе аутентичных
материалов с использованием адекватных методов обучения различным видам про-
фессионального общения.
ПРЕДИСЛОВИЕ

Пособие «English for Economists» является стержневым компонентом


учебно-методического комплекса по английскому языку, обеспечиваю-
щим курс профессионально ориентированного обучения студентов эко-
номических специальностей (экономика, менеджмент, финансы и кре-
дит, экономическая теория). Оно составлено в соответствии с требова-
ниями «Программы обучения профессионально ориентированному об-
щению на иностранных языках (классические университеты)» и рассчи-
тано на 180 часов аудиторной работы при полном объеме курса в 350
часов.
Необходимость издания пособия обусловлена тем, что профессио-
нальное иноязычное общение является функционально значимым бло-
ком в системе подготовки современного экономиста. Особую актуаль-
ность оно приобретает на современном этапе социально-экономического
развития. Открытость границ, процессы интеграции материальной и ду-
ховной культуры многих сторон жизни европейского и мирового сооб-
щества, развитие информационных технологий привели к расширению
международных связей, созданию совместных предприятий, проектов и
других форм сотрудничества. Знание языков международного общения
стало важной частью квалификационной характеристики экономиста,
позволяющей ему качественно выполнять свои функциональные обязан-
ности, открывающей доступ к базе современных научных данных и
обеспечивающей конкурентоспособность отечественного специалиста на
мировом рынке труда.
Содержание курса согласовано с профилирующими кафедрами. Оно
коррелирует с содержанием специальных дисциплин, что обеспечивает
эффективную адаптацию будущего специалиста к многогранной профес-
сиональной деятельности в условиях межкультурного общения. Широ-
кий охват профессиональной тематики позволяет наиболее полно выде-
лить учебный терминологический словарь, а также составить представ-
ление о социокультурных особенностях функционирования экономиче-
ских систем в соизучаемых странах.

3
По своей структуре пособие представляет собой серию разделов (18),
организованных по тематическому принципу. Несколько разделов обра-
зуют более крупный тематический блок. Например, в блок Microeconomy
входят темы Supply and Demand, Market Structure. В блок Business Ad-
ministration включает в себя темы Company Structure, Management, Ac-
counting, Marketing, Advertising etc. и т.д. Каждый раздел – самостоятель-
ный лингвометодический комплекс, систематизирующий материал по
основным видам речевой деятельности. Он имеет унифицированную
структуру и состоит из следующих частей:
– аутентичных текстов и заданий по развитию навыков различных
видов чтения (изучающего, просмотрового, ознакомительного, по-
искового);
– заданий по обучению письму (эссе, аннотирование, реферирова-
ние), сфокусированных на индивидуальных потребностях обучае-
мых, наиболее вероятных в их дальнейшей профессиональной дея-
тельности;
– комплекса заданий и упражнений по развитию навыков аудирова-
ния и перевода;
– заданий для углубления коммуникативной компетенции обу-
чаемых в рамках заданной проблематики, а также ролевых игр,
максимально приближенных к реальным профессиональными
ситуациям;
– анализа проблем экономического характера на основе конкретных
примеров деятельности корпораций и частных предпринимателей
(сase study);
– глоссария и тематического словаря, подлежащего активному ус-
воению.
Предполагается, что комплексное обучение всем видам речевой дея-
тельности на тематической основе (content based approach) будет способ-
ствовать более глубокому и всестороннему усвоению материала и тем
самым достижению главной цели обучения: коммуникативного и социо-
культурного развития личности, способной использовать иностранный
язык как средство профессионального общения в диалоге культур: род-
ной и иностранной.
1. PROFESSION OF AN ECONOMIST

DISCOVERING CONNECTIONS

1. Why have you chosen the profession of an economist?


2. Would you like to work for a company, teach economic disciplines at uni-
versity or operate your own economic business?
3. Do you think you have entrepreneurial flair or talent? What traits is a suc-
cesful businessman supposed to possess?

READING

Text 1
As you read the text, focus on different types of economists and their activities.
Careers: Economist
Economists study the ways in which individuals and society choose to use
limited resources, such as natural resources, labor, factories, and machines, in
an effort to satisfy unlimited wants. They are concerned with the production,
distribution, and consumption of goods and services and are interested in help-
ing society get as much satisfaction as possible from its limited resources.
Economists collect, process, and analyze data to determine the costs and bene-
fits of using resources in various ways.
Economists are employed in a number of different job settings. About half of
them are academic economists, who engage in teaching, writing and doing re-
search in colleges, and Universities. They also write textbooks and journal articles,
develop and test new theoretical models, provide consulting services to govern-
ments and businesses, and engage in variety of other professional activities.
The other half of all economists work for government or business.
Government economists collect and analyze information about economic
conditions in the nation and possible changes in government economic poli-
cies. Much of this information is published in government bulletins and re-
ports. Often the government economist wears a second hat1 as a policy ana-
lyst. Economists forecast tax revenues and interest rates, analyze, who gains
and who loses from particular changes, monitor prices, compute total output
and perform other useful tasks in the public sector.
Business economists work for banks, insurance companies, investment companies,
manufacturing firms, economic research firms, and management consulting firms.
Some economists operate their own economic businesses. They are called
entrepreneurs. This is a French word that has been accepted into the English

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language. Entrepreneurs are a mystery to some people, especially those who are
only comfortable with a nine-to-five existence and assured weekly paychecks
and fringe benefits. The entrepreneur is a business person who prefers to take
calculated risks in order to be his or her own boss. An individual hoping to start
up a new company needs to have entrepreneurial flair or talent, as well as good
technical skills and financial skills, because they make a profit through risk-
taking or initiative. They are self-employed, and often work long hours for less
pay than they would if they were an employee of another company.
While the percentage of growth for men entering into business independ-
ence could be measured in the teens, women’s increase in a single decade was
69 percent. There is no mystery here. Women go into business for the same
reason men do – to make money and to be their own bosses.
Entrepreneurship is regarded to be the first track to success. Rather than to
take a low-wage, big-industry job, people opt2 to use their wits and energy to
climb the ladder of independence. People who are successful in business and
so have become rich and powerful are called tycoons.
Speaking about entrepreneurship, Professor K. Vesper of the University of
Washington says that “A driving force in entrepreneurship is addictiveness3.
Once people have a taste of freedom in a business of their own, they like it.
They don’t want to go back to working for someone else.”

Notes:
1. Wear a second hat – занимать вторую должность.
2. Opt – выбирать, предпочитать (for; between).
3. Addictiveness – вызывающий привычку, привыкание.

Vocabulary Focus

Ex. 1. Study the meaning of the following words, then use them to fill in the gaps:
monitor, check and control.
– We check something to see if it is correct.
– The word control refers to power and domination. It is both a noun and a verb.
– If you monitor something you regularly check its progress.
1. I’ve … the documentation and everything is in order.
2. Inflation has not gone away but it is under … .
3. We constantly … the situation and if anything goes wrong we take action
immediately.
4. We apologize for the delay which is due to reasons beyond our … .
5. Economists … prices, compute total output and perform other useful tasks.

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Salary, wages and fringe benefits (also known as perks).
– A salary is paid monthly and usually by bank transfer. We use the word
salary for monthly payments to professional employees.
– Wages are paid weekly to manual or unskilled workers.
– Fringe benefits (also known as perks) are extra payments (a company car,
free accommodation etc.). In many job advertisements the combination of
salary plus perks is called a remuneration package.
Complete this extract from a job advertisement.
We are offering an attractive … …, including basic … of 60 K p.a1., plus
numerous … such as subsidized accommodation, free medical insurance etc.

Note:
1. K p. a. – one thousand per annum.

Ex. 2. Match the following word combinations in column A with their Russian
equivalents in column B:
A B
1) academic argument a) приобрести профессию экономиста
2) to provide fringe benefits b) заниматься коммерцией
3) a private entrepreneur c) чисто теоретическое доказательство
4) an independent entrepreneur d) доход от налогов, налоговые поступления
5) to show a flair e) частный предприниматель
6) to engage in business f) обнаруживать способность (к чему-либо)
7) to monitor performance g) независимый предприниматель
8) to qualify as an economist h) управлять работой
9) tax revenue i) предоставить дополнительные льготы

Ex. 3. Express in one word.


Involving a greater amount of reading and study than technical or practical
work; extra things that some people get from their job in addition to their salary; a
person who starts or organizes a commercial enterprise; a natural ability to do sth
well; the place of work; to watch and check sth over a period of time; to reach the
standard of ability; knowledge required in order to enter a particular profession;
working independently for customers or clients and not for an employer; to say in
advance what is expected to happen; an amount of money needed for a particular
activity or purpose, esp in business; to make sth available for sb to use by giving it.

Words for reference: costs, provide, academic, entrepreneur, self-employed,


perks (fringe benefits), monitor, forecast, job-setting; flair, qualify, skill.

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Ex. 4. Choose the words with similar meaning from two columns and arrange
them in pairs.
A B
1) costs (n) a) supply, equip, outfit
2) monitor (v) b) expenses, outlay
3) flair (n) c) control, manage
4) entrepreneur (n) d) skill, talent, inclination
5) forecast (n) e) employer
6) provide (v) f) responsible
7) job-setting (n) g) place of work
8) liable (a) h) prediction, prophecy

Ex. 5. Complete the sentences using the words given below.


1. … means having the qualities that are needed to succeed as an entrepreneur.
2. An … is a person who sets up business and business deals.
3. A … is a person who is successful in business and so has become rich
and powerful.
4. The industry will have to pass its increased … on to the consumer.
5. The management will … accommodation, food and drink for thirty people.
6. He has always been … for his children.
7. The … … of the job include a car and free health insurance.
8. He won’t … as an economist until next year.
9. An individual hoping to start up a new company needs to have entrepre-
neurial … or talent.
10. Unfortunately … of higher profits did not come true.
11. Economists are concerned with the production, … and … .

Words for reference: self-employed, forecasts, benefits or fringe benefits, qualify,


flair, entrepreneurial, costs, provide, liable; tycoon, distribution, consumption.

Comprehension

Ex. 1. Expand the sentences.


1. Economists study the ways in which individuals and society choose to use … .
2. They are concerned with … .
3. About half of them are academic economists who … .
4. The other half of the profession work for … .
5. Government economists forecast … .
6. Business economists work for … .

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7. Rather than to take low-wage, big-industry job, people opt to … .
8. An individual hoping to start up a new company needs to have … .
9. Entrepreneurship is regarded to be … .

Ex. 2. Answer the questions.


1. What do economists study?
2. What job settings are economists employed in?
3. What are the spheres of activities of:
a) academic economists?
b) government economists?
c) business economists?
4. How do entrepreneurs differ from above mentioned economists?
5. What is a driving force in entrepreneurship?
6. What is the percentage of growth for men and women entering into busi-
ness independence?

Ex. 3. Re-order the sentences to make a paragraph with a logical sequence.


1. The entrepreneur has no guarantee that this new business venture will be
successful, and often invests his or her own savings in the business, mean-
ing that the entrepreneur needs to be a risk taker.
2. The entrepreneur’s flair or talent ensures that the business becomes
successful.
3. An entrepreneur begins with an idea and the forms of a new business.
4. The new organization begins producing goods or services.

Text 2
While reading the passage pay attention to the description of degrees in eco-
nomics.
Degrees in Economics
The amount of training required to become an economist in most countries
abroad depends on the type of employment that a potential economist is seek-
ing for.
Most students studying at the university for the first time take a degree,
called a first degree. They are undergraduate students. This degree is called
Bachelor of Art (B.A.) or Bachelor of Science (B.S.) The B.A. in Economics
requires different courses.
Below you can see a choice of subjects offered by the University of South
Florida.

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Basic Courses
Economic Principles Principles of Management
Introduction to Macroeconomics Personnel Management
Intermediate Price Theory Small Business Management
Intermediate Income and Monetary Analysis Principles of Accounting
History of Economic Thought Ethical Issues in Business
Management Business Administration
Statistics for Economics and Business Introduction to Mathematical
Employment Laws Economics

Supporting Courses
International Economics Organizational Behavior Analysis
Comparative Economic Systems Communication and Information Theory
Monetary Theory Quantitative Methods in Business
Labor Economics International Business
Public Finance Industrial Psychology

A bachelor’s degree (four years of college) with a major in economics is


sufficient for many entry-level management positions.
However, most job openings for economists require advanced training.
Those college graduates who wish to seek higher level jobs usually enrol in
graduate school and obtain either a master's degree or a doctorate in eco-
nomics. A master's degree requires approximately one year of advanced
training, and a doctorate usually requires at least four. Economists must have
a thorough understanding of economic theory, mathematical methods of eco-
nomic analysis, and basic statistical procedures. In addition, training in com-
puter science is becoming increasingly important. The M.A. studies in eco-
nomics prepare students for careers as professional economists in business
and government. It is also excellent preparation for continued graduate study
in economics.
Requirements: strong motivation, aptitude and basic intellectual ability are
needed for success in graduate study in economics.
Program requirements: all students are required to take courses in ad-
vanced economic theory and economics. Students preparing for profes-
sional carriers choose additional applied courses in industrial organization,
international economics, natural and human resources, and urban and public
economics.
Students preparing for doctoral studies select from these and additional
courses in economic theory, mathematics, and quantitative methods.
Students must satisfy all University requirements for the M.A. degree.
Courses should be selected with the approval of graduate advisor.

10
Required courses:
– microeconomics: microeconomic behavior of consumers, producers, and
resource suppliers; price determination in output and factor markets; gen-
eral market equilibrium.
– aggregate economics: advanced microeconomics analysis of income; em-
ployment; prices; interest rates and economic growth rates.
– econometrics 1
– econometrics 2.
The Master of Business Administration Degree (M.B.A.) is a profes-
sional degree designed to prepare graduates for managerial roles in business
and non-profit organizations. Graduates will develop the necessary skills and
problem-solving techniques that will permit them to make an early contribu-
tion to management and eventually to move into broad, general management
responsibilities at the executive level. You can get this degree abroad and in
Belarus as well: at the International Graduate School of Business and Man-
agement of Technology (BSU). It offers a program for managers with business
background. The aim of this program is to provide theoretical and practical
knowledge in general management and prepare high-level managers. The pe-
riod of education is two years. Classes are conducted at very convenient eve-
ning time. The language of classes is English or Russian.
Required Courses
Year 1
Microeconomics Financial Accounting
Macroeconomics Business Statistics
Marketing Business Law
Business Finance Managerial Accounting
English
Year 2
Strategic Management Consumer Behavior
Managerial Information Systems Human Resource Management
Personal Development Business Planning
Operational Management Negotiations and Conflict Management
Financial Markets, Investments, and Banking Marketing Communications
International Management English
New Product management
The faculty uses various delivery systems in the classroom: the traditional
lecture/discussion, case method, simulation, model building, and laboratory
techniques. These methods emphasize an analytical, conceptual, and theoreti-
cal balance throughout the program, which helps sharpen students’ resource-

11
fulness in solving complex problems and selecting optimal courses of action.
Students are given many opportunities to demonstrate their writing and verbal
competency and to improve interpersonal communication. At the end of the
second year students defend Master’s Theses.

Questions
1. What degree do undergraduate students study for?
2. What a second, more specialized degree do students study for?
3. What are similarities and differences of an economic course curriculum in
American universities and the BSU? Write a list of courses you are taking
in the first year. Consult a dictionary if it is necessary.
4. What kind of degree is MBA? What is the aim of this program? What
courses does the program of International Graduate School of Business and
Management of Technology (BSU) offer?
5. What field of activity would you choose:economics or business administra-
tion? Give your arguments1.

Note:
1. One of the techniques to create an argument is as follows:
a) state the claim;
b) explain the claim;
c) prove the claim. Provide evidence and reasoning;
d) make a conclusion.
Example of an argument:
a) Good manager plays an important role in the company.
b) He fullfills the vital functions: planning, organizung, forecasting.
c) By applying his managerial skills the manager can bring profit to the company.
d) That is why the manager’s role in the company can not be overestimated.

Text 3
Outstanding Economists
Work in groups of three. Look at the outline on the next page. Each person
should scan one of the articles and take notes in the appropriate section of the
outline. Then share information so that you and your partner have the same
data and can fill in the outline completely.
A.
The Founder of Economics
Adam Smith was born in Kirkcaldy located to the north of Edinburgh in the
year 1723. Adam Smith was to become the first political economist the world
had ever known. He was to take his place at the head of the first school of

12
economics, one that continues and is known as the "classical school." In 1740,
at the age of seventeen, Smith was sent off to Oxford on scholarship.
In 1751, at age twenty-eight, Adam Smith became a professor of Logic at
Glasgow. It was his first academic appointment. Smith was a curious human
being. He treasured his library, and was continually absorbed in abstractions;
he was notoriously absent-minded. Smith led a quiet and sheltered life; he
lived with his mother (she lived to be ninety) and remained a bachelor all his
life. Though silent and awkward in social situations, Adam Smith possessed,
in considerable perfection, the peculiarly Scotch gift of abstract oratory. Even
in common conversation, when once moved, he expounded his favourite ideas
very admirably. As a teacher in public he did even better; he wrote almost
nothing, and though at the beginning of a lecture he often hesitated, we are
told, and seemed 'not to be sufficiently possessed of the subject,' yet in a min-
ute or two he became fluent, and poured out an interesting series of animated
arguments. Adam Smith acquired a great reputation as a lecturer.
Some time later he became a tutor to a wealthy Scottish duke. Then he re-
ceived a grant of 300 pounds a year. It was a very big sum, 10 times the aver-
age income at that time. With the financial security of his grant, Smith devoted
10 years to writing his work which founded economic science. Its full name
was ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ It was
published with great success in 1776.
The Wealth of Nations opens with a description of the specialization of la-
bour in the manufacture of pins; the book covers a variety of subjects: from the
professorships at Oxford to the statistics on the herring catch since 1771; from
stamp duties to the coined money used by the Romans. The book is full of de-
tail. What Adam Smith did in his book was to explain how self-interest was the
engine of the economy and competition its governor. He set forth the great les-
son that all economists come to sooner or later. Robert Heilbroner wrote: “First,
he [Adam Smith] has explained how prices are kept from ranging arbitrarily
away from the actual cost of producing a good. Second, he has explained how
society can induce its producers of commodities to provide it with what it
wants. Third, he has pointed out why high prices are a self-curing disease, for
they cause production in those lines to increase. And finally, he has accounted
for a basic similarity of incomes at each level of the great producing strata of
the nation. In a word, he has found in the mechanism of the market a self-
regulating system which provides for society's orderly provision.”
On July 17th, 1790, Adam Smith died at Edinburgh; he was buried in the
Canongate churchyard.

B.

13
David Ricardo (1772–1823)
David Ricardo was born on 19 April 1772 in London. He was the third son
(out of seventeen!) of a Dutch Jew who had made a fortune on the London
Stock Exchange. At the age of fourteen, after a brief schooling in Holland, Ri-
cardo's father employed him full-time at the London Stock Exchange, where
he quickly acquired a knack for the trade. At 21, Ricardo broke with his fam-
ily and his orthodox Jewish faith when he decided to marry a Quaker called
Priscilla Anne Wilkinson; Ricardo then converted to Christianity. His family
disinherited him for marrying outside his Jewish faith.
Ricardo had to establish his own business. He continued as a member of
the stock exchange, where his ability won him the support of an eminent bank-
ing house. He did so well that in a few years he acquired a fortune. This en-
abled him to pursue his interests in literature and science, particularly in
mathematics, chemistry, and geology.
He became rich in a very short time. When he died, his estate was worth
over $100 million in today's dollars.
In 1799 he read Adam Smith’s Wealth of Nations and got excited about
economics. So for the next ten years he studied economics. Bright and talka-
tive, Ricardo discussed his own economic ideas with his friends, notably
James Mill. But it was only after the persistent urging of the eager Mill that
Ricardo actually decided to write them down. In 1809 he wrote that England's
inflation was the result of the Bank of England's propensity to issue excess
bank notes. In short, Ricardo was an early believer in the quantity theory of
money, or what is known today as monetarism.
In 1814, at the age of 42, Ricardo retired from business and took up resi-
dence at Gatcombe Park in Gloucestershire, where he had extensive landhold-
ings. In 1819 he became MP for Portarlington. He did not speak often but his
free-trade views were received with respect, although they opposed the eco-
nomic thinking of the day. Parliament was made up of landowners who
wished to maintain the Corn Laws to protect their profits. In 1815 Ricardo re-
sponded to the Corn Laws by publishing his Essay on the Influence of a Low
Price of Corn on the Profits of Stock, in which he argued that raising the du-
ties on imported grain had the effect of increasing the price of corn and hence
increasing the incomes of landowners and the aristocracy at the expense of the
working classes and the rising industrial class. He said that the abolition of the
Corn Laws would help to distribute the national income towards the more
productive groups in society.
In 1817, Ricardo published Principles of Political Economy and Taxation
in which he analyzed the distribution of money among the landlords.

14
David Ricardo formalized the Classical system more clearly and consis-
tently than anyone before had done. For his efforts, he acquired a substantial
following in Great Britain and elsewhere – what became known as the "Clas-
sical" or "Ricardian" School. His system, however, was improved very little
by his disciples. Perhaps only John Stuart Mill (1848) and Karl Marx (1867–
94) added insights of any great weight.
He died on 11 September at Gatcombe Park (which is now the home of the
Princess Royal and her family). He was 51.

C.
John Maynard Keynes (1883-1946)
The English economist John Maynard Keynes is regarded as the originator
of modern macroeconomics.
In 1935 George Bernard Shaw received a letter from John Maynard Keynes
in which Keynes asserted, “I believe myself to be writing a book on economic
theory, which will largely revolutionize… the way the world thinks about
economic problem”. And, in fact, Keynes’s The general theory of employ-
ment, interest and money (1936) did revolutionize economic analysis and es-
tablished Keynes as one of the most influential economists of all time.
The son of an eminent English economist, Keynes was educated at Eton
and Cambridge. While his early interests were in mathematics and probably
theory, Keynes ultimately turned to economics.
Keynes was far more than an economist. He was an active, many-sided
man who also played such diverse roles as principal representative of the
Treasury at the World War I Paris Peace Conference, a director of the Bank of
England, trustee of the National Gallery, editor of the Economic Journal. He
also ran an investment company, organized the Camargo Ballet (his wife,
Lydia Lopokova, was a renowned star of the Russian Imperial Ballet), and
built the Art Theatre at Cambridge.
In addition Keynes found time to amass a $2 million personal fortune by
speculating in stocks, international currencies, and commodities. He was also
a leading figure in the “Bloomsbury Group”, an avantgarde of intellectual lu-
minaries who greatly influenced the artistic and literally standard of England.
Most importantly, Keynes was a prolific scholar. His book encompassed
such widely ranging topics as probably theory, monetary economics, and
the economic consequences of the World War I peace treaty. His magnum
opus, however, was the General Theory, which was described as “a work
of profound obscurity, badly written and prematurely published”. Yet the
General Theory attacked the classical economists’ contention that reces-
sion will automatically cure itself. Keynes’ analysis suggested that reces-

15
sion could easily spiral downward into a depression. Keynes claimed that
modern capitalism contained no automatic mechanism which would propel
the economy back towards full employment. The economy might languish
for many years in depression, and the depression of the 1930s seemed to
provide sufficient evidence that Keynes was right. His basic policy rec-
ommendation – a starting one in view of the balanced-budget sentiment at
the time – was for government in these circumstances to increase its
spending to include more production and put unemployed back to world.

John Maynard
Adam Smith David Ricardo
Keynes
Date of Birth (DOB)
Place of Birth (POB)
Background
Education
Scientific Activity
Works
Impact on Economics

WRITING

Study the biographical data of Michael Del and Ingvar Kamprad, find the in-
formation about famous businessmen and write it down as in the examples
that follows the tables.
Michael Dell
Timeline
1965 Born.
1977 Aged 12, sells stamps by catalogue.
1983 Enters the University of Texas at Austin.
1984 Drops out of university to found Dell Computer.
1988 Dell Computer’s first-year revenues $257.8 million.
1994 www.dell.com launched.
1997 Dell’s online sales, begun in 1996, exceed $3 million a day.
2000 Online sales reach $50 million.

Example
Michael Dell (1965–) was always going to be a winner. After all, how
many high school students earn more than their teachers? Dell progressed
from selling newspaper subscriptions to selling computers.

16
Yet it wasn’t the product that made him wealthy, it was the way he sold it.
The Dell corporation pioneered direct selling of computers. It is also an excel-
lent example of a company succeeding by sticking to its founding principles:
build to order, keep low stocks, sell direct, understand your customer. And the
Internet was a godsend for Dell. What better way of reaching the global con-
sumer? Dell’s success with the direct selling business model has made him the
youngest CEO ever of a Fortune 500 company.

Ingvar Kamprad
Timeline
1926 Born.
1943 Registers company, Ikéa.
1948 Advertises furniture for the first time.
1951 Publishes first catalogue. Revenue exceeds one million kronor ($95,000).
1953 Opens factory combined with furniture exhibition centre in Älmhult.
1956 Introduces flat packaging.
1958 Opens first store in Älmhult.
1965 Introduces self-service in stores.
1982 Ownership transferred to Dutch Foundation – Stichting INGKA.
1986 Officially retires, handing day-to-day running to Anders Moberg.
1995 Stichting INGKA buys Habitat chain.
1999 150th store opens. Turnover reaches Kr60 billion ($5.689 billion).

Example
Kamprad is a brilliant flat-pack king of furniture. Kamprad enjoys chal-
lenging the establishment and upsetting the odds. Industrious from an early
age, Kamprad took on the furniture cartel in Sweden and neatly out-
manoeuvred it. In the end, as he always predicted they would, customers got
what they demanded: low prices and good quality. A man who prides himself
on being an ordinary person, Kamprad continued to deliver value for money to
ordinary people through innovations such as flat-pack furniture and self-
service. Shopping the IKEA way became a family day out, a fun experience,
long before the advent of the out-of-town shopping centre. When Kamprad of-
ficially took a back seat from line management at IKEA in 1986, he had
changed the nature of retailing and provided inspiration for thousands of en-
trepreneurs.
TRANSLATION

17
A. Translate into Russian.
Woman’s Place in Management
Bad news for female managers. Their subordinates resent being disciplined
by them. Men and women alike would far rather be scolded by a male boss
than a female one. Indeed, a study of gender and discipline at work, by Leanne
Atwater, a professor at the school of Management at Arizona State University,
and two colleagues, finds that women dislike being told off by another woman
even more than men do.
Many studies of male and female have claimed that the sexes differ in their
styles of leadership: women do better at the people’s side, men at the getting-
the-job-done side. Sociologists have studied the different reactions of girls and
boys to discipline at school: boys get used to being reprimanded whereas girls,
who are more rarely rebuked, take it more personally. But nobody seems to
have studied discipline and gender at work.
Ms Atwater and her colleagues interviewed 163 workers from a broad
range of jobs who had been disciplined in a variety of ways, from being fired
to being ticked off. In about 40% of cases, they found, subordinates changed
their behavior as a result of their telling – off, and female bosses were as suc-
cessful in this as men. But male bosses were much more severe than women:
they were three times as likely to suspend or sack a subordinate, and only half
as likely to give merely an oral wigging. Even so, when female subordinates
were asked if they felt responsible for their bad behavior, 52% said no when a
female boss read the riot act – but only 18% when the boss was male.
One explanation for such differences, suggested by a member of the audi-
ence at the Academy of Management conference in Toronto where the paper
was recently presented, is that women tend to resolve conflicts quickly – and
are therefore blamed for overreacting – while men wait in the hope that things
will blow over.
Another explanation, from Alice Eagly, a professor of psychology at
North-western University, is that women are recent arrivals in managerial
roles, and so have less legitimacy than men. There is also a problem of “gen-
der spillover”: people assume women are kind and gentle at home, and expect
the same at work. Spillover, though, works both ways. The paper called “Wait
Until Your Father Gets Home”, a line that small family subordinates are all
too used to hearing.

18
B. Translate into English.
Экономическое образование – это подготовка специалистов по
планированию, учету, финансам и другим направлениям экономической
работы в народном хозяйстве, в области научной и педагогической
деятельности. Возникновение экономических учебных заведений связано
с развитием промышленности и торговли.
Во второй половине XVIII века в России были организованы первые
коммерческие училища. Преподавание экономических дисциплин в
университетах началось в XIX веке. Первые специализированные вузы
по подготовке специалистов для торгово-промышленной деятельности
возникли в начале XX века (коммерческие университеты в Москве и
Киеве). В Беларуси экономические институты появились тоже в XX веке.
Ведущим отраслевым вузом Республики Беларусь является Белоруский
государственный экономический университет. Экономичские специаль-
ности можно также приобрести в ряде других вузов страны. В БГУ обу-
чение ведется по следующим специальностям: экономика, экономиче-
ская теория, менеджмент, финансы и кредит.

LISTENING

You’ll hear four people talking about their work. They work for Small
World, a company that produces computer systems and software for handling
maps and geographical information. Its customers include supermarket chains,
local government departments and cable TV companies.

Ex. 1. Listen to the text twice and fill in the chart.


Ian McShane is an Lesley Trigg is a
a…………… a………………

He is responsible for: Her responsibilities are:


…………… 1………………
2 ……………...
He enjoys: 3 ………………
1………….. She enjoys:
2……………. ………………..
3…………….
He doesn’t enjoy: She doesn’t enjoy:
………………. ………………..
Patrick Verdon is a Paul Lockwood is a
s………………. t…………o

19
administrator(this is a
t………………sh He provides
His responsibilities include: ……………
1……………… for customers and agents.
2 ……………... of machines, operat- He enjoys:
ing system and the software prod- 1………………
uct. 2 ………………
He enjoys ……………… 3 ………………
He doesn’t enjoy: ……… He doesn’t enjoy:
1. ……………….
2.

Ex. 2. Work in pairs Ask your partner these questions:


– Which of the jobs that you have heard about would you most like to do
yourself? Why?
– Which would you least like to do? Why?

SPEAKING

A.
Read the interview in which Andy Rees, Head of Studies at Leicester Business
School, dwells on business degrees.
Q: Explain briefly the type of business-related degree courses on offer.
A: Leicester Business School offers a huge breadth of academic and indus-
trial expertise1. Courses available at undergraduate degree level include
advertising and marketing communications, international marketing and
business, accounting and finance, human resource management, public
administration and managerial studies, public policy and management,
housing studies, marketing and business studies. All the degree pro-
grammes have a strong vocational focus, with an emphasis on skills de-
velopment and a placement option.
Q: What are your normal entry requirements?
A: 5 GCSEs at grade C or above, including English and maths, plus 220-260
UCAS tariff points (or equivalent). All applications are considered indi-
vidually and all equivalent UK and overseas qualifications are accepted.
Mature students are also encouraged to apply.
Q: Describe briefly the structure of the degrees (e.g. are they modular2, how
much is core compared to option?) and duration.
A: All undergraduate courses are modular and can be completed on either a
full-or part-time bases. Our BA business studies degree can also be stud-

20
ied via Open Learning. During the first year students study key areas of
their chosen discipline which they build upon in subsequent years. In the
second and third years the ratio3 of core to optional modules depends on
the pathway/area of specialization chosen and professional accreditation
requirements.
Q: Are there specialist routes4 available or is it a standard course?
A: During the second and third years students can develop specialist areas
of study within the more general degrees such as business studies, focus-
ing on human resource management, finance or marketing. Alternatively,
students follow more specialist routes from year one on courses such as
accounting and finance or public policy.
Q: What flexibility is there for moving between routes, once you have
started a course?
A: Leicester Business School makes every effort to support students who
may discover that a pathway is unsuitable for them and wish to change
subject areas. All cases are considered individually.
Q: Is a placement5 year available and, if so, how do you find a placement?
A: A 1-year paid industrial placement (taken after the second year) is an op-
tion for most undergraduate students. The specialist team, experienced in
dealing with placement students and employers, identifies vacancies
available for students to apply for and helps students find placements that
suit them.
Q: If available, what is the value of a placement year? Give examples of the
type of placements available.
A: A placement year is an invaluable opportunity to gain experience of the
business world. Successful completion of the formally assessed place-
ment enables students to graduate with a sandwich degree6 qualification.
Recently, students have been placed with IBM, Hewlett Packard, Sie-
mens, Volkswagen and the Ministry of Defence.
Q: What types of assessments are used?
A: Essays, reports, assignments, presentations, group projects, case study
analysis, formal exams and a dissertation.
Q: How much contact time is there per week and how much independent
study is expected?
A: Approximately 12-15 hours contact time per week (mainly lectures,
seminars and tutorials) and 15-30 hours self-directed study per week.
Q: Do all students have to do a project/dissertation in order to get their de-
gree?
A: No. Students can complete two taught modules rather than a dissertation
in their final year if preferred.

21
Q: What is the employment rate of business graduates like and what type of
jobs do they move into?
A: Our graduates are highly rated by industry. Recent graduates have found
employment with BT, Virgin Atlantic Airways, Broadcasting Standards
Council, Barclays Bank, BP, County Council Race Relations Unit,
BUPA, the Police Force, English Nature, NHS Hospital Trusts, the
Inland Revenue and Housing Associations.
Q: Why do you think students choose De Montfort University business de-
grees?
A: DMU is one of the ten largest providers of business and management
education in the UK. It is a leading research centre.
Students also benefit from living in Leicester, a vibrant7, cosmopolitan
city that is home to over 30,000 students during term-time. It’s an ideal
city for students, with the cost of living well below the national average
and the city centre just a few minutes’ walk from the university campus.
Road and rail links to other major UK cities are good and open country-
side is within easy reach.

Notes:
1. Expertise – expert knowledge or skill.
2. Modular – composed of separate units from which students may select a specific number.
3. Ratio – a relation between two amounts, which shows how many times one contains the other.
4. Specialist route – a fixed course.
5. Placement – the action of placing sb/sth (e.g. The students spend the third year of the
course on a placement with an industrial firm.).
6. Sandwich course – an educational course in which there are periods of study between
periods of working in a company, in industry.
7. Vibrant – full of life and energy.

Task: You are going to get a degree at Leicester Business School. Discuss
with your partner the following issues.
1. Business-related degree courses Leicester Business School offers.
2. Entry requirements.
3. Special routes and flexibility for moving between them.
4. Placements available.
5. Types of assessments.
6. The employment rate of business graduates.

B.
Discuss the following issues:
1. Have you changed your attitute to the profession of an economist after
22
learning the information of the Unit?
2. What kind of economist would you like to become: academic, government
or business? Why?
3. Do you think it is enough to take a bachelor degree to become an experi-
enced economist? What are you plans for the future? Are you going for fur-
ther education after getting the first degree? Why?
4. Do you belong to the people who are comfortable with a nine-to-five existence?
Are there many people of this type among your friends, relatives, colleagues?
5. Would you like to be your own boss? What business do you see yourself in?

VOCABULARY

academic adj – 1. университетский; академический; учебный; 2. чисто тео-


ретический; 3. фундаментальный (в противоположность прикладному)
be employed – быть занятым, работать, служить
benefit n – выигрыш, выгода
~s n – льготы
fringe ~/perks – дополнительные льготы
consume v – потреблять, расходовать
consumer n – потребитель
consumtion n – потребление
distribute v – распределять
distribution n – распределение
engage (in) v – амер. заниматься
entrepreneur n – бизнесмен, делец, предприниматель
entrepreneurial adj – предпринимательский
flair n – талант, склонность, способность
forecast n – предсказание, прогнозирование
job setting n – рабочее место/окружение
liable adj – ответственный (for – за)
monitor v – контролировать
operate one’s own business - управлять своим бизнесом
provide v – 1. снабжать (with); 2. обеспечивать (for);
~ services – предоставлять услуги
~ed – при условии, что
qualify v –1. квалифицировать (ся); 2. готовить к деятельности, обучать,
приобретать квалификацию; 3. определять.

23
salary n – жалованье, оклад
self-employed adj – обслуживающий свое собственное предприятие; ра-
ботающий не по найму
specialize in – специализироваться в
tycoon n – магнат
wage (pl) n – заработная плата
work for – работать (в компании)

GLOSSARY

· Academic economists engage in teaching, writing and doing research.


· Government economists collect and analyze information about economic
conditions in the nation and possible changes in government economic
policies.
· Business economists work for banks, insurance companies, investment
companies, manufacturing firms, economic research firms, and manage-
ment consulting firms.
· Entrepreneurs operate their own economic businesses.
· Bachelor of Art (B.A.) or Bachelor of Science (B.S.) is a person who
holds a first university degree.
· Master of Art (M.A.) or Master of Science (M.S.) is a holder of the sec-
ond university degree.
· Doctorate is the highest university degree.
· Tycoon is a person who is successful in business and so has become rich
and powerful.

24
2. ECONOMICS AS A SCIENCE
2.1. ECONOMICS AND ECONOMIC METHODS

DISCOVERING CONNECTIONS
1. Can you explain the difference between wants and needs? Is it possible to
satisfy all the desires? Why?
2. Do you know what scarcity is? Do you agree that scarcity is typical for all nations?
3. What is a luxury and what is a necessity?

READING

Text 1
As you read the text, focus on the difference between macroeconomics and mi-
croeconomics.
Economics: the Study of Scarcity and Choice
Our world is a finite place where people, both individually and collectively,
face the problem of scarcity. Scarcity is the condition in which human wants
are forever greater than the available supply of time, goods, and resources.
Because of scarcity, it is impossible to satisfy every desire. Pause for a mo-
ment to list some of your unsatisfied wants. Perhaps you would like a big
home, gourmet meals, designer clothes, clean air, better health care, shelter for
the homeless, more leisure time, and so on. Unfortunately, nature does not of-
fer the Garden of Eden, where every desire is fulfilled. Instead, there are al-
ways limits on the economy’s ability to satisfy unlimited wants.
You may think your scarcity problem would disappear if you were rich, but
wealth does not solve the problem. No matter how affluent an individual is,
the wish list continues to grow. The condition of scarcity means all individu-
als, whether rich or poor, are dissatisfied with their material well-being and
would like more. What is true for individuals also applies to society.
Economics is the study of how society chooses to allocate its scarce resources to
the production of goods and services in order to satisfy unlimited wants. Society
makes two kinds of choices: economy-wide, or macro choices and individual, or mi-
cro, choices. The prefixes macro and micro come from the Greek words meaning
“large” and “small,” respectively. Reflecting the macro and micro perspectives, eco-
nomics consists of two main branches: macroeconomics and microeconomics.
Macroeconomics
The old saying “Looking at the forest rather than the trees” fits macroeco-
nomics. Macroeconomics is the branch of economics that studies decision mak-

25
ing for the economy as a whole. Macroeconomics examins economy-wide vari-
ables, such as inflation, unemployment, growth of the economy, money supply,
and national incomes. Macroeconomic decision making considers such “big
picture” policies as the effect of balancing the federal budget on unemployment
and the effect of changing the money supply on prices.
Microeconomics
Examining individual trees, leaves, and pieces of bark, rather than survey-
ing the forest, illustrates microeconomics. Microeconomics is the branch of
economics that studies decision making by a single individual, household,
firm, industry, or level of government. Microeconomics applies a microscope
to specific parts of an economy, as one would examine cells in the body. The
focus is on small economic units, such as economic decisions of particular
groups of consumers and businesses.
We have described macroeconomics and microeconomics as two separate
branches, but they are related. Because the overall economy is the sum or ag-
gregation of its parts, micro changes affect the macro economy, and macro
changes produce micro changes.

Vocabulary Focus

Easily confused words: economic / economics / economy / economical /


economist / economize.
Study the explanations of the words.
Economic means concerned with the organization of the money, industry,
and trade of a country, region, or social group. A business that is economic
produces a profit.
Something that is economical does not require a lot of money to operate. If
someone is economical, they spend money carefully and sensibly. Economi-
cal also means using the minimum amount of something that is necessary.

Ex. 1. Complete the following sentences with the appropriate word from the list below.
economic economics economize
economical economist economy
1. A good manager is _____ in the use of his funds.
2. An _____ person saves money and expense wherever possible.
3. An _____ is a person who studies, teaches, or writes about economics.
4. By exercising strict _____ he saved enough money to retire early.
5. By using _____ in buying food and clothes, we were soon able to save
money for the new car we needed.

26
6. _____ is a social science concerning behavior in the fields of production,
consumption, distribution, and exchange.
7. In times of difficulties we all have to _____.
8. It is much more _____ to buy in bulk.
9. Nations experience different rates of _____ growth.
10. The country is in the period of _____ and industrial crisis.

Ex. 2. From two columns choose the words with similar meaning and arrange them in pairs.
A B
1) scarcity a) insufficiency / shortage
2) goods b) merchandise
3) degree of merit c) manufacture
4) economical d) quality
5) production e) work done for somebody or something
6) service f) infinite
7) unlimited g) option
8) choice h) thrifty
9) pervasive i) all-encompassing

Ex. 3. From two columns choose the words with opposite meaning and ar-
range them in pairs.
A B
1) wealth a) abundance
2) to satisfy b) poverty
3) scarcity c) to dissatisfy
4) to raise d) to lower
5) to improve e) to make worse
6) to spend f) to economize
7) revenue g) expenditure
8) macro h) micro

Ex. 4. Form the following pairs of derivatives and memorize them.


V ® N N ® A
govern threat
provision wealthy
apply economics
improvement nation
grow scientific
development

27
Ex. 5. Match English and Russian equivalents.
A B
1) удовлетворять каждое (любое) желание a) to face the problem of scar-
2) столкнуться с проблемой редкости city
(нехватки) b) to satisfy every desire
3) перспективный взгляд c) unsatisfied wants
4) размещать ресурсы d) conomy’s ability
5) вечная проблема e) an affluent individual
6) существенный экономический рост f) to be dissatisfied
7) улучшать качество g) to improve the quality
8) быть неудовлетворенным h) substantial economic growth
9) богатый индивидуум i) perpetual problem
10) способность экономики j) to allocate resources
11) неудовлетворенные потребности k) perspective overview

Comprehension
Ex. 1. Expand the sentences, using the text.
1. Our world is a finite place where people … .
2. Scarcity is the condition in which… .
3. Economics is the study of how … .
4. Macroeconomics is the branch of economics that … .
5. Microeconomics is … .

Ex. 2. Choose the right variant.


1. The condition of scarcity:
a. cannot be eliminated.
b. prevails in poor economies.
c. prevails in rich economies.
d. all of the above.
e. none of the above.
2. The condition of scarcity can be eliminated if:
a. people satisfy needs rather than false wants.
b. sufficient new resources were discovered.
c. output of goods and services were increased.
d. all of the above.
e. none of the above.
3. The subject of economics is primarily the study of:
a. the government decision-making process.

28
b. how to operate a business successfully.
c. decision-making because of the problem of scarcity.
d. how to make money in the stock market.
4. Which of the following is included in the study of macroeconomics?
a. Salaries of college professors.
b. Computer prices.
c. Unemployment in the nation.
d. Silver prices.
5. Microeconomics approaches the study of economics from the viewpoint of:
a. individual or specific markets.
b. the national economy.
c. government units.
d. economy-wide markets.

Text 2
As you read the text, underline the main ideas and supporting information in
reference to opportunity cost.
Opportunity Cost
Do you have things you want? Probably not. Very few people ever reach
the stage where they have everything they want. In fact, one want often leads
to another. It is important to point out however, that there is a difference be-
tween wants and needs. Everyone needs food, clothing and shelter but other
so-called “needs” are really “wants”. For example, you may insist that you
need a car but you may live in an area where you really don’t have to have
one. You can walk, bicycle, or rely on public transportation to get around.
Similarly, you may want new clothes, but whether or not you need them is a
value judgement. If you think about it, you probably will agree that most peo-
ple's needs are limited. In contrast, people's wants are unlimited.
Because of the problem of scarcity nations, businesses, and individuals all
must make choices in an effort to satisfy unlimited wants with limited re-
sources. These choices are not always easy. Suppose you have saved some
money and are thinking of buying a new bicycle. Before buying the bicycle,
however, you may give some consideration to the possibility of buying some-
thing else instead. Would a stereo system give you more pleasure than the bi-
cycle? What about the possibility of buying a used bike so you will have
enough money left over to buy the new shoes you need or to put some money
aside for college? Or would it be better to save the money toward a down
payment on a used car that you can use on your part-time job as well as at col-
lege? Because your income is limited and you can buy only a limited number

29
of things, you probably will give considerable thought to the situation before
making your purchase.
However you decide to use your money you will have to give up the oppor-
tunity to purchase something else that also may have given you pleasure. If
you decide to purchase the second-hand bicycle so that you will have some
money to put aside for college, you will have to give up the opportunity to buy
the stereo system or to buy the new bicycle. Economists use the term opportu-
nity cost to refer to the next best alternative that is given up when a decision is
made to use resources in a particular way. In this example, if your second
choice would have been the purchase of a stereo system, then the opportunity
cost of buying the used bicycle and putting aside the money for college is the
stereo system you could have had.
Money is not the only scarce resource that individuals have. Time is also a
scarce resource. Suppose that on a particular Saturday night you have the op-
portunity to go out on a date with a person you like very much. At the same
time, you also have the opportunity to go roller-skating with several of your
friends. Because you can't do both you must make a choice. No matter which
choice you make, you are going to pay a price in terms of the opportunity cost
of your decision. If you decide to go out on the date the opportunity cost of
your choice is giving up the opportunity to go roller skating. If you decide to
go roller skating, the opportunity cost of that decision is giving up the oppor-
tunity to go out on the date.
Nations, too, are constantly faced with the realities of opportunity costs.
For example, the government must decide how much it will spend for national
defence and how much will be spent on non-defence programs, such as educa-
tion, transportation, and other public services. Since the government has a lim-
ited amount of money, a decision to spend more money on national defence
usually will require funding for non-defence programs to be cut. Thus, the op-
portunity cost of the increased defence spending is the reduction of funding of
non-defence programs.

Ex. 1. Choose the best answer to the following questions, using the text.
1. Why is scarcity the most basic of all economic problems?
a. because the federal government must decide how much it will spend for
natural defence.
b. it gives you an opportunity to buy something else.
c. because it is the most important issue in balancing unlimited needs with
limited resources.
2. What is meant by the term “opportunity cost”?
a. it is your limited income.
30
b. it is defined as a decision to spend money.
c. it refers to the next best alternative that is given up when a decision is
made to use resources in a particular way.
3. How do opportunity costs affect both individuals and nations?
a. a state must spend less money on education.
b. an individual has to give up something that gives him pleasure.
c. an individual or a nation has to sacrifice something for the choice made.

Ex. 2. Say if these statements are true or false.


1. Because of the problem of scarcity nations, businesses, and individuals all
must make choices in an effort to satisfy unlimited wants with limited re-
sources.
2. Economists use the term opportunity cost to refer to the next best alternative.
3. Any time you decide to use scarce resource in a particular way, you do not
incur an opportunity cost – the cost of the next best alternative use of that
resource.
4. Governments never have problems with defence spending.

Text 3
As you read the text, focus on the following terms: 1) economic goods; 2) eco-
nomic services; 3) factors of production.
Satisfying People’s Wants
Economics is the study of how individuals and society choose to use lim-
ited resources in an effort to satisfy people’s unlimited wants. Satisfying such
wants involves the production of economic goods and services. We will first
define the terms “economic goods” and “economic services”, and then turn
our attention to the factors of production needed to produce them.
Economic goods are things of value that you can see, and show to the oth-
ers. They are things like bicycles, books, stereos, and clothing. Economic
goods also include such things as factories, stores, machines, and tools.
Economic services are intangible things that have value but often cannot
be seen, touched, or shown to others. Suppose you go bowling on Saturday
night. At the bowling alley, you pay for the rental of a pair of bowling
shoes and a bowling ball and for the privilege of bowling several games.
You enjoy the evening immensely and consider the outing worth the money
you spent. However, in terms of tangible purchases, you have nothing to
show for your money. This is an example of an economic service. Other ex-
amples of economic services are medical care, legal advice, movies and na-
tional defence.

31
Factors of production which are also called productive resources, are the
basic resources needed for the production of economic goods and services.
Economists, traditionally, have divided the factors of production into three ba-
sic categories: (1) natural resources; (2) capital goods; (3) labour. In addition,
many economists add a fourth factor of production, entrepreneurship to the
list.
Natural resources are things provided by nature. Land, air, water, forests,
coal, iron ore, oil, and other minerals are examples of natural resources. They
are the starting points of all production, and they represent the most basic limi-
tations of the productive capacity of an economy. In other words, no matter
how much skilled labour and technological knowledge an economy has, it
cannot create goods if it lacks natural resources.
Capital goods are human-made resources that are used for the production
of other goods and services. Factories, machines, tools, railroads, trucks, and
business buildings are all examples of capital goods.
It is important to distinguish between capital goods and consumer goods.
Consumer goods which are not a factor of production - are finished prod-
ucts sold to consumers for their own personal use. They include such things as
food, clothing, TV sets, and newspapers. In contrast capital goods are things
that are used in the production of consumer goods and services. A factory that
manufactures TV sets is a capital good. Some things can be either consumer
goods or capital goods, depending on how they are used. For example, an
automobile purchased for personal use is a consumer good. However, auto-
mobiles purchased for use as taxis or for other business purposes are capital
goods.
Labour, sometimes called human resources, is any form of human effort
exerted in production. It includes all kinds of work. The work of a janitor,
teacher, lawyer, engineer, and the governor of your state are all examples of
labour. Labour is essential to production, since natural resources and capital
goods are of no value unless they can be put to use.
The three facts of production described above - natural resources, capital
goods and labour must be combined and organized before production can
take place. This is where entrepreneurship, the fourth factor of production,
enters the picture. Entrepreneurship may be defined as the function of com-
bining and organizing natural resources, capital goods, and labour, assuming
the risks of business failure, and providing the creativity and managerial
skills necessary for production to take place. An entrepreneur is a person
who carries out these tasks in the hope of making financial gains from the
endeavour.

32
Ex. 1. Find the information in the text to answer the questions:
1. What is the difference between economic goods and economic services?
Give examples to illustrate them.
2. What are the basic categories of the factors of production?
3. Are consumer goods considered to be factors of production too? What is
the difference between consumer and capital goods?
4. How can you prove that labour is an essential factor of production?
5. Are there any other factors that influence production in modern world?

Ex. 2. Put down words and word combinations from the text you are going to
use while giving its short summary.

WRITING

Scan the text and do the following tasks:


A. Choose the headline which best expresses the main idea of each para-
graph:
– Economics Theory.
– Descriptive Economics.
– Economic Policy.

B. Reduce the text to one-fifth of its original length giving the most important
information in writing.
Methodology
In studying any problem or segment of the economy, the economist must
first gather the relevant facts. These facts must then be systematically ar-
ranged, interpreted, and generalized upon. These generalizations are useful not
only in explaining economic behaviour, but also in predicting and therefore
controlling future events.
……………
All sciences are empirical. All sciences are based upon facts, that is, upon
observable and verifiable behaviour of certain data or subject matter. In the
physical sciences the factual data are inorganic. As a social science, econom-
ics is concerned with the behaviour of individuals and institutions engaged in
the production, exchange, and consumption of goods and services.
The first major step, then, in investigating a given problem or a specific
segment of the economy is to gather the facts. This can be an infinitely com-
plex task. The world of reality is cluttered with a myriad of interrelated facts.
The economist therefore must use discretion in fact gathering. One must dis-

33
tinguish economic from non-economic facts and then determine which eco-
nomic facts are relevant and which are irrelevant for the particular problem
under consideration. But even when this sorting process has been completed,
the relevant economic facts may appear diverse and unrelated.
……………
A conglomeration of facts is relatively useless; mere description is not
enough. To be meaningful, facts must be systematically arranged, interpreted,
and generalized upon. This is the task of economic theory or analysis. Princi-
ples and theories – the end result of economic analysis - bring order and mean-
ing to a number of facts, by tying these facts together, putting them in correct
relationship to one another, and generalizing upon them: "Theories without
facts may be barren, but facts without theories are meaningless."
The interplay between the levels of fact and theory is rather complex. Prin-
ciples and theories are meaningful statements drawn from facts but facts, in
turn, serve as a constant check on the validity of principles already estab-
lished. Facts - how individuals and institutions actually behave in producing,
exchanging, and consuming goods and services change with time. This makes
it essential that economists continuously check existing principles and theories
against the changing economic environment.
……………
The creation of specific policies designed to achieve the broad economic
goals of our society is no simple matter. A brief examination of the basic steps
in policy formulation is in order.
1. The first step is to make a clear statement of goals. If we say that we
have “full employment”, do we mean that everyone between, say, 16 and 65
years of age has a job? Or do we mean that everyone who wants to work has a
job?
2. Next, we must state and recognize the possible effects of alternative
policies designed to achieve the goal. This entails a clear-cut understanding
economic impact, benefits, costs, and political feasibility of alternative pro-
grams. Thus, for example, economists currently debate the relative merits and
demerits of fiscal policy (changing government spending and taxes) and
monetary policy (altering the supply of money) as alternative means of achiev-
ing and maintaining full employment.
3. We are obligated to both ourselves and future generations to look back
upon our experiences with chosen policies and evaluate their effectiveness; it
is only through this type of evaluation that we can hope to improve policy ap-
plications. Did a given change in taxes or the supply of money alter the level
of employment to the extent originally predicted? If not, why not?

34
TRANSLATION

A. Translate into Russian.


Economic Theory and Models
Economic theories simplify reality to allow us to understand basic eco-
nomic forces and how individuals cope with the problems of scarcity. We can
observe actions and their consequences. Observation and description are not
sufficient for understanding and ultimately predicting actions. Theory estab-
lishes relationships between cause and effect. We use it to interpret actions
and outcomes so we can explain the process by which the actions were under-
taken and the outcomes achieved. The purpose of theory in all scientific analy-
ses is to explain the causes of phenomena we observe. To conduct economic
analyses we frequently need to engage in abstraction. This involves making
assumptions about the economic environment and human motivation that sim-
plify the real world enough to allow us to isolate forces of cause and effect.
Any theory is a simplification of actual relationships.
An economic model is a simplified way of expressing how some sector of
the economy functions. An economic model contains assumptions that estab-
lish relationships among economic variables. We use logic, graphs, or mathe-
matics to determine the consequences of the assumptions. In this way we can
use the model to make predictions about how a change in economic conditions
results in changes in decisions affecting economic variables. Economists often
use the term “model” as a synonym for theory.

B. Translate into English.


Экономика – это общественная наука, изучающая поведение в
сферах производства, потребления, распределения и обмена.
Экономисты анализируют происходящие в этих сферах процессы и
исследуют их последствия для физических лиц, организаций, например
фирм, и общества в целом. В экономической науке существует много
конкурирующих между собой направлений, однако основным делением
является деление на классическую и неоклассическую школы.
В систему экономических наук входят науки, которые изучают
функциональные аспекты развития экономики (финансы и кредит,
ценообразование, экономика труда, материально-техническое
обеспечение, планирование экономического и социального развития и
др.) или ее отраслевые особенности (экономики промышленности,
сельского хозяйства, транспорта и др.).

35
LISTENING

Listen to the interview with Denis Mac Shane, a British Member of Parliament
for the Labour Party and answer the following questions.
1. Why does MacShane think that manufacturing has a future?
2. Why does MacShane think that manufacturing has a future in the advanced
countries?
3. Why, however, is this manufacturing unlikely to solve the problem of un-
employment?
4. What does MacShane mean by “in theory there should be no more manu-
facturing in Switzerland?” (It is this theory that makes many people argue
that manufacturing must move to “less-developed” countries.)
5. Why does he say it is surprising for a British company to be buying Swiss goods?
6. What is the reason he gives for the United States still being the richest na-
tion in the world?

SPEAKING

Discuss the following questions.


1. Do you agree that economics is helpful in every day life? Give your arguments.
2. Try to think of several important decisions that you have made recently.
What was the opportunity cost of each decision?
3. Do you think economics is a theoretical or applied discipline?
4. Imagine a world without a problem of scarcity. Would you enjoy living in
such a world?

VOCABULARY

affluent adj – богатый


allocate v – размещать
allocation n – размещение
аrrange v – приводить в порядок
assume v – предполагать
assumption n – предположение
choice n – выбор
cost n – цена, стоимость
opportunity ~ – альтернативные издержки
~ of production – издержки производства
complementary adj – дополнительный, дополняющий

36
concern n – возможность, значение, интерес
deduction n – дедукция, вычет
derive v – извлекать, выводить, происходить
descriptive adj – описательный
economics n – экономика
economy n – экономика, хозяйство
goods n – товары
capital ~ – товары производственного назначения
consumer ~ – потребительские товары
luxury ~ – предметы роскоши
induction n – индукция
influence v – влиять
involve v – вовлекать, охватывать, участвовать
labour n – труд, работа
needs n (pl.) – потребности
to satisfy one’s ~ – удовлетворять потребности
principal n – капитал
procedure n – методика, метод, процесс
relevant adj – относящийся к делу, уместный
resource n – ресурс
to allocate ~’s – размещать ресурсы
scarce adj – редкий
scarcity n – 1. нехватка, дефицит; 2. редкость
~ value – стоимость, определяемая дефицитом
tangible adj – материальный
want n – желание

GLOSSARY

· Economics is the study of how individuals and society choose to allocate


scarсe resources in order to satisfy unlimited wants.
· Macroeconomics applies an economy wide perspective that focuses on
such issues as inflation, unemployment, and the growth rate of the
economy.
· Microeconomics examines individual decision-making units within an
economy.
· Models are simplified descriptions of reality used to understand and pre-
dict economic events. An economic model can be stated verbally or in a ta-
ble, graph, or equation.
· Resources are factors of production classified as land, labour, and capital.

37
· Entrepreneurship is a special type of labour. An entrepreneur combines
resources to produce innovative products.
· Scarcity is the fundamental economic problem that human wants exceed
the availability of time, goods, and resources. Individuals and society there-
fore can never have everything they desire.
· Opportunity cost – the value of the best alternative surrended when the
shoice is made.
· Needs – basic necessities or requirements.
· Want – a desire for sth.

38
2.2. ECONOMIC SYSTEMS

DISCOVERING CONNECTIONS

1. What is your idea of an economic system?


2. How many economic systems do you know?
3. What is the basic difference between market and planned economies?
4. What kind of economic system does Belarusian economy belong to?

READING

Text 1
As you read the text, focus on the concept “economic system”.
Economic System
People and societies organize economic life to deal with the basic problems
raised by scarcity and opportunity cost through economic systems. An eco-
nomic system works via the interaction of three invisible forces: the invisible
hand (economic forces), invisible foot (political forces) and invisible hand-
shake (social forces).
An economic system can be described as the collection of institutions,
laws, activities, controlling values, human incentives that collectively pro-
vide a framework for economic decision-making. An economic system is
closely tied to a political system through which people decide what their so-
ciety desires. In a democracy, voting procedures determine society’s will. In
an autocracy, a ruling individual or group of individuals decides what soci-
ety’s desires are.
Before we discuss how the invisible forces operate, we need to find out
what people can reasonably expect from an economic system.
There are three basic economic questions that every nation must consider.
They are (1) What goods and services shall be produced? (2) How shall they
be produced? and (3) For whom shall they be produced? Let us briefly exam-
ine each of these questions.
Within every nation, people must have some method of deciding what
combination of goods and services they should produce with their limited
resources. For example, they must decide what portion of total production
will be devoted to capital goods and what portion will be devoted to con-
sumer goods. Once this decision is made, it is necessary to decide what
kinds of consumer and capital goods will be produced. For example, will
the production of consumer goods be restricted to the basic necessities, or

39
will luxury goods, such as stereos and cameras, be produced as well? If
luxury goods are to be produced, what kind and how many of each will be
produced?
Once the question of what to produce is answered, it is necessary to decide
what production methods are to be used. For example, food can be produced
by a large number of workers using simple and inexpensive tools, or by a
small number of workers using complex and expensive machinery. The same
is true of the production of most items you use every day.
Because no nation can produce enough goods and services to satisfy every-
body’s wants, it is necessary for people to have a method of deciding who gets
the goods and services produced. Should everybody get an equal share, or
should some people get more goods and services than others? If some people
are to get more, how much more should they receive? This second question is
perhaps the most difficult of all because it involves the issue of fairness; and
different people have different ideas about what is fair.
Any economic system must use one or more decision – making methods or
rules. Though the list of ways to make decisions is long, there are three basic
approaches to economic decisions.
One of them is based on tradition (families often decide to do something
the “old way”; people generally repeat the decisions made at an earlier time or
by an earlier generation, etc.).
The second approach is based on authority or command (the boss, ap-
pointed or elected, can decide what is produced and who gets it).
The third is based on markets (individuals bargain with one another pri-
vately to obtain goods) and so on.
Most economic systems use one of three basic methods to make economic
decisions.

Vocabulary Focus

Ex. 1. Match the words in column A with their definitions in column B.


A B
1) invisible hand a) social forces
2) invisible foot b) economic forces
3) invisible handshake c) physical and mental talents that people
4) autocracy can make available for production
5) labour resources d) political forces
e) absolute power

40
Ex. 2. Complete the sentences, use the words and expressions from the text.
1. An economic system works via … of three invisible forces.
2. An economic system can be described as the collection of laws, activities,
values and human ….
3. In a … voting procedures determine society’s will.
4. In an …, a ruling individual decides what society’s desires are.
5. Before we discuss how the … operate, we need to find out what people can
expect from an economic system.
6. It is necessary to decide if the production of … will be restricted to the….
7. If … are to be produced, what kind and how many of each will be produced.
8. There are three basic … to economic decisions.
9. One of them is based on… or command.

Words for reference invisible forces, basic necessities, approaches, the in-
teraction, incentives, autocracy, democracy, consumer goods, luxury goods,
authority.

Ex. 3. Match the Russian word combinations from A with their English
equivalents from B.
A B
1) альтернативная стоимость, цена возможности a) capital goods
2) невидимые силы b) opportunity cost
3) средства производства c) economic decision
4) потребительские товары d) invisible forces
5) процедура голосования e) bargain
6) удовлетворить потребности f) voting procedures
7) торговаться о цене g) satisfy wants
8) экономическое заключение h) consumer goods

Ex. 4. Fill in the following prepositions: into, for, by, with, from, out, through, to.
1. An economic system is closely tied … a political system.
2. … a political system people decide what their society desires.
3. We need to find … what people expect … an economic system.
4. People must decide what goods and services they should produce … their
limited resources.
5. Food can be produced … a large number of workers.
6. It is necessary … people to have a method of deciding who gets the goods
and services produced.
7. Economic systems are classified … four broad categories.

41
Comprehension

Ex. 1. Complete the sentences, use the information from the text.
1. People and societies organize economic life through … .
2. An economic system works via the interaction of three invisible forces.
They are… .
3. An economic system can be described as … .
4. There are three basic economic questions that every nation must consider.
They are ...
5. Three basic approaches to economic decisions are … .

Ex. 2. Say if the statements are true or false.


1. An economic system works via the interaction of three invisible forces: the
invisible hand (economic forces), invisible foot (political forces) and in-
visible handshake (social forces).
2. An economic system is interrelated with a political system.
3. In an autocracy voting procedures determine society’s will.
4. In a democracy a group of individuals decide what society’s desires are.
5. Every nation can produce enough goods and services to satisfy everybody’s wants.
6. Every economic system answers three basic questions: what, how and for whom.
7. There are three basic approaches to economic decisions.

Ex. 3. Answer the following questions.


1. How can economic systems be classified?
2. What are the three invisible forces which make economic system work?
3. What are the tree basic economic questions that every nation must answer?
4. What are three basic approaches to economic decisions based on?
5. What economic systems do you know?
6. How can you characterize the economy of Belarus?

Text 2
As you read the text, think what the best title for it is and explain your choice:
– market economy vs command economy;
– mixed economy;
– basic types of economic systems.

Economic systems are classified into four broad categories. These are tradi-
tional, command, market, and mixed economies. Each of these systems works
well to some degree at different points in time and for different cultures, but
42
some are often better for answering one of the basic economic questions,
while other systems may answer other questions more successfully.
Traditional economy is an economic system using social customs to answer
the basic economic questions.
Nowadays traditional economies are found primarily in the rural, non-
industrial areas of the world. In such areas, there is no national economy. In-
stead, there are many small segmented economies, each centred around a fam-
ily or tribal unit. Each unit produces most of its own goods and consumes
what it produces. The basis economic questions of “what”, “how”, and “for
whom” are answered directly by the people involved, and the answers are usu-
ally based on tradition.
In command economies, the basic economic questions are answered by
government officials. Government leaders decide what goods and services will
be produced, how they will be produced, and how they will be distributed. In-
dividuals have little control or influence over the way the basic economic
questions are answered. They are told what to produce, how to produce it, and
what they will receive.
Command economies are often called planned economies, because the
government engages in elaborate, detailed planning in an effort to produce and
distribute goods and services in a way that is consistent with the wishes of
government leaders. Command economies usually are also characterized by
government ownership of the economy’s natural resources and capital goods.
A market economy is the opposite of a command economy. In a command
economy, the government answers the basic economic questions. In a market
economy, basic economic questions are answered by individual households
and businesses through a system of freely operating markets. In market
economies, natural resources and capital goods are usually privately owned. In
such economies, buyers and sellers have a great deal of economic freedom,
and they send signals to one another as they interact through the system. For
example, by purchasing more of an item than usual, buyers send a signal to
producers to increase production of that item. Similarly, by reducing their pur-
chases of an item, buyers signal producers to reduce production of that item.
The American economy is predominantly a market economy. Other exam-
ples of predominantly market economies include the economies of Canada,
Japan, and many of the countries of Western Europe.
In actual practice, there are no real economies in the world that rely solely on
freely operating markets or on government decisions to answer basic economic
questions. All major economies are mixed economies in the sense that some de-
cisions are made through a system of freely operating, or free markets, by indi-
vidual households and businesses, and some are made by the government. In

43
mixed economies, a distinction is usually made between the private sector, in
which decisions are made primarily by individual households and businesses, and
the public sector, in which decisions are made by the government.
Mixed economy is an economic system that relies on a mixture of markets,
government commands and tradition. This economic system is used in most
countries. The United States are an example of this type of economy. Most de-
cisions there are made by individuals and firms as they exchange goods, ser-
vices, and resources in private markets. But some decisions are made through
the political process of government.
Although several countries own most resources, especially land and large
basic enterprises like steel plants, hospitals, and electric power plants, markets
are allowed to play a role in certain economic activities, such as dining in res-
taurants, repairing shoes, selling garden produce, etc. Even China, at one time
an extreme example of a command economy, has in recent years taken steps
toward allowing some markets to operate.
In the 1990s there appeared a new term transition economy to describe the
countries of Eastern Europe and the former Soviet Union. Transition econo-
mies face the task of moving from a centrally-planned system of resource al-
location towards a more market-oriented approach.

Ex. 1. Find in the text definitions of:


– market economy;
– command economy;
– mixed economy.

Ex. 2. Which of the statements express the main ideas or supporting details?
1. Nowadays traditional economies are found primarily in the rural, non-
industrial areas of the world. In such areas, there is no national economy.
2. In command economies, the basic economic questions are answered by
government officials.
3. In a market economy, basic economic questions are answered by individual
households and businesses through a system of freely operating markets.
4. The American economy is predominantly a market economy.
5. Mixed economy is an economic system that relies on a mixture of markets,
government commands and tradition. This economic system is used in
most countries.

Ex. 3. Speak on the basic kinds of economic systems, their advantages and
disadvantages.

44
WRITING

Write an essay to define the type of economic system of Belarus. Give your ar-
guments.

TRANSLATION

A. Translate the text from English into Russian.


Classification of Countries
Since the break-up of the Soviet block at the end of the 1980s, the so-called
transition economies have faced the task of moving from a centrally-planned
system of resource allocation towards a more market-oriented approach. This
has proved a challenging and difficult period for the countries concerned, both
those that were part of the Soviet Union and other countries in Eastern Europe
that were allies and trading partners.
To outside observes, it has sometimes been difficult to know how to clas-
sify these countries. In the days of the Cold War, there seemed to be three
groupings in the word. There was a group of industrial market economies that
had reached a high level of “development” – this was the “First World”. Then
there was the Soviet block, which comprised the countries of the Soviet Union
and Eastern Europe. There shared a history that overlapped with countries in
Western Europe, but had taken such a different path since 1917. This was the
“Second World”. And then there was the rest – the “Third World”, most of
which had remained undeveloped.
The collapse of the Second World led to classification problems. The term
“Third world” no longer made sense.
At present the countries of the world are usually classified into three major
groups: advanced economies, developing countries and countries in the transition.

B. Translate the text from Russian into English.


Экономика стран переходного периода характеризуется рядом
закономерностей, независимо от уровня их развития. Переход к
рыночной экономике сопровождается неизбежными трудностями как для
экономики страны, так и для ее населения. Наблюдается очень резкий
спад промышленного производства, ведущий к безработице.
В этих условиях государство должно взять курс на активную
стабилизацию: проведение умеренно жесткой финансовой политики,
обуздание инфляции экономическими методами, выборочная поддержка
наиболее перспективных отраслей экономики.

45
SPEAKING

A.
Study the interview with Denis MacShane, a British Member of Parliament for
the Labor Party.
Interviewer: Denis MacShane, do you agree with the people who say
that manufacturing industry will inevitably decline in
what we call the industrialized countries?
Denis Macshane: I think manufacturing will change, convert itself. There
are many new products that have to be invented to serve
new needs, and they can be made in the advanced coun-
tries because in fact the technology of production means
you need very little labour input. I'm holding in my hand a
simple pen that British Airways gives away to its passen-
gers. It is made in Switzerland, a pen, a low-tech product,
made in Switzerland, with the highest labor costs in the
entire world, and British Airways, a British company,
having to pay in low value pounds, is buying from Swit-
zerland a manufactured product. Now what's going on
here? It seems to me that the Swiss - and they also man-
age to do it with their watches, the famous Swatch - have
stumbled on a new secret, which is how to make low-tech
products, sell them profitably, but actually make them in a
country where in theory there should be no more manu-
facturing, and if you look at any of the successful econo-
mies of the 1990s, they all have a strong manufacturing
component.
Interviewer: Which countries are you thinking of?
Denis Macshane: I'm thinking of the dynamic Asian economies, all based
on manufacturing. I'm thinking indeed of the United
States which now has created for example a new com-
puter, high-tech computer industry, its car industry is
coming right back in America. America is a giant manu-
facturing economy, which is why it is still the richest na-
tion in the world, so I am extremely dubious of the theo-
rists who say that manufacturing has no future in the ad-
vanced industrialized countries.

Act out the interview of MacShane with Mr Brown, Daily News correspondent.
Use the questions of the latter for reference.
46
1. Why do you think that manufacturing has a future?
2. Why do you think that manufacturing has a future in the advanced
countries?
3. Why, however, is this manufacturing unlikely to solve the problem of un-
employment?
4. What do you mean by “in theory there should be no more manufacturing in
Switzerland?” (It is this theory that makes many people argue that manu-
facturing must move to “less-developed” countries.)
5. Why do you say it is surprising for a British company to be buying Swiss
goods?
6. What is the reason you give for the United States still being the richest na-
tion in the world?

B.
Discuss the following issues
1. What kind of system is traditional economy? What areas of the world
are they primarily found nowadays? The basic economic questions
What, How and For whom in these economies are based on tradition,
aren’t they?
2. Who are the basic economic questions answered in command economies
by? Why are they called planned economies? What is the role of individu-
als in this type of economies?
3. What economy is the opposite to command economy? What is the core
idea of this type of economy? What are the examples of countries with
market economy?
4. All major economies in the world are mixed ones, aren’t they? What are
mixed economies characterized by?
5. Are there any purely capitalist or socialist states in the world?

C.
Summarize the information from the Unit and be ready to speak on Economic
Systems. Use the following prompts as a plan.
1. The definition of an economic system. Its interaction with a political system.
2. Three basic economic questions.
3. Basic kinds of economic systems.
4. The responsibilities of the state in managing the society.
5. The main task of transition economies.
6. The type of the economic systems Great Britain / the USA / Belarus be-
long to.

47
VOCABULARY

collapse n – обвал, падение, крах


command economy – командная экономика
fluctuate v – колебаться, быть неустойчивым
fluctuation n – колебание, неустойчивость
household n – домохозяйство
impose v – облагать, налагать
incentive n – стимул
involvement n – вовлечение, затруднительное положение
market economy – рыночная экономика
mixed economy – смешанная экономика
overlap v – частично совпадать, частично покрывать
own v – владеть
owner n – собственник
ownership n – право собственности
restriction n – ограничение
suppress v – сдерживать, подавлять, запрещать
traditional economy – традиционная экономика
transition economy – переходная экономика

GLOSSARY

· Traditional economy is an economic system using social customs to an-


swer the basic economic questions.
· In command economies, the basic economic questions are answered by
government officials.
· In a market economy, basic economic questions are answered by individ-
ual households and businesses through a system of freely operating mar-
kets.
· In mixed economies, a distinction is usually made between the private sec-
tor, in which decisions are made primarily by individual households and
businesses, and the public sector, in which decisions are made by the gov-
ernment.
· Transition economies face the task of moving from a centrally-planned
system of resource allocation towards a more market-oriented approach.

48
3. THE MACROECONOMY

3.1. GROSS DOMESTIC PRODUCT

DISCOVERING CONNECTIONS

Have you ever thought about the economic activity that goes on in an
economy? Firms hire labour and use capital goods to produce goods and ser-
vices. People sell their labour to earn income so they can spend on goods and
services and become consumers. The government intervenes in various ways,
with taxes and transfers and with ensuring the provision of nonmarket services
such as health, law and order, and education. People buy goods from abroad –
and firms sell some of their output overseas. Or to put it in another way, out-
put is produced, and income is earned and spent.
Is it possible to measure the overall performance of the economy? Is there
such a measure? What is a key way in which the performance of an economy
can be monitored?

READING

Text 1
As you read the text, analyze the definition of GDP.
Gross Domestic Product
The total amount of goods and services produced, or the total amount of
income earned, or the total amount of expenditure undertaken, all tell us some-
thing about the overall performance of the economy in providing resources for
the members of the society. If we could measure these totals, we could exam-
ine whether the resources available to the residents of a country were changing
through time, or try to compare the country’s situation with that in other na-
tions. Of course, there is such a measure. It is called GDP and it is a key way
in which we try to monitor the performance of an economy.
Here is a definition of GDP:
Gross domestic product (GDP) is the market value of all final goods and
services produced within a country in a given period of time. Let's consider
each phrase in this definition with some care.
"GDP is a Market Value ..." You have probably heard the adage, “You
can't compare apples and oranges”. Yet GDP does exactly that. GDP adds to-
gether many different kinds of products into a single measure of the value of
economic activity. To do this, it uses market prices. Because market prices

49
measure the amount people are willing to pay for different goods, they reflect
the value of those goods. If the price of an apple is twice the price of an or-
ange, then an apple contributes twice as much to GDP as does an orange.
"Of All . . ." GDP tries to be comprehensive. It includes all items produced
in the economy and sold legally in markets. GDP measures the market value
of all the goods. GDP also includes the market value of the housing services
provided by the economy's stock of housing. For rental housing, this value is
easy to calculate – the rent equals both the tenant's expenditure and the land-
lord's income. Yet many people own the place where they live and, therefore,
do not pay rent. The government includes this owner-occupied housing in
GDP by estimating its rental value. That is, GDP is based on the assumption
that the owner, in effect, pays rent to himself, so the rent is included both in
his expenditure and in his income.
There are some products, however, that GDP excludes because measuring
them is so difficult. GDP excludes items produced and sold illicitly, such as
illegal drugs. It also excludes most items that are produced and consumed at
home and, therefore, never enter the marketplace. Vegetables you buy at the
grocery store are part of GDP; vegetables you grow in your garden are not.
"Final. . ."When International Paper makes paper, which Hallmark then
uses to make a greeting card, the paper is called an intermediate good, and the
card is called a final good. GDP includes only the value of final goods. The
reason is that the value of intermediate goods is already included in the prices
of the final goods. Adding the market value of the paper to the market value of
the card would be double counting. That is, it would (incorrectly) count the
paper twice.
An important exception to this principle arises when an intermediate good
is produced and, rather than being used, is added to a firm's inventory of goods
to be used or sold at a later date. In this case, the intermediate good is taken to
be “final” for the moment and its value as inventory investment is added to
GDP. When the inventory of the intermediate good is later used or sold, the
firm's inventory investment is negative, and GDP for the later period is re-
duced accordingly.
"Goods and Services . . ."GDP includes both tangible goods (food, cloth-
ing, cars) and intangible services (haircuts, housecleaning, doctor visits).
When you buy a CD by your favorite singing group, you are buying a good,
and the purchase price is part of GDP. When you pay to hear a concert by the
same group, you are buying a service, and the ticket price is also part of GDP.
"Produced . . ."GDP includes goods and services currently produced. It
does not include transactions involving items produced in the past. When
General Motors produces and sells a new car, the value of the car is included

50
in GDP. When one person sells a used car to another person, the value of the
used car is not included in GDP.
"Within a Country . . ."GDP measures the value of production within the
geographic confines of a country. When a Canadian citizen works temporarily
in the United States, his production is part of U.S. GDP. When an American
citizen owns a factory in Haiti, the production at his factory is not part of U.S.
GDP. (It is part of Haiti's GDP.) Thus, items are included in a nation's GDP if
they are produced domestically, regardless of the nationality of the producer.
". . . In a Given Period of Time." GDP measures the value of production
that takes place within a specific interval of time. Usually that interval is a
year or a quarter (three months). GDP measures the economy's flow of income
and expenditure during that interval.
When the government reports the GDP for a quarter, it usually presents
GDP “at an annual rate”.
In addition, when the government reports quarterly GDP, it presents the
data after they have been modified by a statistical procedure called seasonal
adjustment. The unadjusted data show clearly that the economy produces more
goods and services during some times of year than during others. (As you
might guess, December's Christmas shopping season is a high point.) When
monitoring the condition of the economy, economists and policymakers often
want to look beyond these regular seasonal changes. Therefore, government
statisticians adjust the quarterly data to take out the seasonal cycle. The GDP
data reported in the news are always seasonally adjusted.
Economists distinguish between nominal GDP and real GDP. Nominal
GDP is the value of all final goods based on the prices existing during the time
period of production. Real GDP is the value of all final goods produced during
a given time period based on the prices existing in a selected base year. In
other words, the prices in the base year provide the basis for comparing quan-
tities in different years.
As we have just seen, nominal GDP reflects both the prices of goods and
services and the quantities of goods and services the economy is producing.
By contrast, by holding prices constant at base-year levels, real GDP reflects
only the quantities produced. From these two statistics, we can compute a
third called the GDP deflator, which reflects the prices of goods and services
but not the quantities produced. The GDP deflator is calculated as follows:

Nominal GDP
GDP deflator = ґ100
Real GDP

51
Vocabulary Focus

Ex. 1. Match the words from A with their synonyms from B.


A B
1) adjust a) inside a particular country
2) value b) coming between two things in time
3) consume c) cost
4) transaction d) consumption
5) intermediate e) adapt
6) domestic f) interfere
7) expenditure g) use up
8) intervene h) apiece of business done

Ex. 2. Match the verbs and nouns below to make verb-noun partnerships that
are found in the text.
A B
1) intermediate a) the marketplace
2) seasonal b) goods
3) intanglible c) expenditures
4) undertake d) value
5) measure/estimate e) adjustment
6) tangrble f) service
7) enter g) the performance
8) market h) goods

Ex. 3. Make the opposite to the following words by adding negative prefixes:
il-; ex-; in-; non-; un-. Use the dictionary if necessary.
Legally; comprehensive; include; market; tangible; available; adjusted.

Ex. 4. Match the words in column A with their English equivalents in column B:
A B
1) предоставление нерыночных услуг a) to produce output
2) выпускать продукцию b) deflator
3) общий объем понесенных затрат c) items produced and sold illicitly
4) товары, производимые и d) total amount of the expenditure
продаваемые незаконно undertaken
5) промежуточный продукт e) the provision of non-market
6) конечный продукт services

52
7) осязаемые товары f) intermediate good
8) движение средств между счетами g) produced domestically
9) нематериальные/неосязаемые h) intangible services
услуги i) tangible goods
10) производимый внутри страны j) final goods
11) дефлятор k) funds transfer

Ex. 5. Match the words from A with their definitions from B.


A B
1) GDP a) the amount of sth product
2) Gross National Product b) the market value of all final goods and ser-
vices produced in a nation during the period
of time
3) final goods c) the market value of all final goods and ser-
vices produced by a nations residents no mat-
ter where they are located;
4) net domestic product d) finished goods or services produced for the
ultimate user;
5) output e) the gross domestic product minus deprecia-
tion of capital work out in producing output.
6) expenditure f) altering sth by a small amount so that it will
fit properly or be right for use
7) inventory g) an amount of money spent
8) adjustment h) stocks of raw materials and finished goods
9) transfer i) the action of transferring sth/sb

Comprehension

Ex. 1. Complete the following sentences, use the prompts below:


1. ________________ is the most widely used measure of a nation’s eco-
nomic performance and is the market value of all final goods produced
in the country during a period of time.
2. To avoid double counting. GDP does not include _________________.
3. The ___________________ sums the four major spending components
of GDP consisting of: consumption, investment, government, and net
exports.
4. GDP less depreciation of fixed capital equals __________________.
5. _______________ is total income received by households and is calcu-
lated as national income less corporate taxes, retained earnings, Social

53
Security taxes plus transfer payments and net interest from government
securities.
6. ________________ is personal income minus personal taxes.
7. ________________ measures all final goods produced in a given
time period valued at the prices existing during the time period of
production.
8. ________________ is the value of all final goods and services produced
during any time period valued at prices existing in a base year.
9. ________________ is the market value of all final goods and services
produced by a nation’s residents no matter where they are located.
10. A government payment to individuals not in exchange for goods or ser-
vices currently produced is called a _____________.
11. ________________ are finished goods and services produced for the
ultimate user.

Words for reference: gross domestic product (GDP); intermediate goods; ex-
penditure approach; net domestic product; personal income; disposable per-
sonal income; nominal GDP; real GDP; gross national product (GNP); transfer
payment; final goods.

Ex. 2. Based on your understanding of the text, are the following TRUE or
FALSE?
1. Gross domestic product is the market value of all intermediate and final
goods and serviced produced within a country in a given period of time.
2. Market prices measure the amount people are willing to pay the different
goods and reflect the value of those goods.
3. GDP includes all items produced in the economy and sold both legally
and illegally in the markets.
4. GDP does not include the market value of the housing services.
5. GDP excludes most items that are produced and consumed at home.
6. The value of intermediate goods is not included into the value of the final
goods.
7. GDP excludes intangible services.
8. GDP is the market value of all final goods and services produced by na-
tion’s residents no matter where they are located.
9. GDP measures the value of production that takes place within a specific
integral of a time, which is usually a month.
10. How do nominal and real GDP differ?
11. What is the GDP deflator?

54
Ex. 3. Answer the questions.
1. What factors are taken into account to describe the overall performance
of the economy?
2. How can Gross Domestic Product be defined?
3. How do they manage to compare the value of absolutely different goods?
4. How do you understand the fact that GDP tries to be comprehensive?
5. Does GDP include the value of intermediate good?
6. What are the tangible goods and intangible services that GDP includes?
7. Does GDP include transactions involving items produced in the past?
8. Are items produced abroad by subsidiaries included in a nation’s GDP?
9. What are most common intervals for measuring GDP?
10. How do real and nominal GDP differ?

Text 2
The text is followed by a set of questions. Read the text and answer the accompany-
ing questions, basing your answers on what is stated or implied in the text.
Spending in the economy takes many froms. At any moment, the Smith
family may be having lunch at Burger King; Genaral Motors may be building
a car factory; the Navy may be procuring a submarine; and British Airways
may be buying an airplane from Boeing. GDP includes all of these various
forms of spending on domestically produced goods and services.
To understand how the economy is using its scarce resources, economists
are often interested in studying the composition of GDP among various types
of spending. To do this, GDP (which we denote as Y) is divided into four
components: consumption (C), investment (I), government purchases (G), and
net exports (NX):
We have just seen an example of each component. Consumption is
spending by households on goods and services, such as the Smiths' lunch
at Burger King. Investment is the purchase of capital equipment, invento-
ries, and structures, such as the General Motors factory. Investment also
includes expenditure on new housing. (By convention, expenditure on new
housing is the one form of household spending categorized as investment
rather than consumption.) Government purchases include spending on
goods and services by local, state, and federal governments, such as the
Navy's purchase of a submarine. Net exports equal the purchases of do-
mestically produced goods by foreigners (exports) minus the domestic
purchases of foreign goods (imports). A domestic firm's sale to a buyer in
another country, such as the Boeing sale to British Airways, increases net
exports.

55
Questions
1. What forms does spending in the economy take?
2. What are the components of GDP?
3. What is (are) consumption (investment, government purchases, net exports)?
4. The “net” in “net exports refers to the fact that imports are subtracted from
exports, doesn’t it”?
5. Where are imports of goods and services included into?
6. Where does the salary of an Army general belong to?
7. Why don’t transfer payments reflect the economy’s production?

Ex. 1. The best title for the text is:


– Transfer payments.
– The Components of GDP.
– Consumption.
– Net Exports.

Ex. 2. Based on your understanding of the text, are the following TRUE or
FALSE?
1. GDP consists of 6 components.
2. Each dollar of expenditure is placed into one of the four components of GDP.
3. Consumption is spending by households on goods and services.
4. Expenditure on new housing is the one form of household spending catego-
rized as consumption.
5. When a domestic household, firm, or government buys a good or service
from abroad, it doesn’t affect GDP.

Text 3
Scan the text, find the definitions of Gross National Product, Net national
Product, National income, Personal Income and Disposable Personal Income.
Dwell on each of them.
Other Measures of Income
When the U.S. Department of Commerce computes the nation's GDP every three
months, it also computes various other measures of income to get a more complete
picture of what's happening in the economy. These other measures differ from GDP
by excluding or including certain categories of Income. What follows is a brief de-
scription of five of these income measures, ordered from largest to smallest.
Gross national product (GNP) is the total income earned by a nation's perma-
nent residents (called nationals). It differs from GDP by including income that

56
our citizens earn abroad and excluding income that foreigners earn here. For ex-
ample, when a Canadian citizen works temporarily in the United States, his pro-
duction is part of U.S. GDP, but it is not part of U.S. GNP. (It is part of Canada's
GNP.) For most countries, including the United States, domestic residents are re-
sponsible for most domestic production, so GDP and GNP are quite close.
Net national product (NNP) is the total income of a nation's residents (GNP)
minus losses from depreciation. Depreciation is the wear and tear on the econ-
omy's stock of equipment and structures, such as trucks rusting and lightbulbs
burning out. In the national income accounts prepared by the Department of
Commerce, depreciation is called the “consumption of fixed capital”.
National income is the total income earned by a nation's residents in the
production of goods and services. It differs from net national product by ex-
cluding indirect business taxes (such as sales taxes) and including business
subsidies. NNP and national income also differ because of a “statistical dis-
crepancy” that arises from problems in data collection.
Personal income is the income that households and noncorporate busi-
nesses receive. Unlike national income, it excludes retained earnings, which is
income that corporations have earned but have not paid out to their owners. It
also subtracts corporate income taxes and contributions for social insurance
(mostly Social Security taxes). In addition, personal income includes the inter-
est income that households receive from their holdings of government debt
and the income that households receive from government transfer programs,
such as welfare and Social Security.
Disposable personal income is the income that households and noncorpo-
rate businesses have left after satisfying all their obligations to the govern-
ment. It equals personal income minus personal taxes and certain nontax pay-
ments (such as traffic tickets).
Although the various measures of income differ in detail, they almost al-
ways tell the same story about economic conditions. When GDP is growing
rapidly, these other measures of income are usually growing rapidly. And
when GDP is falling, these other measures are usually falling as well. For
monitoring fluctuations in the overall economy, it does not matter much which
measure of income we use.

WRITING

Using the information obtained from the previous text make its outline in writ-
ing. You may use the following clichés: the text deals with …; it draws our at-
tention to … ; of special interest is the argument that … .it is noted that … .
The author concludes by saying that … .

57
TRANSLATION

A. Translate from English into Russian.


The meaning of "government purchases" also requires a bit of clarification.
When the government pays the salary of an Army general, that salary is part of
government purchases. But what happens when the government pays a Social
Security benefit to one of the elderly? Such government spending is called a
transfer payment because it is not made in exchange for a currently produced
good or service. From a macroeconomic standpoint, transfer payments are like
a tax rebate. Like taxes, transfer payments alter household income, but they do
not reflect the economy's production. Because GDP is intended to measure in-
come from (and expenditure on) the production of goods and services, transfer
payments are not counted as part of government purchases.

B. Translate from Russian into English.


ВВП представляет собой годовую совокупную рыночную стоимость
продукции материального производства и сферы услуг, независимо от
национальной принадлежности предприятий, расположенный на
территории данной страны. В отличие от этого, ВНП – это совокупная
рыночная стоимость всего объема продукции и услуг за год независимо
от местоположения национальных предприятий (в своей стране или за
рубежом).
Величина ВВП может быть определена тремя методами.
Во-первых, методом суммирования ДС по всем отраслям
национальной экономики (ВВП по производству или отраслям).
Во-вторых, методом измерения ВВП по расходам.
В-третьих, методом измерения ВВП по доходам, включающим зара-
ботну платуработников, прибыли фирм и корпораций и т.д.

SPEAKING

Summarize the information of the Unit to be ready to speak on Gross Domes-


tic Product. Use the following prompts as a plan.
– Give the definition of GDP and explain it.
– Dwell on the components of GDP.
– Speak on other measures of income in short
– Dwell on indicators of the economic development of a society GDP encompasses.
– Explain what economic problems are left out of GDP.
– What’s the way GDP is measured in Belarus?
– Do you think it’s a good way to measure (estimate) a country’s wealth?

58
VOCABULARY

adjust n – регулировать, налаживать


adjustable adj – регулируемый, подвижный
adjustment n – регулировка, приспособление
seasonal ~ – поправка с учетом сезонных изменений,
deflator n – дефлятор
depreciation n – 1. обесценивание; 2. изнашивание, амортизация
domestic adj – отечественный, внутренний
ensure v – гарантировать, обеспечивать
estimate v – оценивать
expenditure n – издержки, расход(ы)
to undertake ~ – нести расходы
gross domestic product – валовый внутренний продукт
gross national product – валовой национальный продукт
income n – доход, прибыль
personal ~ – личный доход
national ~ – национальный доход
disposable personal ~ – доход, остающийся после уплаты налогов, наличный доход
intermediate adj – промежуточный
intervene v – вмешиваться
inventory n – материально-производственные запасы
measure v – измерять
output n – 1. выпуск; 2. продукция; 3. производство; 4. производительность
revenue n – доход, поступление от продаж
spending n – расходы
government / nongovernment ~ (syn. government expenditures) –
правительственные/неправительственные расходы
transaction n – сделка
transfer n – перевод (денежных сумм)
~ payments – трансфертные платежи, передаточные платежи (выплаты
населению по программам социального страхования и платежи процен-
тов владельцам государственных обязательств)
make a ~ – делать перевод
pay by ~ – уплатить посредством перевода
value n – цена, стоимость
market ~ – рыночная стоимость
well-being n – благосостояние, материальное благополучие; благоденст-
вие, процветание
standard of ~ – уровень благосостояния

59
GLOSSARY

· Depreciation is the wear and tear on the economy's stock of equipment


and structures
· Disposable personal income is the income that households and noncor-
porate businesses have left after satisfying all their obligations to the
government.
· GDP deflator a measure of the price level calculated as the ratio of nomi-
nal GDP to peal GDP times 100.
· Gross domestic product (GDP) the market value of all final goods and
services produced within a country in a given period of time.
· Gross national product (GNP) is the total income earned by a nation's
permanent residents (called nationals)
· Consumption spending by households on goods and services, with the ex-
ception of purchases of new housing.
· Government purchases spending on goods and services by local, state,
and federal governments.
· National income is the total income earned by a nation's residents in the
production of goods and services
· Net exports spending on domestically produced goods by foreigners (ex-
ports) minus spending on foreign goods by domestic residents (imports).
· Net national product (NNP) is the total income of a nation's residents
(GNP) minus losses from depreciation
· Nominal GDP the production of goods and services valued at current
prices.
· Personal income is the income that households and noncorporate busi-
nesses receive
· Real GDP the production of goods and services valued at constant prices.

60
3.2. INFLATION

DISCOVERING CONNECTIONS

1. How does inflation affect people’s income and wealth? Why should infla-
tion cause concern?
2. Suppose you borrow $100 from a bank at 5 percent interest for one year
and the inflation rate that year is 10 percent. Was this loan advantageous to
you or to the bank?
3. Who do you think loses from inflation? Who wins from inflation?
4. How will you explain this statement: “If everyone expects inflation to oc-
cur, it will.”

READING

Text 1
As you read the text, focus on the terms in italics.
Meaning and Measurement of Inflation
Inflation is a situation in which a decline in the purchasing power of money
results in a rise of the general price level. Its opposite is deflation. Prices in
some markets (e.g. pocket calculators) can fall even in times of inflation, and
prices in some markets (e.g. medical care) rise even in times of deflation. But
it is not the change in individual prices that determines the extent to which an
economy is experiencing inflation or deflation. It is the upward or downward
movement in the average prices of all goods and services combined that de-
termines the extent of inflation or deflation. In other words, inflation is an in-
crease in the overall average level of prices and not an increase in the price of
any specific product. An extreme form of inflation is known as hyperinflation.
Hyperinflation is an extremely rapid rise in the general price level. There is no
consensus on when a particular rate of inflation becomes "hyper."
The boundary between inflation and deflation is price stability. Price stabil-
ity occurs when the average level of prices is moving neither up nor down.
The average level of prices is called the price level and is measured by a price
index. A price index measures the average level of prices in one period as a
percentage of their average level in an earlier period called the base period.
The inflation rate and the price level. The inflation rate is the percentage
change in the price level.
The most widely reported measure of inflation is the consumer price index
(CPI) which measures changes in the average prices of consumer goods and

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services. The CPI is sometimes called the cost-of-living index. It includes only
consumer goods and services in order to determine how rising prices affect the
income of consumers. Unlike the GDP chain price index, the CPI does not
consider items purchased by businesses, and government.
As the price level rises during an inflation, the same sum of money (a dol-
lar, a ruble) buys fewer goods and services than before. Hence, inflation re-
duces the money real purchasing power. As the price level falls during defla-
tion, a dollar (a ruble) buys more goods and services than before. Hence, de-
flation increases the money real purchasing power.
Because money is used as a unit of account and as a medium of exchange
in most economies, changes in the purchasing power of money generally have
several (sometimes adverse) consequences.
Inflation hurts people living on fixed money incomes and people who have
saved fixed amounts of money for specific purposes such as financing their
children's education or their own retirement. Inflation hurts people who have
loaned out money at a rate of interest that did not include an allowance for an
increase in the average price level. So lenders are without protection against a
decline in the purchasing power of the loan when it is repaid.
The adverse effects of inflation depend on the extent to which inflation is
correctly anticipated and the extent to which it is unanticipated. If inflation is
correctly anticipated, contracts can be negotiated to include “inflation premi-
ums”. Such premiums are designed to protect lenders and other recipients of
future money payments from declines in the purchasing power of the money
to be repaid to them. Lenders, for example, will insist on higher interest rates
if they anticipate inflation; and the greater the inflation they anticipate, the
higher the rate of interest they will ask. Borrowers who agree to the lender's
terms presumably share similar anticipations of inflation.
However, it is often difficult to correctly anticipate a future rate of inflation.
Inflation is a phenomenon experienced in all countries. But inflation rates
vary from one country to another. When inflation rates differ by a lot and over
a prolonged period of time, the result is a change in the foreign exchange
value of money.

Vocabulary Focus

Ex. 1. Study the meaning of the following easily confused words and do the
exercises that follow.
successive/successful
successive – последовательный;
successful – успешный.
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Fill in the blanks with the proper word.
1. The inflation can be curbed only by a number of... reforms.
2. His ... career was due to his tremendous efforts and aptitude.
3. The sales were profitable only because of the ... marketing campaign.
4. The measures lead to … changes.

Ex. 2. Find the words or expressions in the text which mean the following.
1. to rise;
2. to lend;
3. to cause sth to happen;
4. to make sth smaller in size, quantity and price;
5. to have a bad effect on sth, to cause distress;
6. to see what is going to happen;
7. to change, esp according to some factor;
8. to confer with another person to reach agreement.

Words for references: to move upward; to negotiate; to vary; lo loan out; to


hurt; to result; to anticipate; to reduce.

Ex. 3. Using a dictionary, add as many words as possible into the table and
suggest some common word partnerships with them.
Noun Adjective/Adverb Verb
persistently
purchasing
allowance
recipient
determine
measure
reduce
anticipate
negotiate
vary

Ex. 4. Complete the sentences with the words given bellow.


1. An … form of inflation is known as hyperinflation.
2. The … between inflation and deflation is price stability.
3. The … level of prices is called the price level and is measured by a price index.
4. A common price index is called the … Price Index, or simply CPI.
5. Inflation reduces the money real … power.

63
6. If inflation is correctly anticipated, contracts can be negotiated to include
“inflation … “.
7. It is often difficult to correctly anticipate a future … of inflation.

Words for references: boundary, consumer, extreme, average, purchasing,


premiums, rate.

Ex. 5. Match the Russian word-combinations in A with their English equiva-


lents in B.
A B
1) стабильность цен a) a general price level
2) движение вверх и вниз b) a price stability
3) индекс потребительских цен c) a price index
4) реальная покупательская d) a consumer price index
способность денег
5) инфляционная надбавка e) inflation premiums
6) понижение покупательской f) a decline in the purchasing power
способности
7) ожидать инфляцию g) the upward and downward
movement
8) общий ценовой уровень h) money real purchasing power
9) индекс цен i) to anticipate inflation
10) неблагоприятный эффект j) adverse effect

Ex. 6. Match the words in A with their definitions in В.


A B
1) inflation a) usual or normal position
2) deflation b) the amount of money etc. asked or given for something
3) disinflation c) amount of sth, esp. money allowed or given regularly
4) hyperinflation d) reaction or an instance of giving one thing or person of
the same type or of equal value in return for another
5) exchange e) a person taking or receiving (something) with the
understanding that he will return it
6) level f) person making a loan
7) price g) a logical result or conclusion
8) boundary h) a rise in prices and wages caused by an increase in
the money supply and demand for goods and result-
ing in a fall in the value of money
9) premium i) a reward or prize, an amount paid in addition to the

64
regular change
10) borrower j) a limit or a border
11) lender k) a situation in which very large and rapid price rises occur
12) consequence l) a reduction in the rate of inflation.
13) allowance m) the reduction of the amount of money being used in a
country, in order to lower prices or keep them steady
14) base year n) a year chosen as a reference point

Comprehension
Ex. 1. Chose the correct answer.
1. Inflation is:
a. an increase in the general price level.
b. not a concern during war.
c. a result of high unemployment.
d. an increase in the relative price level.
2. Inflation is measured by an increase in:
a. homes, autos and basic resources.
b. prices of all products in the economy.
c. the consumer price index.
d. none of the above.
3. The consumer price index (CPI):
a. adjusts for changes in product quality.
b. includes separate market baskets of goods and services for both base
and current years.
c. includes only goods and services bought by the typical consumer.
d. uses current year quantities of goods and services.
4. Deflation is a (an)
a. increase in most prices.
b. decrease in the general price level.
c. situation that has never occurred in U.S. history.
d decrease in the inflation rate.
5. Suppose a typical automobile tire cost $50 in the base year and had a useful life
of 40,000 miles. Ten years later, the typical automobile tire cost $75 and had a
useful life of 75,000 miles. If no adjustment is made for mileage, the CPI would:
a. underestimate inflation between the two years.
b. overestimate inflation between the two years.
c. accurately measure inflation between the two years.
d. not measure inflation in this case.

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Ex. 2. Say whether the following is true or false.
1. Inflation occurs when there is an increase in the purchasing power of money.
2. Unlike the GDP deflator, the CPI does not consider goods and services
purchased by business and government.
3. Disinflation and deflation mean a decrease in the average price level.
4. A consumer price index of 110 for a given year indicates that prices in that
year are 10 per cent higher than prices in the base year.
5. People with fixed income tend to fare best in an inflationary period.

Ex. 3. Use the text to answer the questions:


1. Do prices in the times of inflation rise in all markets equally?
2. What is the boundary between inflation and deflation?
3. What is the price level and what is it measured by?
4. How do they define the inflation rate?
5. What do they call the situation when the money real purchasing power increases?
6. What category of people is most heavily hurt by inflation?
7. What measures can be taken to protect lenders from inflation?
8. After World War II, a 12-ounce bottle of Pepsi sold for 5 cents. Nowadays,
a 12-ounce can of Pepsi sells for more than 10 times that much. Can this
serve as an example of inflation?
9. Consider this statement: “When the price of a good or service rises, the in-
flation rate rises”. Do you agree or disagree? Explain.

Text 2
While reading the text pay attention to the difference between demand-pull in-
flation and cost-push inflation.
Demand-Pull and Cost-Push Inflation
Inflation can occur for several reasons, and economists usually distinguish
between two basic types of inflation, depending on whether it originates from
the buyers' or the sellers' side of the market.
Perhaps the most familiar type of inflation is called demand-pull inflation,
which is a rise in the general price level resulting from an excess of total
spending (demand). Demand-pull inflation occurs when aggregate demand in
the economy increases faster than the economy's productive capacity.
If demand exceeds aggregate supply, the average prices of goods and ser-
vices are pulled up by the “excess” demand. Demand-pull inflation is often
expressed as “too much money chasing too few goods.” When sellers are un-
able to supply all the goods and services buyers demand, sellers respond by

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raising prices. In short, the general price level in the economy is “pulled up”
by the pressure from buyers' total expenditures.
This type of inflation is usually associated with conditions of full employ-
ment. If there are unemployed resources available, an increase in demand can
be met by bringing these resources into employment. Supply will increase and
the increase in demand will have little or no effect on the general price level.
If the total demand for goods and services continues to increase, a full em-
ployment situation will eventually be reached and no further increases in out-
put is possible (e.g. in the short run). Once the nation's resources are fully em-
ployed, an increase in demand must lead to an upward movement of prices. A
situation of excess demand may arise when a country is trying to achieve an
export surplus, in order, perhaps, to pay off some overseas debts. Exports are
inflationary because they generate income at home but reduce home supplies.
Demand inflation may develop when, with full employment, a country tries to
increase its rate of economic growth.
Another possible cause of inflation under conditions of full employment is
an expansion of government spending financed by borrowing from the bank-
ing system.
Cost-push inflation is an increase in the general price level resulting from
an increase in the cost of production. Most sellers try to push these higher
costs on into higher prices even if there is no change in aggregate demand in
the economy.
One source of cost-push inflation is supply shocks, such as widespread and
severe crop failures, the sharp increases in the price of oil instituted by a car-
tel, etc. The effect of a supply shock is to raise the level of input prices above
the level that firms had expected.
Another possible source of cost-push inflation is the momentum of infla-
tionary expectations generated by previous demand-pull inflation.
The influence of expectations on both demand-pull and cost-push inflation
is also an important consideration.

Ex. 1 Match the following collocations with their Russian equivalents. Use
them in the sentences of your own.
A B
1) инфляция, вызванная превышением a) an excess of total spending
спроса над предложением (инфляция (demand)
спроса)
2) инфляция, обусловленная ростом из- b) total expenditures
держек (инфляция издержек) c) the general price level
3) избыток совокупных расходов (спроса) d) excess demand

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4) инфляционные ожидания e) an expansion of govern-
5) рост цен ment spending
6) совокупные расходы f) supply shocks
7) шоки предложения g) a rise in prices
8) расширение расходов правительства h) demand-pull inflation
9) общий уровень цен i) cost-push inflation
10) избыточный спрос j) inflationary expectations

Ex. 2. Choose the correct answer.


1. Demand-pull inflation is caused by:
a. monopoly power;
b. energy cost increases;
c. tax increases;
d. full employment.
2. Demand-pull inflation occurs:
a. when ‘too much money is chasing too many goods’;
b. during a recession;
c. rising production costs;
d. none of the above.
3. Cost-push inflation is due to:
a. excess total spending;
b. too much money chasing too few goods;
c. resource cost increases;
d. the economy operating at full employment.

Ex. 3. Say whether the following is true or false.


1. Demand-pull inflation occurs when aggregate demand in the economy in-
creases faster than the economy's productive capacity.
2. Demand-pull inflationary pressure increases as the economy approaches
full employment.
3. Cost- push inflation is caused by too much money chasing for few goods.
4. Expectations do not have any influence on demand-pull and cost-push inflation.

Ex. 4. Expand the sentences.


1. The text deals with … .
2. Demand-pull inflation is associated … .
3. Cost-push inflation occurs when … .
4. The possible sources of cost-push inflation are … .
5. Supply shocks are caused by … .

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Text 3
While reading the text put down key words and phrases from each paragraph
and possible headlines that best express the main idea of each paragraph. Do
the tasks that follow.
Does it Cost More to Laugh?
Are we paying bigger bucks for smaller yuks? Is there a bone to pick with
the price of rubber chickens? Is the price of Groucho glasses raising eyebrows,
the cost of Mad Magazine driving you mad, and, well, you get the idea.
Malcolm Kushner, an attorney-turned-humor-consultant based in Santa
Cruz, California, developed an index based on a compilation of leading humor
indicators to measure price changes in things that make us laugh. Kushner cre-
ated the cost-of-laughing index to track how trends in laughter affect the bot-
tom line. He is a humor consultant who advises corporate leaders on making
humor work for business professionals. For example, humor can make execu-
tives better public speakers, and laughter reduces stress and can even cure ill-
nesses. Kushner believes humor is America's greatest asset, and his consulting
business gets a lot of publicity from publication of the index. His latest book,
Successful Presentations for Dummies, provides the reader with 10 sites on the
World Wide Web where speakers can find everything from quotations of fa-
mous people to an appropriate Murphy's Law, to general information material
for your speeches. To combat rising humor costs, Kushner has established a
Web site at http://www.kushnergroup.com. It organizes links to databases of
funny quotes, anecdotes, one-liners, and other material for business speakers
and writers. The exhibit with the Groucho face traces the annual percentage
change in the cost of laughing that Kushner has reported to the media. On an
annual basis, the cost of laughing index remained flat as a pancake at 4.4 per-
cent between 1994 and 1995 and then did a belly flop to 3 percent in 1996,
where it remained through 1999.
Closer examination of the laughing index over the years gives both happy
and sad faces. The good news is that the price of an arrow through the head,
singing telegrams, and ticket prices for several of the comedy clubs have re-
mained unchanged since 1995. The bad news is that the prices of all the other
items have increased. The major reason for more expensive humor is the price
of writing a half-hour television situation comedy. Just like the CPI, Kushner's
index has been criticized. Note that the fee for writing a TV sitcom dominates
the index. Kushner responds to this issue by saying, "Well, I wanted the index
to be truly national. The fact that this price dominates the index reflects that
TV comedy shows dominate our national culture. If you can laugh for free at a
sitcom, you don't need to buy a rubber chicken or go to a comedy club."

69
Ex. 1. Match the word with their definitions.
A B
1) asset a) an exclamation used to express strong distaste or disgust
2) sitcom b) property owned by a person or company
3) groucho c) a person who is often grumpy (gloomy)
4) attorney d) a situation comedy
5) to track e) a person appointed to act for another in legal matters
6) yuk f) to follow the trail or movements

Ex. 2. Find information in the text to answer the questions.


1. What sort of index did Malcolm Kushner develop?
2. In what way do humor and laughter influence the work of business professionals?
3. What does Kushner believe to be America’s greatest asset?
4. What actions did Kushner take to combat rising humor costs?
5. How did the cost of laughing change between 1994–1999?
6. What good news does the examination of the laughing index provide?
7. What is the bad news about the laughing index?
8. What is the major reason for more expensive humor according to Kushner?

WRITING

Read the dialogue and write its short summary. Give a comparison of macro-
economic performance of the early 1960s in the USA with that of your coun-
try’s today. Use the verbs of reporting (believe, claim, argue, mention, empha-
size, point out…).
Games Tobin has had a long and distinguishing career in macroeconomics,
extending the model suggested by Keynes, paying special attention to the de-

70
mand for money consumption and savings, fiscal and monetary policy, and
economic growth. Games Tobin received the Nobel prize in economic science
in 1981. Michael Parkin spoke with Professor Tobin about the challenges that
face the economy.
M.P. Professor Tobin, you were a young boy during the Great Depression.
G.T. Not of personal hardship, although my grandfather lost his job and his entire
fortune when the bank of which he was a president went under.
M.P. When did you first study economics?
G.T. As a Harward sophomore in 1936. We met weekly with a tutor and
discussed what we were reading and writing. My tutor had just come
back from England where he had heard a lot about a new book by
John Maynard Keynes. He suggested that we read it. I was too green
to understand that it was absurd for a sophomore to tackle The Gen-
eral Theory of Employment, Interest and Money. So I plunged into it
and got very excited about the book and about economics.
M.P. People usually refer to you as a Keynesian macroeconomist. Do you
agree with that term?
G.T. I don't like labeling. I tried to contribute to economics, especially to
macroeconomics. In 1950s and 1960s we hoped that the Keynesian-
Neoclassical controversy would soon be behind us. Unfortunately,
the old debates have been revived and magnified over the past two
decades. Today, if I have to be labeled - and considering the alterna-
tives – I'm proud to be a Keynesian.
M.P. How would you characterize the controversy in macroeconomics?
Has it stayed the same over the years, or is it different today?
G.T. The original controversy in the 1930s and 1940s was whether a capitalist
market economy possesses reliable automatic mechanisms of adjustment,
which would restore equilibrium. Orthodox economists, Keynes called
them classical – said yes. Keynes said no. Today's New Classical ma-
croeconomists assert that the economy is always in full employment
equilibrium. Keynesians believe the economy can fall out of equilibrium
and that government interventions can speed up recoveries.
M.P. Many economists regard the macroeconomic performance of the
early 1960s in the USA as a very successful period of moderate infla-
tion, low unemployment, and strong growth in real output. Was that
the high point of macroeconomic management of that time?
G.T. Yes. I suppose I have a vested interest in believing that to be true – I
helped to inaugurate the policy in 1961. And it was a pleasant period,
when economists and policymakers were not as divided and combat-
ive as they are now.

71
M.P. What economic principles would you share with students?
G.T. First, opportunity cost is a simple, fruitful concept. Students can learn
it, most people innocent of economics, don't understand it. Second –
fungibility – "money mingles", a friend of mine liked to say. You can
give people money, for your own purpose, but the recipients will
generally find a way to accommodate their own priorities.
Third, economics students who understand the macro identities – for
example, Y = C + I + G + NX1– know more than most politicians and
journalists.

Note:
1. Y(GDP) = Consumption+Investment+Government Purchases+Net Exports.

TRANSLATION

A. Translate the text from English into Russian.


Consumer Price Index Criticism
Just as there is criticism of the unemployment rate, the CPI is not a perfect
measure of inflation, and it has recently been the subject of much public de-
bate. There are four key reasons for this criticism.
First, changes in the CPI are based on a typical market basket of products
purchased that does not match the actual market basket purchased by many
consumers.
Second, there are some difficulties in adjusting the CPI for changes in qual-
ity. Compare a personal computer made in the past with a new personal com-
puter. The new computer may cost somewhat more, but it is much better than
the old computer. If the quality of items improves, increases in the CPI over-
state inflation.
Third, the use of a single base-year market basket ignores the law of de-
mand. If the price of a product rises, consumers purchase substitutes, and a
smaller quantity is demanded.
Finally, there have been made numerous changes in the methodology used
to calculate the CPI during the 1990s. For example, now more consume sub-
stitution of goods in response to rising prices is allowed.

B. Translate from Russian into English into English.


Инфляция – это ситуация, при которой имеет место падение
покупательной способности денег, результатом чего является рост
общего уровня цен. Инфляция измеряется на основе относительных из-
мерений за определенный период времени соответствующего индекса
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цен, обычно индекса цен на потребительские товары или дефлятора
ВВП.
Инфляция, вызванная ростом издержек производства, начинается с
роста некоторых элементов издержек, например бурный рост цен на
нефть в 70-х годах.
Инфляция, вызванная превышением спроса над предложением,
возникает из-за слишком высокого совокупного спроса.
Гиперинфляция – это исключительно высокая инфляция, когда цены
растут настолько быстро, что деньги в значительной степени теряют
свою функцию средства обращения.
Галопирующая инфляция – инфляция, при которой цены начинают
удваиваться, утраиваться ежегодно.

LISTENING

A. Make sure that you understand the following words and word combi-
nations.
to boost fiscal policy
multiplier effect to dispose
information flow business cycle
fiscal deficit to accentuate cycles

B. Listen to the interview and decide whether the following statements are
true or false (T or F).Give the reasoning.
1. Keynesians believe that if the government borrows and spends more
money, economic activity will increase.
2. Keynesians want to boost domestic demand, meaning spending by house-
holds rather than businesses.
3. If the government borrows more money, this affects interest rates and busi-
ness investment.
4. Monetarists say that the only result of increasing the money supply is to
raise prices.
5. Keynesians believe that a government can increase the money supply
without people noticing it, so that they spend more, and business invest
more.
6. The goal of Keynesianism is to eliminate recessions.
7. Monetarists see neither economic advantages nor disadvantages in increas-
ing the amount of money in circulation.

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SPEAKING

A.
Read the dialogue and practice the conversation between a journalist and a
Finance Minister.
Journalist: Has the policy of the government changed?
Minister: No, we are looking towards increasing the quality of services
and making the economy strong.
Journalist: What do you predict as a level of inflation over the next 12
months?
Minister: Inflation will continue at present levels – about 2.5 per cent.
Journalist: Are you confident that economic growth will remain strong?
Minister: Economic growth is now at 2 per cent and should rise to 4 per
cent over the coming year.

Task: Make dialogues according to the model discussing the level of inflation
and the rate of economic growth for the coming year in Belarus, the European
Community and the USA.

B.
Dwell on:
– Inflation and hyperinflation. Their effects on economy and well-being.
– The current level of inflation in the USA, EU and Belarus.
– Consumer Price Index.
– Demand-pull inflation. Why does it become a problem when the economy
approaches full employment?
– Cost-push inflation. How does it differ from demand-pull inflation?
– Inflation and the real and nominal interest rates.

VOCABULARY

boost v – стимулировать, повышать


borrow v – брать взаймы
borrower n – должник, дебитор, заёмщик
borrowing n – заем, кредит
capacity n – мощность
productive ~ – производственная мощность
consumer n – потребитель
~ price index (CPI) – индекс потребительских цен

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credit n – кредит, доверие, репутация
creditors n – кредиторы, кредиторская задолженность
curve n – кривая (линия)
cutback n – сокращение, уменьшение
debt n – долг
bad ~ – безнадёжный долг
debtors n – дебиторы, дебиторская задолженность
disinflation n – дисинфляция; замедление темпов инфляции
hyperinflation n – гиперинфляция
inflation n – инфляция
cost-push ~ – инфляция, обусловленная ростом издержек
demand-pull ~ – инфляция, вызванная превышением спроса над
предложением
lend v – давать в займы, одалживать
lender n – кредитор, заимодавец
~ of last resort – кредитор последней инстанции
loan n – заём, суда, кредит
loan v – одалживать, давать в займы
~ out – выдавать заём
multiplier n – мультипликатор, коэффициент
recipient n – получатель
surplus n – избыток, профицит

GLOSSARY

· GDP chain price index is a measure that compares changes in the prices of all
final goods during a given year to the prices of those goods in a base year.
· The consumer price index (CPI) is the most widely known price-level
index. It measures the cost of purchasing a market basket of goods and ser-
vices by a typical household during a lime period relative to the cost of the
same bundle during a base year.
· Inflation is a situation in which a decline in the purchasing power of
money results in a rise of the general price level.
· Cost-push inflation is an increase in the general price level resulting from
an increase in the cost of production.
· Demand-pull inflation is caused by pressure on prices originating from
the buyers' side of the market. In contrast, cost-push inflation is caused by
pressure on prices originating from the sellers' Side- of the market.

75
· Deflation is a decrease in the general level of prices. During the early years
of the Great Depression, there was deflation, and the CPI declined at about
a double-digit rate.
· Disinflation is a reduction in the inflation rate. Between 1980 and 1986,
there was disinflation. This does not mean that prices were falling, but only
that the inflation rate fell.
· Hyperinflation is an extremely rapid rise in the general price level.
· Nominal income is income measured in actual money amounts. Measuring
your purchasing power requires converting nominal income into real in-
come, which is nominal income adjusted for inflation
· Nominal interest rate is the annual percentage amount of money that is
earned on a sum loaned or disposed in a bank.
· The real interest rate is the nominal interest rate adjusted for inflation. If
real interest rates are negative, lenders incur losses.

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3.3. ECONOMIC BUSINESS CYCLES AND UNEMPLOYMENT

DISCOVERING CONNECTIONS

1. Are there any jobs in your country which are in constant demand?
2. In which economic sectors have jobs disappeared / have been created?
3. What is the most difficult job you can imagine? And the most pleasant?
4. If you could choose any job in the world, what would it be? Why?
5. Are you optimistic or pessimistic about your own future? Do you expect
the qualification you are currently studying for to get you a permanent
job?
6. Do you see any areas in which a large number of jobs might realistically be
created?
7. In your opinion, when there is high unemployment during a recession,
should the government intervene in the economy to create jobs?

READING

Text 1
As you read the text, focus on various theories of business cycle.
Economic Business Cycles
The business cycle or trade cycle is a permanent feature of market
economies: gross domestic product (GDP) fluctuates as booms and reces-
sions succeed each other. During a boom, an economy (or at least parts of
it) expands to the point where it is working at full capacity, so that produc-
tion, employment, prices, profits, investment and interest rates all tend to
rise. During a recession, the demand for goods and services declines and
the economy begins to work at below its potential. Investment, output,
employment, profits, commodity and share prices, and interest rates gen-
erally fall. A serious, long-lasting recession is called a depression or a
slump.
The highest point on the business cycle is called a peak, which is followed
by a downturn or downswing or a period of contraction. The lowest point on
the business cycle is called a trough, which is followed by a recovery or an up-
turn or upswing or a period of expansion. Economists sometimes describe
contraction as 'negative growth'.
There are various theories as to the cause of the business cycle. Internal (or
endogenous) theories consider it to be self-generating, regular, and indefinitely
repeating. A peak is reached when (or just before) people begin to consume

77
less, for whatever reason. As far back as the mid-nineteenth century, it was
suggested that the business cycle results from people infecting one another
with optimistic or pessimistic expectations. When economic times are good or
when people feel good about the future, they spend, and run up debts. If inter-
est rates rise too high, a lot of people find themselves paying more than they
anticipated on their mortgage or rent, and so have to consume less. If people
are worried about the possibility of losing their jobs in the near future they
tend to save more. A country's output, investment, unemployment, balance of
payments, and so on, all depend on millions of decisions by consumers and
industrialists on whether to spend, borrow or save.
Investment is closely linked to consumption, and only takes place when
demand and output are growing. Consequently, as soon as demand stops
growing at the same rate, even at a very high level, investment will drop,
probably leading to a downturn. Another theory is that sooner or later dur-
ing every period of economic growth – when demand is strong, and prices
can easily be put up, and profits are increasing employees will begin to de-
mand higher wages or salaries. As a result, employers will either reduce in-
vestment, or start to lay off workers, and a downswing will begin.
External (or exogenous) theories, on the contrary, look for causes out-
side economic activity: scientific advances, natural disasters, elections or
political shocks, demographic changes, and so on. Joseph Schumpeter be-
lieved that the business cycle is caused by major technological inventions
(the steam engine, railways, automobiles, electricity, microchips, and so
on), which lead to periods of 'creative destruction'. He suggested that there
was a 56-year Kondratieff cycle, named after a Russian economist. A sim-
pler theory is that, where there is no independent central bank, the business
cycle is caused by governments beginning their periods of office with a
couple of years of austerity Programmes followed by tax cuts and monetary
expansion in the two years before the next election.

Vocabulary Focus

Ex. 1. Match the Russian words and word combinations in column A with
their English equivalents in column B.
A B
работать на полную мощность boom
платежный баланс/ сальдо to work at full capacity
влезать в долги peak
отрицательгный рост balance of payments
экономический подъем tax cut
78
пик, высшая точка цикла recession
низшая точка цикла negative growth
экономический спад trough
снижение налогов to work at below potential
работать ниже потенциальных возможностей to run up debts

Ex. 2. Express in one word.


Beliefs about what will happen in the future.
1. Money borrowed in order to buy a house or flat (GB) or apartment (US).
2. Money paid for the use of a house or flat owned by somebody else.
3. The amount of something produced by a company, a country, and so on.
4. Spending on new machines, factories, and so on.
5. Owners or managers of manufacturing companies.
6. Spending on goods and services.
7. To dismiss employees.
8. Concerning the number of births, deaths, population movements, and so on
9. An absence of luxury and comfort.

Words for reference: mortgage, investment, lay off, expectations, rent, demo-
graphic, consumption, austerity, industrialist, output.

Ex. 3. Complete the sentences using the words given below.


1. Recurrent rises and falls in real GDP over a period of years is called the
_________ .
2. A (an) __________ is officially defined as two consecutive quarters of real
GDP decline.
3. ____ is measured by the annual percentage change in real GDP in a nation.
4. The _______ is the difference between full-employment or potential real
GDP and actual real GDP.
5. The phase of the business cycle during which real GDP reaches its maxi-
mum after rising during a recovery is called a _______ .
6. A _______ is a phase of the business cycle during which real GDP reaches
its minimum after falling during a recession.
7. An upturn in the business cycle during which real GDP rises is called a ___.

Words for reference: recovery; peak; trough; economic growth; GDP gap;
business cycle; recession.

79
Comprehension

Ex. 1. Match up the following half sentences:


A B
1) Companies may have to reduce invest- a) consumers borrow a lot of money.
ment or the size of the work force b) if labour costs increase too much.
2) Companies only invest c) if their company's sales are in-
3) During a period of economic creasing.
growth d) include psychological factors.
4) External theories of the business e) include technological and popula-
cycle tion changes.
5) Governments often stimulate the f) prior to general elections.
economy g) result in higher rents and mort-
6) Increases in interest rates gages.
7) Internal theories of the business cycle h) when they are afraid of becoming
8) People can demand higher pay unemployed.
9) People tend to spend less i) while consumption is increasing.

Ex. 2. Choose the right answer.


1. The _______ phase of the business cycle follows a recession.
a. recovery;
b. recession;
c. peak;
d. trough.
2. The GDP gap is the difference between:
a. frictional unemployment and actual real GDP;
b. unemployment rate and real GDP deflator;
c. full-employment real GDP and actual real GDP;
d. full-employment real GDP and real GGDP deflator.
3. A recession is a business contraction lasting at least:
a. one years;
b. six months;
c. three months;
d. one month.
4. When is the GDP gap largest?
a. During peak periods in the business cycle;
b. During trough periods in the business cycle;
c. When unemployment rates are relatively low;
d. When cyclical unemployment is close to zero.

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Ex. 3. Answer the questions on the text.
1. What is a business cycle?
2. Which of the various theories of the business cycle mentioned in the text
do you find the most convincing?
3. What is the current economic situation in your country? Why?
4. Are most of the people you know currently optimistic or pessimistic about
the future? Would you say that they are saving money for bad times ahead,
or spending and borrowing without worrying too much about the future?
Either way, can you see anything coming that might cause them to change
their behaviour?

Text 2
Skim the text to define unemployment, its negative and positive sides.
Unemployment
Unemployment is the number of adult workers who are not employed and
are seeking jobs. To be classified as unemployed, a person must be able and
willing to work, be actively seeking work, and be without a job. Everyone
who fits this description is unemployed. The labour force is the total number
of employed and unemployed workers. The unemployment rate is unemploy-
ment expressed as a percentage of the labour force.
Try to imagine a world in which there is no unemployment. The world that
we've just considered would clearly not be a nice place in which to live and
work. Workers and jobs would be badly mismatched, productivity would
probably not be very high, and there would be a good deal of unhappiness and
lack of job satisfaction. The world that we live in differs from this fictional
world in many respects, and we'll focus on two of them.
First, in the real world, people don't usually take the first job that comes
their way. Instead, they spend time searching out what they believe will be the
best job available for them.
Second, the real world is dynamic and ever-changing. Production and con-
sumption change as new technologies are developed and exploited. The rapid ex-
pansion of jobs in the high-tech computer-oriented sectors and the loss of jobs in
traditional sectors such as automobiles and steel making have resulted in a large
rate of labour turnover, which has resulted in workers moving not only from one
sector of the economy to another but from one region of the country to another.
Unemployment has negative sides. The most obvious cost of unemploy-
ment is the loss of output and the loss of income. How big this cost is depends
on the natural rate of unemployment.

81
Besides prolonged unemployment seriously lowers the value of a person’s
human capital, i.e. the value of a person’s education and acquired skills. When
unemployment is prolonged, human capital depreciates or deteriorates – skills
lose their value.
A rise in the unemployment rate also causes an increase in the amount of
crime. When people cannot earn an income from legitimate work, they some-
times turn to crime. A high crime rate is also one of the costs of high unem-
ployment.
A final cost that is difficult to quantify is the loss of self-esteem that is hu-
man dignity, which afflicts people.

Text 3
To check your comprehension do the tasks that follow.
Types of Unemployment
The unemployment rate is determined by three different types of unem-
ployment: frictional, structural, and cyclical. Understanding these conceptual
categories of unemployment aids in understanding and formulating policies to
ease the burden of unemployment. In fact, each type of unemployment re-
quires a different policy prescription to reduce it.
For some unemployed workers, the absence of a job is only temporary. At
any given time, some people with marketable skills are fired, and others vol-
untarily quit jobs to accept or look for new ones. And there are always young
people who leave school and search for their first job. Workers in industries,
such as construction, experiencing short periods of unemployment between
projects and temporary layoffs are common. Other workers are seasonally un-
employed. For example, ski resort workers will be employed in the winter but
not in the summer, and certain crops are harvested “in season.” Because jobs
requiring their skills are available once the unemployed and the job vacancies
are matched, such workers are considered “between jobs.” This type of unem-
ployment is called frictional unemployment, and it is not of great concern.
The fact that job market information is imperfect influences frictional unem-
ployment in the economy. Because it takes time to search for the information re-
quired to match employer and employees, some workers will always be friction-
ally unemployed. Frictional unemployment is therefore a normal condition in an
economic system permitting freedom of job choice. Improved methods of distrib-
uting job information through job listings on the Internet can help unemployed
workers find jobs more quickly and reduce frictional unemployment.
Unlike frictional unemployment, structural unemployment is not a short-term
situation. Instead, it is long-term, or possibly permanent unemployment resulting

82
from the non-existence of jobs for unemployed workers. Structural unemployment
is unemployment caused by a mismatch of the skills of workers out of work and
the skills required for existing job opportunities. Note that changing jobs and lack
of job information are not problems for frictionally unemployed workers. While
frictionally unemployed workers have marketable skills, structurally unemployed
workers require additional education or retraining. Changes in the structure of the
economy create the following three causes of structural unemployment.
First, workers might face joblessness because they lack the education or the
job-related skills to perform available jobs. This type of structural unemploy-
ment particularly affects teenagers and minority groups, but other groups of
workers can be affected as well.
Second, the consuming public may decide to increase the demand for
Mazda RX-7s and decrease the demand for Chevrolet corvettes. This shift in
demand would cause U.S. auto workers who lose their jobs and find jobs in
another idustry in another location.
Third, implementation of the latest technology may also increase the pool of
structural unemployment in a particular industry and region. For example, the U.S.
textile industry, located primarily in the South, can fight less expensive foreign tex-
tile imports by installing modern machinery.
Cyclical unemployment is directly attributable to the lack of jobs caused by the
business cycle. Cyclical unemployment is unemployment caused by the lack of
jobs during a recession. When real GDP falls, companies close, jobs disappear, and
workers scramble for fewer available jobs. Similar to the game of musical chairs,
there are not enough chairs (jobs) for the number of players (workers) in the game.
Because both frictional and structural unemployment are present in good
and bad times, full employment does not mean “zero percent unemployment.”
Full employment is the situation in which an economy operates at an unem-
ployment rate equal to the sum of the frictional and structural unemployment
rates. Full employment therefore is the rate of unemployment that exists with-
out cyclical unemployment.

Ex. 1. Choose the right answer according to the text and your background
knowledge. Explain your choice.
1. The number of people officially unemployed is not the same as the number
of people who can’t find a job because:
a. people who have jobs continue to look for better ones;
b. the armed forces is included;
c. discouraged workers are not counted;
d. none of the above;
e. all of the above.

83
2. Frictional unemployment refers to:
a. unemployment related to thee ups and downs of the business cycle;
b. workers who are between jobs;
c. people who spend relatively long periods out of work;
d. people who are out work and have no job skills.
3. A mismatch of the skills of unemployed workers and the skills required for
existing jobs is defined as:
a. involuntary unemployment;
b. cyclical unemployment;
c. structural unemployment;
d. frictional unemployment.
4. Unemployment caused by a recession is called:
a. structural unemployment;
b. frictional unemployment;
c. involuntary unemployment;
d. cyclical unemployment.
5. Full employment occurs when the rate of unemployment consist of:
a. seasonal plus structural plus frictional unemployment;
b. cyclical plus frictional unemployment;
c. structural, frictional, and cyclical unemployment;
d. none of the above.

Ex. 2. Scan the text and say:


a) what changes in the economy create structural unemployment;
b) if economists consider a certain level of structural unemployment inevitable;
c) why frictional unemployment is considered to be persistent;
d) if there is any difference between frictional and structural unemployment;
e) what is meant by cyclical unemployment;
f) if full employment means absolute absence of unemployment;
g) what professions are obsolete nowadays and why;
h) what is the goal of full employment;
i) if there any advantages and disadvantages of being unemployed.

Ex. 3. Present the situation in job market in your country regarding different
types of unemolyment.

WRITING

Write an abstract of the previous text.

84
TRANSLATION

A. Translate the text into Russian.


W.H. Philips and the Philips Curve
A.W.H. Phillips was an economist whose reputation was based largely on a
single paper on the right topic published at the right time. In the late 1950-s,
the connection between inflation and unemployment ranked as a major un-
solved problem of macroeconomic theory. The curves that Phillips drew in his
famous article in "Economica" suggested a simple, stable relationship between
inflation and unemployment.
The central proposition of the Phillips curve theory is: other things remain-
ing constant, the higher the unemployment rate, the lower is the inflation rate.
Phillips's original idea was that the unemployment rate indicates the state
of demand pressure in the economy. When unemployment is low, real GNP is
above capacity, bottlenecks arise, and inflation accelerates. When unemploy-
ment is high, real GNP is below capacity, and inflation diminishes.
In the early 1960s, the Phillips curve became a central element of macroeco-
nomics.

B. Translate into English.


Безработица – это одна из серьезных проблем, с которыми
сталкивается любое общество. Как и любое явление, она не может быть
оценена однозначно. С одной стороны, она дает людям время и
возможность найти подходящую работу. С другой стороны, состояние
безработных приводит людей к поиску незаконных заработков.
Последствия безработицы весьма внушительны. Во-первых, это
отсутствие заработка. Во-вторых, это потеря приобретенных
профессиональных знаний и человеческого достоинства. Очевидно, что
человек, разочаровавшийся найти высокооплачиваемую работу,
соглашается на сомнительные предложения. Кроме того, безработица
толкает людей к совершению преступлений. Если безработица
длительная, она вызывает серьезные социальные и психологические
проблемы не только для безработного, но и для его семьи.

LISTENING

Kate Barker is the Chief Economic Adviser of the Confederation of British


Industry, and a member of the panel of economic advisers to the British
Treasury. You will hear her talking about the things that will need to change if
labour markets become increasingly flexible.

85
Ex. 1. Listen to Part One of the interview and answer the questions.
1. A 'flexible labour market' is one in which:
a. workers are able to do a variety of jobs.
b. it is easy for companies to hire non-permanent staff.
c. workers arc free to choose the hours they work.
2. What is the advantage of a flexible labour market for employers?
3. What does 'the more flexible labour market is considered to have encour-
aged inward investment' mean?
4. Kate Barker says that three things will have to be rethought or reconsidered
if the British labour force is going to remain more flexible.

Complete the gaps:


In particular, the structure of (1)…………………………needs to be revis-
ited, if you have people moving between employments and unemployment
much more quickly. The structure of (2)……………………………needs to be
revisited, if you have people no longer working for a long time for the same
employer, and finally in Britain we tend to have a very high level of owner-
occupation – more people (3)………………………….and they borrow a great
deal of money in order to pay for that. It would be much more logical to have
a big (4)………………………., if you want to have a very flexible labour
market.

Ex. 2. Listen to Part Two of the interview. According to what Kate Barker
says, which is the correct answer in each case?
1. In a flexible labour market, such as that in the USA,
a. unemployment falls in a downturn or recession.
b. unemployment rises in a downturn or recession.
2. In a flexible labour market
a. unemployment rises during an economic upturn.
b. temporary employment rises during an economic upturn.
c. permanent employment rises during an economic upturn.
3. In a flexible labour market, there are
a. badly-paid workers who have frequent periods of unemployment.
b. well-paid workers who have frequent periods of unemployment.
c. 10% of earners who have frequent periods of unemployment.
4. Wages are falling
a. because of the deregulation of the labour market.
b. because there is now a kind of 'underclass' of workers.
c. because of competition from Asian countries.

86
Ex. 3. Listen to Part Three of the interview and answer these questions.
1. What are the two measures that Kate Barker suggests governments should
take to help the long-term unemployed?
2. What, according to Kate Barker, is a common attitude among employers
towards long-term unemployed people?

SPEAKING

A.
Read the dialogue in pairs and do the following exercises.
1 – I hear that Sam lost his job. Did you hear that, too?
2 – I did hear something about his job being abolished.
1 – What a terrible thing to happen now, just when he and Helen are expect-
ing their first baby!
2 – It is a shame, I’ll admit, but I told Sam months ago to get out of that
place where he works and get another job. I had a feeling that the com-
pany wasn’t very stable financially.
1 – You mean it’s not a strong company? I’d always thought it was one of
the strongest around.
2 – If you’ve been reading the news in the financial section, you could see
that the company was headed1 for trouble. I wouldn’t be surprised to see
it go bankrupt before the end of the year.
1 – It sure is too bad. Is there anything we can do for Sam?
2 – I’m going to call him this afternoon. I heard yesterday that there’s going to be
an opening2 in the section where I work. He can get his application in3 today.
1 – I’ll check things out4 with my boss, too. There may be something open in
one of the departments over in Fairmont.

Notes:
1. to head – to move or go in a certain direction;
2. opening – place or position that is vacant;
3. to get in – to submit;
4. to check out – to prove true.

Ex. 1. Conversation in context


1. What is Sam’s relationship to the speakers?
2. Where does the discussion take place?
3. Is Sam present?
4. Can the speakers help Sam?

87
Ex. 2. Personal application
1. Did you ever lose your job? If so, describe how it felt.
2. What are the most financially stable companies in your country?
3. Do you get along well with your boss?
4. Are there any openings where you work?
5. Would your friends help you find a job?

B.
Speak on:
– the basic cause of the business cycle;
– the phases of the business cycle;
– business cycle theories;
– the definition of unemployment, its types
– the reasons for unemployment;
– the impact of technology changes on unemployment;
– the geographic distribution of jobs;
– costs of unemployment;
– positive sides of frictional and structural unemployment;
– the goal of full employment;
– the Philips Curve.

VOCABULARY

boom n – экономический подъем


business cycles – экономический цикл
depreciate v – обесцениваться
depression n – экономический спад
deteriorate v – ухудшаться
employment n – занятость
full ~ – полная занятость
expansion n–расширение; распространение
gap n – разрыв
deflationary ~ – дефляционный разрыв
hinder v – препятствовать
inputs n – затраты
lay off v – увольнять
obsolete adj – устарелый
output n – выпуск (продукции)
peak n – пик, высшая точка колебания

88
recession n (syn. contraction, downturn) – спад производства, рецессия
recovery n (syn. upturn, expansion) – восстановление, оживление, подъем
seek v – искать
shortage n (syn. deficit) – недостаток, дефицит
switch v – изменять направление; переключать
temporary adj – временный
trough n – низшая точка, «дно» цикла
turnover n – оборот капитала
unemployment n -- безработица
cyclical ~ – циклическая безработица
frictional ~ – фрикционная безработица
structural ~ – структурная безработица

GLOSSARY

· Business cycle – alternating periods of economic growth and contraction,


which can be measured by changes in real GDP.
· Cyclical unemployment – unemployment caused by the lack of jobs dur-
ing a recession.
· Economic growth – an expansion in national output measured by the an-
nual percentage increase in a nation’s real GDP.
· Frictional unemployment – unemployment caused by the normal search
time required by workers with marketable skills who are changing jobs,
initially entering the labour force, re-entering the labour force, or season-
ally unemployed.
· Full employment – the situation in which an economy operates at an un-
employment rate equal to the sum of the frictional and structural unem-
ployment rates.
· Peak – the phase of the business cycle in which real GDP reaches its
maximum after rising during a recovery.
· Recession – a downturn in the business cycle during which real GDP de-
clines.
· Recovery – an upturn in the business cycle during which real GDP rises;
also called an expansion.
· Structural unemployment – unemployment caused by a mismatch of the
skills required for existing job opportunities.
· Trough – the phase of the business cycle in which real GDP reaches its
minimum after falling during a recession.

89
3.4. BANKING

DISCOVERING CONNECTIONS

1. Have you ever been to the bank? What did you go there for?
2. What different kinds of services do banks offer to the public?
3. How would you comment the saying “A banker is a man who lends you
umbrella when the weather is fair, and takes it away from you when it
rains”? Do you agree with it?

READING

Text 1
After reading the text choose the heading for each paragraph.
– Investment Banking
– Interest Rates
– Commercial Banking
– Universal Banking
– Central Banking
– Eurocurrency

1. A central bank fulfils a number of key roles in the economy, acting as a


bankers’ bank and as a lender of last resort, being responsible for monetary
creation, and having overall responsibility for monetary policy. The central
bank can use control of interest rates, open market operations and required re-
serves to influence the monetary base and overall interest rates in the econ-
omy. In recent years, the interest rate has been prime instrument. By influenc-
ing the amount of real money in the economy, the central bank is able to influ-
ence aggregate demand, which in turn will influence prices. Thus the central
bank has to balance the need to restrain inflation with the desire to allow eco-
nomic growth.
2. Commercial or retail banks are businesses that trade in money. They re-
ceive and hold deposits, pay money according to customers' instructions, lend
money, offer investment advice, exchange foreign currencies, and so on. They
make a profit from the difference (known as a spread or a margin) between the
interest rates they pay to lenders or depositors and those they charge to borrow-
ers. Banks also create credit, because the money they lend, from their deposits
is generally spent (either on goods or services, or to settle debts), and in this
way transferred to another bank account - often by way of a bank transfer or a

90
cheque (check) rather than the use of notes or coins - from where it can be lent
to another borrower, and so on. When lending money, bankers have to find a
balance between yield and risk, and between liquidity and different maturities.
3. Investment banks, often called merchant banks in Britain, raise funds
for industry on the various financial markets, finance international trade, issue
and underwrite securities, deal with takeovers and mergers, and issue govern-
ment bonds. They also generally offer stock broking and portfolio manage-
ment services to reach corporate and individual clients. Investment banks in
the USA are similar, but they can only act as intermediaries offering advisory
services, and do not offer loans themselves. Investment banks make their prof-
its from the fees and commissions they charge for their services.
4. In the USA, the Glass-Steagall Act of 1934 enforced a strict separation
between commercial banks and investment banks or stock broking firms. Yet
the distinction between commercial and investment banking has become less
clear in recent years. Deregulation in the USA and Britain is leading to the
creation of 'financial supermarkets': conglomerates combining the services
previously offered by banks, stockbrokers, insurance companies, and so on. In
some European countries (notably Germany, Austria and Switzerland) there
have always been universal banks combining deposit and loan banking with
share and bond dealing and investment services.
5. A country’s minimum interest rate is usually fixed by the central bank.
This is the discount rate, at which the central bank makes secured loans to
commercial banks. Banks lend to a blue chip borrowers (very safe large com-
panies) at the base rate or the prime rate; all other borrowers pay more, de-
pending on their credit standing (or credit rating, or creditworthiness): the
lender’s estimation of their present and future solvency. Borrowers can usually
get a lower interest rate if the loan is secured or guaranteed by some kind of
asset, known as collateral.
6. In most financial centers, there are also branches of lots of foreign banks,
largely doing Eurocurrency business. A Eurocurrency is any currency held out-
side its country of origin. The first significant Eurocurrency market was for US
dollars in Europe, but the name is now used for foreign currencies held anywhere
in the world (e.g. yen in the US, euros in Japan). Since the US$ is the world’s
most important trading currency – and because the US for many years had a huge
trade deficit – there is a market of many billions of Eurodollars, including the oil-
exporting coutries’ ‘petrodollars.’ Although a central bank can determne the
minimum lending rate for its national currency it has no control over foreign cur-
rencies. Furthermore, banks are not obliged to deposit any of their Eurocurrency
assets at 0% interest with the central bank, which means that they can usually of-
fer better rates to borrowers and depositors than in the home country.

91
Vocabulary Focus

Ex. 1. The text contains a number of common verb-noun partnerships (e.g. to


lend money, to finance international trade). Match up the verbs and nouns
below to make common collocations. Give their Russian equivalents.
A B
1) influence a) advice
2) restrain b) bonds
3) exchange c) business
4) issue d) currencies
5) make e) deposits
6) offer f) funds
7) pay g) interest
8) raise h) loans
9) receive i) profits
10) underwrite j) security issues
11) charge k) monetary base
12) do l) inflation

Ex. 2. Match the definitions in A with the words from the text in B.
A B
1) buying and selling government bonds on the open a) collateral
market
2) the currency supplied by the Central bank both to b) to restrain
the commercial banks and to private circulation
3) to place money in a bank; or money placed in a c) deposit
bank
4) the money used in countries other than ones own d) foreign cur-
rencies
5) how much money a loan pays, expressed as a per- e) blue chip
centage
6) available cash, and how easily other assets can be f) conglomerate
turned into cash
7) the date when a loan becomes repayable g) liquidity
8) to guarantee to buy all the new shares that a com- h) open market
pany issues, if they cannot be sold to the public operations
9) when a company combines with another one i) maturity
10) buying and selling stocks or shares for clients j) portfolio
management

92
11) taking care of all a client's investments k) monetary base
12) the ending or relaxing of legal restrictions l) to underwrite
13) a group of companies, operating in different m) merge
fields, that have joined together
14) a company considered to be without risk n) takeover
15) ability to pay liabilities when they become due o) stock broking
16) anything that acts as a security or a guarantee for p) deregulation
a loan
17) any currency held outside its country of origin q) solvency
18) when a company buys or acquires another one r) yield
19) to hold sth back s) Eurocurrency

Ex. 3. Write down the English equivalents for the following. Use the text and
Ex. 1 – 2 for references.
Последний кредитор в критической ситуации; резервная норма; сдер-
живать инфляцию; обеспечивать экономический рост; разница между се-
бестоимостью и продажной ценой; срок погашения платежа; погасить
долги; доход по ценным бумагам с фиксированным процентом; погло-
щение; слияние; учетная процентная ставка; имущество; обеспечение
кредита, залог; гарантировать, ручаться; кредитоспособность, платеже-
способность (3 варианта); евровалюта; торговый дефицит.

Comprehension

Discuss with your partner the following questions:


1. How do you understand the role of the central bank ‘to act as a bankers’
bank’?
2. For what purposes may the central bank regulate interest rates?
3. How do the commercial banks earn money?
4. What sort of balance do bankers have to find when lending money?
5. What are the main functions of merchant banks in England?
6. How do investment banks in America differ from merchant banks in
England?
7. What is the difference between an interest rate and a discount rate?
8. How are interest rates determined?
9. Why are there so many dollars deposited outside the USA?
10. Why did American legislation separate commercial and investment
banking?

93
Text 2
Scan the text for the information about the functions of commercial banks, ac-
counts and services they offer their customers.
Commercial Banks of Britain
A bank is an intermediary between a depositor will and a borrower. The in-
terest rate which the commercial banks charge borrowers and pay to deposi-
tors will be influenced by the interest rate which is quoted from time to time
by the Bank of England, which is, of course, controlled by the British gov-
ernment. If the Bank of England recommends that the interest rates will have
to rise, then the commercial banks and most other financial institutions will
also raise their interests rates.
A rise in the interest rate will make borrowing more expensive and saving
more attractive. A fall in the interest rate will make borrowing cheaper, saving
less attractive.
The government may use the interest rate (sometimes called the bank rate) to
regulate the economic climate of the country. By this we mean that borrowing
becomes more expensive, businessmen will become more reluctant to borrow
and develop their business, but if it falls, then they probably become more active.
If the economy becomes too active, there is usually a tendency for inflation
to occur, and this is usually caused by too many goods produced and too much
money circulating in the economy.
To combat inflation the government will often raise the interest rate. If the
economy was stagnant then the interest rate would probably be lowered so that
to encourage it to expand and become more active. There are, of course, fac-
tors which the government must consider before it influences the institutions
to raise or lower their interest rates.
Commercial banks make a profit by:
1. Making loans to businessmen and private individuals.
2. Charging interest payments on overdrawn accounts.
3. Lending to the money market.
4. Investing in sound shares and securities.
The bank's most important activity is the extension of credit. In order to
provide a loan, a bank must have funds to lend. This comes from paid-in capi-
tal, earnings of previous years, borrowed funds and the bank's customers' de-
posits. The banker must always remember that the money he lends is not his
bank's own money. It is the money deposited by the bank's customers. To
evaluate the risk, a banker must first obtain certain basic information about the
potential borrower. The banker must learn how much money the borrower
needs, the purpose and the term of the loan, and how the borrower will repay

94
the loan. The borrower's ability to repay depends on the purpose of the loan.
Banks will lend money in two ways:
– by a personal loan;
– by an overdraft loan arrangement.
The personal loan is charged at a fixed rate of interest repayable over a
fixed period of time.
The overdraft is used mostly by businessmen. The advantage with over-
drafts is that interest is repayable only on the amount owed at a particular
time. Interest is calculated on a daily basis. The borrower will have to pay a lot
of interest when the debt is large, but if he is able to make a good deposit and
reduce the size of the overdraft then the interest charged will be lowered ac-
cordingly. Overdrafts may be recalled by the bank at a very short notice.
The commercial bank offers its customers accounts of two types: deposit
account and the current account. The deposit account will probably be used to
pay a fixed rate of interest, and will sometimes issue the saver with a saving
book. The current account pays no interest. A cheque book is used to make
payments from an account and a paying-in book is used when money is paid
into the account.
Banks will normally give statements to both deposit and current holders about
once every three months, or more frequently if required by the account holder.
Statements give a detailed account, on a day to day basis, of all money and
cheques which have either been paid into account or withdrawn from the account.
Money is the commodity that banks sell. A bank seeks to buy money
cheaply and to sell it dearly. This is what the banks are busy doing. Naturally,
the banks put their money where it brings the highest profit. That is why they
always keep up to date with the market situation by shifting money from one
geographical region to another, the banks activity stimulates progress in indus-
try, construction and agriculture.
Banks are interested in keeping most of their money in circulation so that it
should bring them profit. They seek to reduce their lending rates in order to
attract buyers.
In their pursuit of high profit, the banks sometimes get involved in risky
operations fraught with bankruptcy. That is why the government takes meas-
ures to minimize the danger of banks going broke. Every bank is obliged to
take out insurance against robbery or bankruptcy lest the clients should lose
their money in any case.
Technological innovations and increased competition in the face of deregu-
lation are changing the face of British banking. Banks and other financial in-
stitutions are using computer technology now, that is why they can offer their
clients different types of services:

95
1. Accept deposits from depositors.
2. Make loans to borrowers.
3. Conduct deposit and current accounts for customers.
4. Keep valuables in safe custody.
5. Give advice on income tax matters.
6. Give advice on overseas trading.
7. Buy and sell shares for customers.
8. Issue foreign currency and travellers' cheques.
9. Act as executors and trustees for deceased persons.
10. Change old bank-notes for new ones.
The commercial banks cater to big companies, small companies and to in-
dividuals.

Ex. 1. Expand the sentences.


1. The interest rate which the commercial banks charge ...
2. A rise in the interest rate will...
3. The banker must always remember that the money he lends …
4. The government may use the interest rate to ...
2. The advantage with overdrafts is that …
3. Banks will normally give statements to ...
4. To combat inflation ...
5. If the economy becomes too active ...
6. By shifting money of various costs the bank activity ...
7. Banks make a profit by...
8. The banks cater to …

Ex. 2. Are the following sentences true or false? Say why.


True False
a. If the banks lends money to a company, the banks is one
of the company’s debtors.
b. If you borrow money from the bank at a variable rate of interest,
you might have to pay back more than you think you will.
c. Creditors prefer low interest rates.
d. Debtors prefer high interest rates.

Ex. 3. Answer the questions.


1. What is a commercial bank according to the text?
2. What does the interest rate the commercial banks offer depend on?
3. What are the ways of making a profit by banks?

96
4. What do the funds that banks use to provide a loan come from?
5. What factors should a banker consider to evaluate the risk when provid-
ing a loan?
6. What are the two ways that banks lend money?
7. What is the advantage with overdrafts?
8. What types of accounts do commercial banks offer to their customers?
How do they differ?
9. What measures does the government take to minimize the danger of
banks going broke?
10. What types of services can customers get in a bank?

Text 3
While reading the text focus on the information describing the procedures of the
Fed and other financial institutions of the USA, put down a plan choosing key
words to each point of the plan.
Banking in the USA
At the centre of the U.S. banking system is the Federal Reserve System (FRS
or “the Fed”, as it is usually called) which was established in 1913. It consists of
12 regional banks and has its task in controlling the national banking system.
The Federal Reserve serves as a “banker’s bank” and the typical bank cus-
tomer never enters the door of a Federal Reserve district bank or one of its
branch banks.
The organization's main task is to set and implement monetary policy, which
is a set of rules for handling the economy and the money supply. Following are
brief descriptions of some of the principal functions of the Federal Reserve.
The Fed (1) regulates the money supply by four basic tools. It can set the dis-
count rate and change the reserve requirements, that is the sum of money (called
reserves) equal to a certain percentage of deposits that a bank must keep on hand.
Another tool the Fed uses is its power to buy and sell government bonds on
the open market. These are known as open-market operations.
The last tool employed by the Fed involves selective credit controls, or the
setting of credit terms on various kinds of loans.
Another function performed by the Fed includes (2) clearing checks.
Banks can use the Federal Reserve's check-clearing service to clear checks
drawn on banks outside their Federal Reserve districts.
One more important task of the Fed is (3) maintaining and circulating cur-
rency. Note that the FRS does not print currency – it maintains and circulates
money. The Federal Reserve must be ready to ship extra money from its large
vaults by armoured trucks.

97
The Fed also (4) supervises the activities of member banks abroad and
regulates certain aspects of international finance.
Apart from that, the Fed (5) protects consumers by receiving and trying to
resolve consumer complaints against banks. There are certain regulations, for
example, that prohibit discrimination based on race, colour, sex, religion, or
national origin in the extension of credit.
In addition, the (6) Fed maintains the federal government checking ac-
counts and gold. The U.S. Treasury has the Fed handle its checking account.
From this account, the federal government pays for such expenses as federal
employees’ salaries, social security, tax funds, veterans’ benefits, defence, and
highways. Gold, stored in the Fed belongs mainly to foreign governments and
is one of the largest accumulations of this precious metal in the world.
Commercial banks accept deposits and use these funds to make loans.
There are two types of commercial banks: national banks and state banks. Na-
tional banks are chartered by the federal government, and state banks are char-
tered by state government. These banks are prime sources of capital for busi-
ness and also provide loans as well as checking and saving accounts for con-
sumers. Both savings banks and savings and loan associations perform many of
the same functions as commercial banks (e.g., checking and savings accounts,
loans) but use the majority of their assets for financing home mortgages.
Credit unions are member-owned corporations that offer checking and
savings accounts, credit cards, and consumer loans. Most of the 16.326 credit
unions in this country serve employee groups.
Other financial institutions include finance companies (which provide
short-term loans), large brokerage houses, insurance companies, pension
funds, and investment banks (which help corporations raise capital). Most fi-
nancial institutions operate on the principle of attracting deposits and then
lending some of this money to other customers.

Ex. 1. Find in the text answers to the following questions:


1. What is the head of the U.S. banking system and when was it established?
2. What is the Fed’s most powerful body and how many members does it
consist of?
3. What is the main task of the FRS?
4. What four basic tools does the Fed use to regulate the money supply and
expand economy? Which of them is the most powerful for controlling the
money supply?
5. What are other functions performed by the Fed?
6. What different forms of financial institutions are there in the U.S.? How
are they characterized?

98
WRITING

While reading the text point out differences and similarities of banking system
of the Republic of Belarus with those of the USA and Great Britain. Write a
short summary of the text. Add some more information concerned with the
current changes in the banking system.
Banking and Monetary System of the Republic of Belarus
The transformation of the centrally-planned economy into a market-type
economy required that a finance and credit system be formed in the Republic
on the basis of the transition from inherited previous mono-structure of mone-
tary and credit institutions to two-step banking system with a clear division of
functions between the central bank and commercial banks.
The first of these levels is represented by the National Bank which is the
central bank of the Republic of Belarus having large powers. It is independent
in its activities and is subordinate to the Parliament only.
The second level of the banking system is represented by commercial
banks through which the monetary policy of Belarus is implemented.
According to the current legislation the commercial banks enjoy a high de-
gree of independence in choosing the main spheres of their activities. As re-
gards their form, the commercial banks may be both state-owned and non-
state banks set up by founders (legal and physical persons) on a share or con-
tribution basis.
The commercial banks of Belarus have been formed in two ways. The first
way was to set up new commercial banks. On the 1st of January 1996, 40
commercial banks were registered in the Republic having universal forms of
services. Out of them in 6 banks the control package is owned by founders
with the state form of property, 33 banks are non-governmental.
Today the share of foreign subjects in the authorized capital of the entire
banking system of Belarus does not exceed 10%. At present, in Belarus, there
are banks which operate jointly with Russian capital and a bank with the Par-
ticipation of Swiss and Latvian capitals; a number of subsidiaries and repre-
sentations of foreign banks have been operated: KommertzBank Germany),
Deposit-Credit Bank of Poland, and others. The Republic is a member of the
International Monetary Fund, the World Bank, the European Bank for Recon-
struction and Development. In February 1993 Belarus set up the Inter-Bank
Currency Exchange which is the main instrument of the legal currency market.
The trades are performed in four main currencies: US dollar, Euro, Russian
ruble and Ukrainian grivna. The National Bank established the official ex-
change rate of the Belarusian ruble in relation to the US dollar, Euro and the

99
Russian ruble twice a week, on Tuesday and Thursday, on the basis of the auc-
tion results. The exchange rates for other currencies are set through computa-
tions using the exchange rate of the US dollar at the main currency exchanges
of the world. At present the country possesses a large network of offices for
the exchange of cash currency.

TRANSLATION

A. Translate into Russian.


The Paris Club
The Paris Club is an informal forum where countries experiencing difficul-
ties in paying their debts to governments and private institutions meet with
their creditors to restructure these debts. The name might be quite misleading
because in reality the Paris Club is not a club, nor is it a formal international
organization. It has no offices, no secretariat, and above all, no charter. The
Paris Club is an ad hoc institution with no legal status.
In part, the Paris Club's confidentiality policy has prevented it from becom-
ing known to a wider public. Creditors refrain from releasing any information
pertaining to their assessment of a given debtor's economic and financial situa-
tion or to the scope of debt relief granted. The onset of the international debt
crisis in the early however, brought public attention to the Paris Club and to its
contribution to resolving the balance-of-payment disequilibria experienced by
a growing number of developing countries and by some Central and Eastern
European countries.

B. Translate into English.


Коммерческие банки могут быть универсальными или специализиро-
ванными. Инвестиционные банки специализируются на кредитовании
фирм; торговые банки финансируют операции на рынке капитала и
внешнеторговую деятельность; сберегательные банки собирают и пус-
кают в оборот сбережения многочисленных, главным образом, мелких
вкладчиков.
Частные лица и компании открывают банковские счета, по которым
проводят различные операции, например, при необходимости снимают
наличные деньги либо переводят средства на счета других людей посред-
ством выписывания чеков, прямого дебетования или электронного транс-
фера. При утрате доверия клиентов к банку все его вкладчики одновре-
менно пытаются изъять из него свои деньги, что приводит к «набегу» на
банк. Во избежание подобных ситуаций в большинстве стран существуют
государственные органы, которые наблюдают за деятельностью банков.
100
В прошлом Банк Англии устанавливал банковскую ставку – специ-
альную учетную ставку для первоклассных заемщиков. В настоящее
время эта ставка отменена.

LISTENING

Student Banking
Julian Amey gives a talk to first-year international University students in
America about the best ways of opening an account with one of the major
banks for the period of their studies.

Ex. 1. Think and answer.


1. What kind of account do students usually have? How do they use it?
2. Do students in Belarus have any advantages with banking? What are they?
3. What do students need to open a current account in a bank?

Ex. 2. Make sure that you understand the following words and word- combi-
nations:
– a handout;
– to be eligible for sth;
– to provide evidence;
– a certificate of enrolment;
– a concession.

Ex. 3. While listening to the text the first time complete the notes. Write no
more than three words for each answer.
Student Banking
Recommended Banks Location
National Westminster Realty Square
Midland Example Preston Park
Barclays City Plaza
Lloyds (1) .............................

Note:
May not be allowed all facilities given to resident students.

Funding
Must provide (2)...............................................................I can support myself.
Services will depend on personal circumstances and discretion of Bank Manager.

101
Opening an account
Take with me: (3)........................................................... and letter of enrolment.
Recommended account: (4) ............................................................................….
Bank supplies: (5) ..........................and cheque card which guarantees cheques.

Other services
Cash card: (you can (6) ...........................................................cash at any time.)
Switch/Delta cards: (take the money (7) ...........................…….....the account.)
Overdraft
Must have (8) ......................................................................................…………
Sometimes must pay interest.
Opening times
Most banks open until (9) .........................................................during the week.
Some open for a limited lime on Saturdays.

Ex. 4. After listening to the text the second time answer the questions.
1. What is the safest way of keeping money according to the speaker?
2. What banks does the speaker recommend students?
3. Are international students eligible to all the facilities offered to resident
students?
4. Under what conditions can international students open a current account?
5. What concessions can a bank provide them with?
6. What is the advantage with the card called Switch or Della?

Ex. 5. Act as a student who had been listening to the speaker and share the
information with the students who had missed the meeting. Put down some
notes of a plan before you speak.

SPEAKING

A. The polite formula:


If you expect the other person to do what you ask (A), or to know the in-
formation (I) that you want, use:
Could you (A) I’d like you to (A) I wonder if you could (A)
Could you tell me (I) I’d like to know (I) I wonder if you could tell me (I)

102
If you are not sure whether the other person will do what you ask (A), or
knows the information you want (I), use:
Do you think you could (A) Do you know (I)
I wonder if you could (A) Do you happen to know (I)
Would you mind (A)

Ex. 1. Act as a customer who visits a bank and asks a series of questions
about the bank services. Use different forms of polite requesting information.
Model. The account has been credited with the dividend.
Can you tell me whether my account has been credited with the dividend?
1) the kinds of current account available;
2) the normal bank charges on overdrawn account;
3) the frequency of sending statements ( How often…);
4) interest rate on deposit account;
5) current level of interest they charge on loans;
6) getting an appointment to discuss the cash flow problem with a loan officer;
7) checking whether the cheque paid in last Monday has been cleared.

Ex. 2. Read the short conversations in a bank. Pay attention to the formula of
expressing request. Practice the conversations with your partner.
1. A. I want to change some English money into euro (Belarusian roubles/
dollars; ..). Can you help me?
B. Certainly, sir. The exchange rate today is …euros to the pound (Belaru-
sian roubles to the dollar; ..). How much do you want to exchange?
2. A. I’d like to transfer some money to my account in London, please.
B. You have an account here, madam? How urgent is it? Would you like us
to send it by mail transfer?
3. A. I’d like to know how long it takes for a cheque to clear. I paid the
cheque into the account on Friday.
B. Unless it’s a local cheque it will take a full five working days to clear.
That means we should be able to treat it as paid by this time next week.

Ex. 3. Make a dialogue with your partner. Use these phrases in the conversation.
Requests Reactions
pay this into my current/deposit ac- show me your cheque card/pass-
count port
withdraw from my… sign it /initial it

103
cash this cheque/travellers’ cheques put the name of the payee/ the date
transfer money to…

Dialogue 1

Read the dialogue and do the tasks that follow.


Student: I’d like to know who really owns the bank?
Banker: The stockholders own it. In the beginning, they put up the neces-
sary capital and were granted a charter from the government.
Student: Am I right to say that all the members of the board of directors are
stockholders?
Banker: Oh, yes. They are chosen by the other stockholders to operate the
bank.
Student: And the board hires the president and the vice-president to manage it?
Banker: That’s right. Along with the cashier, the tellers and the clerical
workers.
Student: I guess most of your work has to do with checking and savings ac-
counts and making loans.
Banker: Yes. But we invest money too. Planning the bank’s investment is
also very important.
Student: I wonder if you divide all the profits among the stockholders.
Banker: Not all of them. The stockholders receive regular dividends. But
some of our earnings are held in reserve accounts.
Student: I suppose that would be necessary.
Banker: Here is a copy of our last published statement. You see, the re-
serves are shown here as surplus and undivided profits.

Ex. 1. The dialogue deals with the structure and functions of an American
bank. You should keep in mind that there are some differences in American
and British terminology. Give the American terms corresponding to the British
ones given below.
British terms American terms
to run a bank
cheque
current account
deposit account
managing director
shareholder
cashier
note

104
Ex. 2. Work with your partner. Make up a dialogue using different forms of
requesting information and the following questions.
Model:
– What is discussed in the dialogue?
– Could you tell me what is discussed in the dialogue.
1. Who owns the bank?
2. How does a bank start?
3. Who chooses the board?
4. What’s the board’s task?
5. Who hires the employees?
6. What are the bank’s main activities?
7. How are the profits distributed?
8. How are the stockholders kept informed?

Dialogue 2

Read the dialogue and do the tasks that follow.


Application for Credit
Banker: Our discount committee is still discussing your application
for credit. I wonder if you’d mind giving us some more in-
formation about certain items shown on your balance sheet.
Customer: Not at all.
Banker: Is the mortgage on your fixed assets being amortized?
Customer: Yes. We’re making semi-annual payments on this obligation.
Banker: Your balance sheet shows some indebtedness. Are any of
your asserts pledged as security?
Customer: No. That’s just an open note.
Banker: Would your company be willing to pledge part of its current
assets as collateral security to our loan?
Customer: We wouldn’t object to that. Part of this money will be used to
retire present debts and part to expand our operations. Then
we can immediately begin to liquidate this new liability.
Banker: I think we’d better prefer that arrangement.

Ex. 1. Role-play the dialogue.

105
Ex. 2. Apply to the bank for a loan to support your studies/your trip
abroad/renting a flat.

B.
Role Play
Three different groups of inexperienced young business people in a small
town require capital for their businesses. They all apply to the local branch of
Megabank.
The tree groups of would-be borrowers must develop financial arguments
that they think will convince the bankers. The group prepareing the role of the
bankers has to think of questions about the viability of the future businesses:
will they be successful, and why? Or why might they not be successful?
The roles are:
1. A junior manager (and assistants) at the bank, responsible for new local
small businesses. To lend or not to lend, that is the question.
2. A group of young people who want to open a small specialist record shop
seilling CDs of dance music.
3. A group of young people who want to buy an existing take-away business
(the lease on the premises, the kitchens, the delivery scooters, and so on).
The business is profitable, and well-known in the town, with loyal custom-
ers. The new owners can keep the same telephone number, and either keep
or change the name.
4. A group of students who already operate a part-time computing consul-
tancy service, advising small business on what hardware and software to
buy, and how to set up a website. They want to borrow money to buy more
computers for themselves, on which to try out elaborate new software pro-
grams.
Your teacher will give you further details about the roles. You have to pre-
pare your questions or arquments in a group, after which one or two members
of the groups of borrowers will be chosen to negotiate with the bankers.

C.
Discuss the following issues.
1. Whom is an overdraft mostly used by and what are the advantages with it?
Can students in your country make use of it?
2. What are the commodities that a bank trades in your country?
3. What changes have there been in personal banking recently? What further
changes do you foresee in future?

106
4. If you possess a large sum of money, what are the pros and cons for the fol-
lowing: – putting it into a stock; – buying a bundle of lottery tickets; – tak-
ing it to (local) Las Vegas; – buying gold; – investing in real estate; – buy-
ing shares; – putting it in a bank?
5. How would you comment on the saying: “When America sneezes, the
whole world catches a cold”?
6. What are the basic financial institutions in your country?
7. How can you get a loan from a bank in your country?
8. What large projects are being financed, or have recently been financed by
foreign banks in your country? Find the information to make short reports
in the class.

VOCABULARY

account n – счёт
current(Br)/checking(Am) ~ – текущий/расчётный счёт
deposit(Br)/time(Am) ~ – депозитный/срочный вклад
overdrawn ~ счет с отрицательным балансом
bankruptcy n – банкротство
blue chip n – голубая фишка (акции крупных, пользующихся уважением
компаний)
bond n – облигация, ценная бумага
borrowing n – заем, кредит
broke adj – бедный, без гроша
to go ~ – разориться
cancel v,n – аннулировать, отменять
cater v – ориентироваться, обслуживать
charge v, n – назначать цену, относить на счет; плата
cheque (GB)/check(US) n – счет
to clear a ~/syn. to stop a ~ – оплатить счет
circulation n – обращение, кругооборот
collateral n – обеспечение кредита, залог
credit n – кредит, доверие
to be in~ syn.to be in the black – быть кредитоспособным, иметь деньги
на счету
extension of ~ – предоставление кредита
currency n – валюта, деньги
custody n – опека, попечение
in safe ~ – на сохранении
deposit v – депонировать, положить на хранение

107
deposit n – вклад, депозит, взнос
demand(BrE)/checking(AmE)~ – вклад до востребования
savings(Br)/time(Am) ~ – срочный, накопительный вклад
depositor n – вкладчик
deregulation n – децентрализация
insurance n – страхование
intermediary n – посредник
lend v – давать взаем, предоставлять кредит
loan n – кредит, заем
maturity n – срок платежа, погашения
merger n – слияние
mortgage n – ссуда на покупку жилья, ипотека
overdraft n – овердрафт; сумма, выдаваемая банком клиенту сверх остат-
ка на его текущем счёте
offset v – возмещать, компенсировать
paid-in-capital – оплаченная часть акционерного капитала
pledge v – отдавать залог, закладывать
portfolio n – перечень ценных бумаг
price n – цена
futures ~ – фьючерская цена (цена на покупку или продажу товара с
доставкой в будущем)
spot ~ цена на наличный товар, «спотовая цена»
rate n – ставка, уровень
base/discount ~ – учетная процентная ставка центробанка
interest ~ – процентная ставка
required reserve (ratio) – предписываемые законом резервы
reserve requirements – резервные требования
quote v – назначать цену, котировать
savings n – сбережения, накопления
share n – акция
shift v – перемещать, переводить
spread n (syn. margin) – спрэд (разница между предполагаемыми ценами
покупки и продажи)
short notice – краткосрочное уведомление
standing order – постоянное поручение
statement n – отчёт, баланс
takeover n – поглощение
trustee n – попечитель, опекун
value n – ценность, стоимость
face/nominal ~– номинальная стоимость

108
valuables n pl – ценности, драгоценности
underwrite v – гарнтировать размещение, подписывать
withdraw v – отзывать обратно, снимать со счета
yield n – доход по ценным бумагам с фиксированным процентом

GLOSSARY

· Discount rate – The interest rate a central bank charges on loans of re-
serves to banks.
· Exchange rate – The number of units of one nation’s currency that equals
one unit of another nation’s currency.
· Federal Reserve System –the twelve central banks in the USA that service
banks and other financial institutions within each of the Federal Reserve
districts, popularly called the Fed.
· Nominal interest rate – the annual percentage amount of money that is
earned on a sum loaned or deposited in a bank.
· Open market operations – the buying and selling of government securi-
ties by a central bank.
· Required reserve ratio – the percentage of deposits that a central bank re-
quires a bank to hold in vault cash or on deposit with it.
· Required reserves – the minimum balance that a central bank requires a
bank to hold in vault cash or on deposit with it.

109
3.5. MONEY AND MONETARY POLICY
DISCOVERING CONNECTIONS

1. What do you know from the history of money?


2. Can you give any examples of things that were used as money in the previ-
ous societies?
3. Do you see any advantages of a barter system?
4. What functions does money serve in modern societies?
5. What body is responsible for monetary policy in the country?

READING

Text 1
As you read the text, focus on the types and functions of money.
Money and its Functions
Historically, many commodities, ranging from precious metals to ciga-
rettes, have been used as money. In prisoner-of-war camps, cigarettes served
as money. In the nineteenth century money was mainly gold and silver coins.
These are examples of commodity money, ordinary goods with industrial
uses (gold) and consumption uses (cigarettes) which also serve as a medium of
exchange. In most modern societies, however, commodities are rarely used as
money because they are expensive. Instead, they use fiat money, that is
mainly paper currency issued by governments and deposits in checking ac-
counts that are accepted as a means of payments for goods and services. Fiat
money is sometimes called token money. By collectively agreeing to use fiat
money, society economizes on the scarce resources required to produce money
as a medium of exchange. The essential condition for the survival of fiat
money is the restriction of the right to supply it. Private production is illegal.
Society enforces the use of fiat money by making it legal tender. The law
says it must be accepted as a means of payment.
In modern economies, fiat money is supplemented by IOU (I owe you)
money. IOU money is a medium of exchange based on the debt of a private
firm or individual. A bank deposit is IOU money because it is a debt of the
bank. When you have a bank deposit the bank owes you money. Bank deposits
are a medium of exchange because they are generally accepted as payment.
Although the crucial feature of money is its acceptance as the means of
payment or medium of exchange, money has three other functions. It serves
as a unit of account, as a store of value, and as a standard of deferred

110
payment. We discuss each of the four functions of money in turn.
Money, the medium of exchange, is used in one-half of almost all ex-
changes. Workers exchange labour services for money. People buy or sell
goods in exchange for money. Money is the medium through which people
exchange goods and services.
To see that society benefits from a medium of exchange, imagine a barter
economy. A barter economy has no medium of exchange. Goods are traded
directly or swapped for other goods. In a barter economy, the seller and the
buyer each must want something the other has to offer. Each person is simul-
taneously a seller and a buyer. There has to be a double coincidence of wants.
Trading is very expensive in a barter economy. People must spend a lot of
time and effort finding others with whom they can make mutually satisfactory
swaps. The use of money – any commodity generally accepted in payment for
goods, services, and debts - makes the trading process simpler and more efficient.
The unit of account is the unit in which prices are quoted and accounts are
kept. In Britain prices are quoted in pounds sterling; in America in dollars. It
is usually convenient to use the units in which the medium of exchange is
measured as the unit of account as well. However there are exceptions. During
the rapid German inflation of 1922-23 when prices in marks were changing
very quickly, German shopkeepers found it more convenient to use dollars as
the unit of account. Prices were quoted in dollars even though payment was
made in marks, the German medium of exchange.
Money is a store of value because it can be used to make purchases in the
future. To be accepted in exchange, money has to be a store of value. Nobody
would accept money as payment for goods supplied today if the money was
going to be worthless when they tried to buy goods with it tomorrow. But
money is neither the only nor necessarily the best store of value. Houses,
stamp collections, and interest-bearing bank accounts all serve as stores of
value. Since money pays no interest and its real purchasing power is eroded by
inflation, there are almost certainly better ways to store value.
Finally, money serves as a standard of deferred payment or a unit of ac-
count over time.

Vocabulary Focus
Ex. 1. Match the words from A with their synonyms from B.
A B
1) illegal a) to postpone
2) restriction b) limitation
3) crucial c) against law

111
4) to consume d) rare
5) to benefit e) to profit
6) wasteful f) barter
7) exchange g) to use up
8) to defer h) vital
9) scarce i) costly

Ex. 2. The text contains a number of common verb-noun partnerships (e.g. to


store money, to make purchases... ). Match up the verbs and nouns below to
make common collocations.
A B
1) consume a) prices
2) exchange b) interest
3) quote c) money
4) keep d) goods and services
5) bear e) payment
6) deferred f) accounts
7) serve g) as a store of value

Ex. 3. Match the Russian word-combinations with their English equivalents.


A B
1) счётная единица a) to be eroded by inflation
2) обоюдное совпадение потребностей b) a unit of account
3) средство сбережения c) a medium of exchange
4) средство обращения d) a store of value
5) единица отсроченного платежа e) to swap for other goods
6) обменивать на другие товары f) a standard of deferred pay-
ment
7) уменьшаться в результате инфляции g) a double coincidence of wants
8) взаимовыгодный обмен h) legal tender
9) законное средство платежа i) a mutually satisfactory swap

Comprehension

Ex. 1. Complete the sentences.


1. Commodity money is…
2. Fiat money is …
3. In modem economies, fiat money is supplemented by …
4. Money is the medium through which…

112
5. The unit of account is the unit in which…
6. Money is a store of value because…
7. A standard of deferred payment or a unit of account…
8. In a barter economy, the seller and the buyer each must want something…

Ex. 2. Choose the correct answer:


1. A direct exchange of fish for corn is an example of:
a. storing value.
b. a modern exchange method.
c. barter.
d. a non- coincidence of wants.
2. Which of the following is a store of value?
a. Money market mutual fund share.
b. Repurchase agreement.
c. All of the above are a store of value.
d. None of the above are a store of value.
3. Anything can be money if it acts as a:
a. unit of account.
b. store of value.
c. medium of exchange.
d. all of the above.

Ex. 3. Say whether the following is true or false.


1. Money eliminates the need for barter.
2. Any item can successfully serve as money.
3. Money is said to be liquid because it is immediately available to spend for
goods.

Ex. 4. Answer the questions.


1. What example of commodity money is given in the text?
2. What is fiat money?
3. What is fiat money supplemented by in modern economies?
4. In what way does society enforce the use of fiat money?
5. Why can a bank deposit serve as an example of IOU money?
6. How are goods exchanged in a barter economy?
7. Why is trading expensive in a barter economy?
8. What else can be used instead of money as a store of value?
9. What are the four functions of money? What do they imply?

113
Text 2
Read the text and and think of a proper title for it.
Monetary policy is a central government policy with respect to the quantity
of money in the economy, the rate of interest and the exchange rate.
Let us consider the demand and supply for money.
Why do people hold (demand) currency and checkable deposits (M1),
rather than putting their money to work in stocks, bonds, real estate, or other
nonmoney forms of wealth? John Maynard Keynes, in his 1936 work entitled
The General Theory of Employment, Interest, and Money, gave three impor-
tant motives for doing so: transactions demand, precautionary demand, and
speculative demand.
The transactions demand for money is the stock of money people hold to
pay everyday predictable expenses. The desire to have "walking around
money" to make quick and easy purchases is the principal reason for holding
money. Without enough cash, the public must suffer forgone interest.
People have a second motive to hold money, called the precautionary de-
mand for money. The precautionary demand for money is the stock of money
held to pay unpredictable expenses. This is the "mattress money" people hold
to guard against those proverbial rainy days.
The third motive for holding money is the speculative demand. The specu-
lative demand for money is the stock of money held to take advantage of ex-
pected future changes in the price of bonds, stocks, or other non-money finan-
cial assets. It is the so called “betting money.
As the interest rate falls, the opportunity cost of holding money falls, and
people increase their speculative balances.
Money supply comes in many forms, including currency, demand deposits,
time deposits, and plastic money.
The narrowest commonly used measure of money M1 consists of currency
(bills, coins, money orders and travelers checks) and current accounts (AmE -
checking accounts).
A broader measure M2 includes M1 plus saving accounts.
When the money supply increases, people have more money to spend,
and demand for goods and services increases. As demand increases, busi-
nesses hire additional workers to increase output. This is an economic
growth scenario. But, if output does not keep pace with demand, prices in-
crease. When prices rise continuously, inflation results. This tends to cause
problems for people whose incomes do not increase at a rate consistent with
inflation.

114
Ex. 1. Match the Russian word combinations in with their English equivalents.
A B
1) спрос на деньги для совершения сделок a) forgone interest
2) спрос на деньги для непредвиденных b) cash receipts from sales
расходов
3) спекуляционный спрос на деньги c) transactions demand for
money
4) планируемые расходы d) to keep pace with smth
5) упущенные проценты e) withdrawal penalties
6) несение убытков в результате отвле- f) to increase at a rate con-
чения капитала sistent with inflation
7) денежные поступления от продаж g) the speculative demand
8) финансовые активы, приносящие доход h) interest-bearing financial
assets
9) альтернативные издержки от хране- i) ceteris paribus
ния денег
10) при прочих равных условиях j) predictable expenses
11) взаимные фонды денежного рынка k) time deposits
12) возрастать на уровне, соответствую- l) the opportunity cost of
щему уровню инфляции; holding money
13) поспевать за чем-либо m) the precautionary demand
14) срочные вклады n) money market mutual
funds

Ex. 2. Match the kind of demand for money in A with the stock of money peo-
ple hold B and the definitions that follow.
A B
1) The transactions demand for money a) “betting money”
2) The precautionary demand for money b) “walking around money”
3) The speculative demand for money c) “mattress money”

1. The stock of money people hold to pay unpredictable expenses.


2. The stock of money people hold to take advantage of expected future
changes in the price of bonds, stocks, or other non-money financial assets.
3. The stock of money people hold to pay everyday predictable expenses.

115
Ex. 3. Choose the correct answer.
1. The stock of money people hold to pay everyday predictable expenses is the:
a. transactions demand for holding money.
b. precautionary demand for holding money.
c. speculative demand for holding money.
d. store of value demand for holding money.
2. The stock of money people hold to take advantage of expected future
changes in the price of bonds, stocks, or other nonmoney financial assets is
the:
a. unit-of-account motive for holding money.
b. precautionary motive for holding money.
c. speculative motive for holding money.
d. transactions motive for holding money.
3. Which of the following statements is true?
a. The speculative demand for money at possible interest rates gives the
demand for money curve its upward slope.
b. There is an inverse relationship between the quantity of money de-
manded and the interest rate.
c. According to the quantity theory of money, any change in the money
supply will have no effect on the price level.
d. All of the above.

Ex. 4. Discuss the following questions with your parner.


1. Why do people hold (demand) currency and checkable deposits (M1),
rather than putting their money to work in stocks, bonds, real estate, or
other nonmoney forms of wealth?
2. What’s the main reason for having ‘walking around money’?
3. What are the consequences of lacking cash?
4. What is the precautionary demand for money based on?
5. What do precautionary balances help to avoid?
6. What is the speculative demand for money held for?
7. Why do people prefer to invest in stocks and bonds when the interest rate
is high?
8. What happens to the opportunity cost of holding money when the interest
rate falls?
9. What does a demand for money curve represent?
10. What does the money supply of the U.S. consist of?
11. What measures can be taken to regulate the money supply?
12. What may happen if output does not keep pace with demand?

116
Text 3
Read the text and compare the macroeconomic theories of different schools of
economic thought. Explain the difference between the Keynesian and the
monetarist views on how an increase in the money supply causes inflation.
Note the similarity between the classical and the monetarist schools.
Classical Economics
The dominant school of economic thought before the Great Depression was
classical economics. The basic theory of the classical economists, introduced
by Adam Smith in The Wealth of Nations, was that a market-directed economy
will automatically correct itself to full employment. Consequently, there is no
need for fiscal policy designed to restore full employment.
A key assumption of classical theory is that, given time to adjust, prices
and wages will decrease to ensure the economy operates at full employment.
A decrease in the aggregate demand curve causes a temporary surplus, which,
in turn, causes businesses to cut prices and, in turn, causes more goods to be
purchased because of the real balances effect. As a result, wages adjust
downward, and employment rises. Classical economists therefore view the
economy as operating in the long run along a vertical aggregate supply curve
originating at the full-employment real GDP.
Keynesian Economics
The Great Depression challenged the classical prescription to wait until
markets adjust and full employment is automatically restored. As the unem-
ployment rate rose to 24.9 percent in 1933, people asked how long it takes for
the market mechanism to adjust. John Maynard Keynes responded with this
famous saying, "In the long run we are all dead." Keynes and his book, The
General Theory, attacked classical theory and in the process revolutionized
macroeconomic thought.
Using fiscal policy to affect aggregate demand is a cornerstone of Keynes-
ian economics. While Keynesians believe monetary policy is often not very
powerful, especially during a downturn, they perceive fiscal policy as their
"top banana." However, Keynesians recognize that one of the potential prob-
lems of fiscal policy is the crowding-out effect. Financing a federal deficit by
borrowing competes with private borrowers for funds. Given a fixed money
supply, the extra demand from the federal government to finance its deficit
causes the interest rate to rise. As a result, businesses cut back on investment
spending and offset the expected increase in aggregate demand. The Keynes-
ian view, however, is that the investment demand curve is not very sensitive to
changes in the interest rate and therefore only a relatively small amount of in-

117
vestment spending will be crowded out. Thus, the decline in investment only
slightly counteracts or offsets an increase in aggregate demand created by a
deficit.
Conclusion: Keynesians view the shape of the investment demand curve as
rather steep or vertical, so the crowding-out effect is insignificant.
Monetarism
Monetarists are iconoclasts because they attack the belief in the ability of
either the Fed or the federal government to stabilize the economy. They ar-
gue that fiscal policy is an essentially useless tool, having little or no impact
on output or employment because of a total crowding-out effect. Suppose
the money supply remains fixed and the federal government borrows to fi-
nance its deficit. The intended goal is to increase aggregate demand and re-
store full employment. According to the monetarists, financing the deficit
will drive up the interest rate and crowd out a substantial, not a small,
amount of investment spending. The reason is that the monetarists view the
investment demand curve as sensitive to changes in the interest rate, and
therefore, greater amounts of investment spending will be crowded out. As a
result, the net effect is no increase in aggregate demand and no reduction in
unemployment.
Conclusion: Monetarists view the shape of the investment demand curve as
less steep or more flat, so the crowding-out effect is significant.
Although the monetarists do not trust the Federal Reserve to use discre-
tionary monetary policy, they are quick to point out that only money is impor-
tant. Changes in the money supply, the basic lever of monetary policy, have a
powerful impact. Instead of ineffectual government deficit spending to cure
unemployment, an increase in the money supply would definitely stimulate the
economy based on the quantity theory of money. In short, changes in the
money supply directly result in changes in real GDP.

Notes:
1. top banana n slang – главный, наиболее важный фактор;
2. crowding-out effect – эффект вытеснения;
3. iconoclast n – борец с предрассудками.

Ex. 1. Choose the correct answer.


1. The quantity theory of money of the Classical economists says that a
change in the money supply will produce a:
a) proportional change in the price level.
b) wide variation in the velocity of money.
c) less than proportional change in the price level.

118
d) greater than proportional change in the price level.
2. According to Keynesians, an increase in the money supply will:
a) decrease the interest rate, and increase investment, aggregate demand,
prices, real GDP, and employment.
b) decrease the interest rate, and decrease investment, aggregate demand,
prices, real GDP, and employment.
c) increase the interest rate, and decrease investment, aggregate demand,
prices, real GDP, and employment.
d) only increases prices.
3. Which of the following is true?
a) Keynesians advocate increasing the money supply during economic re-
cessions but decreaseing the money supply during economic expan-
sions.
b) Monetarists advocate increasing the money supply by a constant rate
year after year.
c) Keynesians argue that the crowding-out effect is rather insignificant.
d) Monetarists argue that the crowding-out effect is rather large.
e) All of the above.
4. How is modern monetarism different from Keynesianism?
a) Monetarists believe that inflation is caused by excessive growth in
the money supply, based on the equation of exchange, while
Keynesians believe that inflation is caused by excessive growth in
aggregate demand.
b) Monetarists believe that the velocity of money is predictable, while
Keynesians believe it is unstable.
c) Monetarists believe that wages and prices are flexible, while Keynesi-
ans do not.
d) Monetarists believe that crowding-out negates any positive impact of
fiscal policy, while Keynesians see a clear impact of fiscal policy on
aggregate demand.
e) All of the above.

WRITING

Ex. 1. While reading the text below define the key word-combinations for de-
scribing each instrument of monetary policy. Put them down on separate
sheets of paper so that to exchange the notes with your partners in class. Ask
your partners to define the kind of instrument the word-combinations refer to.

119
Ex. 2. Read the text again and write its summary using the following questions
as a plan:
1. What are the main instruments of monetary policy?
2. In what way does the rise in interest rate influence the lending provided by
commercial banks?
3. What happens in the situation when the level of reserves in commercial
banks increases?
4. Comment on the situation when the central bank sells bills or government
bonds.
5. Why does central bank require the commercial banks to hold a percentage
of their deposits as reserves?
6. What happens if the central bank increases/decreases the required reserve
ratio?
7. What is monetary base?
8. How has the amount of cash changed in last decades? Why do we still
need cash?

Instruments of Monetary Policy


The main instrument used by a central bank to achieve its goals is the in-
terest rate – also known as the discount rate or base rate. This is the rate at
which the central bank is ready to lend to commercial banks. Let us look at
how a rise in the discount rate affects the banking system and the financial
markets.
A rise in the discount rate makes it more costly for commercial banks to
borrow from the central bank. As we have just discussed, banks may wish to
borrow if they feel that their level of reserves is too low. If the cost of bor-
rowing from the central bank goes up, commercial banks are less inclined to
borrow from it. Since borrowing from the central bank is also a source of
bank reserves, an increase in the interest rate and subsequent reduction in
borrowing from the central bank puts the commercial banks in a situation
where they have less reserves than they planned to hold. In response, they
will reduce their lending by increasing the rates they charge to households
and firms. In practice, commercial banks react very quickly to increases in
the discount rate.
Another instrument of monetary policy is open market operations, which
involve the purchase or sale of government securities by the central bank.
When the central bank buys treasury bills or government bonds from a com-
mercial bank, it makes payment simply by increasing the amount of reserves
in the account of the commercial bank. Thus, the central bank uses its monop-
oly power over money creation. As the level of reserves increases, the com-
120
mercial banks realize that they have more reserves than they need for prudent
operation. Therefore, they extend their lending to households and firms by
lowering their interest rates. In contrast, when the central bank sells treasury
bills or government bonds, the commercial bank will make the payment for
the securities from the reserves it deposited at the commercial bank. After the
transaction has been completed, the level of reserves will be lower than be-
fore, and hence the commercial banks will raise their interest rate to cut their
credit to households and firms. In both cases, the change in the reserves trans-
lates into a change in the credit provided to firms and households.
Finally, the central bank also requires the commercial banks to hold a per-
centage of their deposits as reserves. These are called required reserves, and
the percentage is known as the required reserve ratio. These reserves are
meant to ensure some minimum level of prudence, even if not all commercial
banks want to operate as prudently as they should. If the central bank in-
creases the reserve ratio, then the actual reserves of the banks will fall short of
the required ratio. Thus the banks will have to raise their interest rate to cut
back on loans, and deposit the money freed up as reserves at the central bank.
The opposite happens if the central bank decreases the required reserve ratio.
Suddenly banks have more reserves than they want to hold, so they will lend
the money instead of holding it at the central bank. So if the required reserve
ratio increases, the commercial banks lending to households and firms falls.
The opposite happens when the required reserve ratio decreases. It is impor-
tant to point out that required reserve ratios are very stable – central banks do
not like to change them too often.
Our discussion indicates that the level of cash deposits and commercial
banks' reserves held at the central bank plays an important role in transmitting
the central bank's monetary policy to the banking sector and the financial mar-
kets. The cash in circulation and the reserves of private banks together are
called the monetary base. As we have already said, the central bank has a mo-
nopoly over money creation, more precisely, over monetary base creation. The
power of a central bank rests on its ability to control the monetary base.
You may wonder, however, why the monopoly to create the monetary base
makes the Bank of England or other central banks so important for the econ-
omy? After all, financial markets had become very complex and large by the
beginning of the twenty-first century. If most transactions are carried out with
credit cards, cheques and bank transfers, why would the ability to create cash
or reserves matter?
First, we should recall that cash is still used in a large number of transac-
tions. Although its scope and use have diminished over the last 30 years, it
does not seem that cash is going to disappear in the near future. Second, even

121
if a transaction does not involve the use of cash or reserves directly, it typi-
cally requires that someone somewhere holds a monetary base. For example,
paying by cheque assumes a bank account with deposits, and the bank is re-
quired to hold a fraction of these deposits as reserves. Similarly, credit card
bills must also be settled using cash or bank deposits. In the latter case, the
bank has to hold the corresponding required reserves. In some sense, we can
say that the whole financial system rests on the monetary base – and this
makes the central bank a powerful institution.
The amount by which a change in the monetary base is multiplied to
determine the resulting change in the money supply is called the money
multiplier.

TRANSLATION

A. Translate into Russian with a dictionary.


Monetary Policy during the Great Depression
Monetarists and Keynesians still debate the causes of the Great Depression.
Monetarists Milton Friedman and Anna Schwartz, in their book A Monetary
History of the United States, argued that the Great Depression was caused by
the decline in the money supply, the changes in the price level, real GDP, and
unemployment rate.
During the 1920s, the money supply expanded steadily, and prices were
generally stable. In response to the great stock market crash of 1929, bank
failures, falling real GDP, and rising unemployment, the Fed changed its
monetary policy. Through the Great Depression years from 1929 to 1933, M1
declined by 27 percent. Assuming velocity is relatively constant, how will a
sharp reduction in the quantity of money in circulation affect the economy?
Monetarists predict a reduction in prices, output, and employment. The price
level declined by 24 percent between 1929 and 1933. In addition to deflation,
real GDP was 30 percent lower in 1933 than in 1929. Unemployment rose
from 3.2 percent in 1929 to 24.9 percent in 1933.
Friedman and Schwartz argued that the ineptness of the Fed's monetary
policy during the Great Depression caused the trough in the business cycle to
be more severe and sustained. As proof, let's look at the period after 1933. The
money supply grew and was followed closely by an increase in prices, real
GDP, and employment.
The Great Depression was indeed not the Fed's finest hour. In the initial
phase of the contraction, foreign banks were fearful and withdrew large
amounts of their gold from U.S. banks. To stop the outflow of gold to other

122
countries, the Fed raised the discount rate in 1931. As a result, banks bor-
rowed less of their required reserves from the Fed's discount window, and the
money supply fell. Later the discount rate fell, but only after the economy was
deeper into the Great Depression.
What should the Fed have done? Friedman and Schwartz argued that the
Fed should not have waited until 1931 to use open market operations to in-
crease the money supply. Thus, they concluded that the Fed was to blame for
not pursuing an expansionary policy, which would have reduced the severity
and duration of the contraction.
Finally, although the emphasis here is monetary policy, it should be noted
that both monetary and fiscal policies worsened the situation. President Hoo-
ver was attempting to balance the budget, rather than using expansionary fis-
cal policy.

Note:
1. ineptness n – неуместность.

B. Translate into English with a dictionary.


Сущность денег полнее всего проявляется в их функциях. Деньги вы-
полняют следующие функции: мера стоимости, средство обращения,
средство накопления и образования сокровищ, средство платежа, миро-
вые деньги. Первой является функция меры стоимости. Именно в день-
гах определяется стоимость любого товара (определяется его цена). Сто-
ит заметить, что золото выполняет данную функцию идеально. Функция
денег как средства обращения обуславливает нормальное протекание
обмена товарами. Деньги становятся посредником в любом акте товарно-
го обмена, делая этот процесс менее сложным для товаропроизводите-
лей. Функция денег как средства накопления также представляется дос-
таточно очевидной. Накопление денег в виде золота - это фактически на-
копление стоимости в наиболее ликвидной форме. Интересной является
функция денег как средства платежа. Здесь важным представляется то,
что процесс продажи и оплаты товара разрывается во времени. Между
актом купли товара и его оплатой проходит некоторое время. Очевидно,
что такая отсрочка может иметь место только в том случае, если про-
дающий данный товар получит от покупающего его гарантии оплаты в
определенное время. И, наконец, функция мировых денег. Здесь мы фак-
тически утверждаем, что товар- деньги – это всеобщий эквивалент, кото-
рый выходит за национальные границы, превращаясь в общемировое яв-
ление, выступая в международном товарном обмене и мерой стоимости,
и средством обращения, и средством платежа.

123
LISTENING

Central Banking
Gabriel Mangano is an economics research student, specializing in mone-
tary policy. You will hear him outlining the functions of a central bank, and
discussing whether it should be independent from the government, and run by
bankers, or under the control of the government.

Ex. 1. Match the central bank and the country?


– the Bank of England Germany
– the Federal Reserve Board (USA) Belarus
– the Bundesbank (Germany) China
– the Japanese central bank the United Kingdom
– the Chinese central bank the USA
– the National Bank Japan

Ex. 2. Make sure that you understand the following words and word combinations.
to implement monetary policy
interest rate ceilings and floors
a fluctuation of interest rate
upswing /downswing of the exchange rate
a bank run = a run on the bank

Ex. 3.
A. Listen to Part One of the interview about the functions of a central bank,
and fill in the gaps.
The first one is actually to implement monetary policy. There are roughly
three ways to do it. First (1a)……………, which means limiting, upwards or
downwards, the fluctuations of the interest rate.
The second way to implement monetary policy is simply (1 b)……………
coins, banknotes.
The third one, which is a bit more modern, is those (1 c)…………… ,
which are simply buying and selling government bonds to and from commer-
cial banks.
So that was the first main task of a central bank. The second one is (2)
…………… I would say. [...]
The third main task, yes, (3) ……………., I would say — make sure that
the commercial banks have enough liquidities, for instance, to avoid any

124
bank run. [...]
The fourth main task of the central bank would be to
(4)………………………, in case, actually, one of these commercial banks
goes bankrupt and the investors, the people putting money in the bank, have to
get back their money.

B. Read the six sentences below, which also summarize central banking
functions, but slightly differently, and match them up with the six expres-
sions you have written in A.
a) controlling the amount of banknotes in circulation;
b) establishing maximum and minimum lending rates, thereby controlling the
credit system;
c) ensuring that banks have a sufficient liquidity ratio to allow customers to
withdraw their deposits when they want ;
d) intervening on foreign exchange markets, buying or selling large amounts
of the national currency, to prevent major fluctuations;
e) lending money to a commercial bank in danger of going bankrupt;
f) selling government bonds to commercial banks or buying them back, in or-
der to alter the amount of credit the banks can offer (and thereby alter the
money supply).

C. Listen to Part Two of the interview and answer the following question:
What is Gabriel Manganos opinion concerning central bank independ-
ence, and why?

Look through the following statements. Listen to the extract again, and decide
whether the statements are TRUE or FALSE. Correct them if they are false.

1. Gabriel Mangano says that governments tend to increase the money sup-
ply in the months before an election, which helps reduce unemployment.
2. Mangano states that the central bank should be the branch of the gov-
ernment that implements monetary policy.
3. Mangano considers that the central bank should be the branch of the
government that implements budgetary policy.
4. Mangano suggests that governments always have a budget deficit.
5. Mangano points out that the US Federal Reserve is not concerned with
price stability.
6. Mangano is of the opinion that there should be a limit to the central
bank's independence.

125
SPEAKING

A.
While reading the conversation of Paul Volcker with the interviewer, jot down
the main points. Based on your notes, be ready to perform as Paul Volcker in
the class and answer the students’ questions about the monetary policy of the
Fed in the1980-ies.
Talking with Paul Volker
Paul Volcker served as chairman of the board of governors of the Federal
Reserve System from 1979 to 1987, a time when double-digit inflation was
gripping the U.S. economy. Michael Parkin spoke with Mr. Volcker about his
experience as chairman of the Fed and about his vision and concerns for the
future of the economy.
I.: Mr Volcker, what originally attracted you to economics?
P.V.: I was an undergraduate immediately after the Second World War. I
think a lot of people at the time got interested in economics because
they hoped of the idea that after the war things must be able to work
better than they had during the Depression, and they were filled with
a zeal for doing better. That was part of my thinking, but just as im-
portant, economics seemed to me, of all the social sciences, to have a
little more precision. I thought I could combine this practical, logical
structure with an instinct for public service. In retrospect, I'm sure I
overestimated the logic and coherence!
I.: What are the economic principles that you, learned in school that
have proved useful in your professional life?
P.V.: Some economic principles are eternally useful. Economics does
teach you the discipline of understanding that the direct immediate
effects of some action may not be the full story — that without
close analysis and study you may have unintended and unantici-
pated effects later on. Those later "side effects" may be greater
than the immediate effects. Finally, the concept of looking at the
margin — at incremental effects — is very important in terms of
actual policy.
I.: Is a background in economics, familiarity with economic principles,
mandatory for a chairman of the Federal Reserve?
P.V.: I haven't been able to detect any correlation in performance be-
tween chairmen that were economists and those who were not. The
chairman doesn't have to be a trained economist if he or she has a

126
staff of very good economists. Without that, you'd really be in
trouble.
I.: There must be as many opinions about what the Fed should be doing
as there are economists. How do these controversies among ma-
croeconomists affect the Fed's job? Are they relevant for the conduct
of monetary policy?
P.V.: Oh, I think they're relevant. The internal technical debate doesn't
make that much difference. But to the extent that economists' posi-
tions on public policy influence public opinion and differ widely, you
lack a consensus against which to conduct policy, in a political con-
text, some of these different points of view become politicized. That's
part of the environment in which the Fed must operate.
The one advantage when you're the chairman of the federal Reserve
Board is that you can sometimes influence — or can lead yourself
and everyone else into thinking that you can influence — the nature
of the consensus about economic policy, as it is actually reflected in
public opinion.
I.: There has certainly not been consensus about the consequences of
the Fed's policy in fighting inflation during the late 1970s and early
1980s, while you were chairman. When you embarked on your war
against inflation, did you expect to be presiding over the longest
peacetime recovery in U.S. history?
P.V.: I thought then, and think now, that inflation is the enemy of sustained
expansion. But dealing with these things always turns out to be more
difficult, more complicated, and to take longer than you expect. I
guess I did misjudge how long we could put up with internal gov-
ernment deficits and external trade imbalances.
I.: What were you missing?
P.V.: In part I think there is a much more fluid international capital market
than we had recognized. I would not have guessed that the United
States could borrow, or that the Japanese would be willing to lend, so
much money year after year without more uncertainty about the dol-
lar. I would not have guessed that the value of the dollar could come
down from its high level as much as it has without more disturbance
in interest rates and inflation. We've been very fortunate in being able
to manage that big a decline in the value of the dollar with as little
inflation as we've had.
I.: Did your war on inflation cost more in human terms than you had
thought?
P.V.: Stopping inflation is never easy. What I object to is that people said

127
that the Federal Reserve caused the recession in the early 1980s and
all its pain and suffering. But, in my view, we were going to have the
pain anyway. It was just a question of when and how. We thought it
would be less if we dealt with the inflation earlier rather than later.
One of my predecessors, Bill Martin, once described the Fed's job as
taking away the punch bowl just when the party's getting good. You
avoid the hangover that way, or reduce it anyway.
I.: Do you bring the punch bowl back if the party starts to fade?
P.V.: My critique of Federal Reserve history is not that it was always too
harsh and brought all these expansions to an end when they could
have gone on forever. But sometimes the Fed was overeager to get
the party started. Once you get in a recession, the pressures on the
Fed are very strong. Even after you come out of the recession, the
temptation is to overstimulate. But policy only works with a lag and
the lags catch up with you. You're off to another jolly party again.
We tried to avoid this last time, I think with some success.
I.: We've talked a bit about the government's budget deficit. Did the
government's need to finance its budget deficit affect your job as
chairman of the Fed?
P.V.: I do not believe that the Federal Reserve was forced into inflationary
financing. In retrospect, the government's budget deficit position did
not in fact appear to impair our ability to achieve a record expansion.
But if you look at whether the expansion can be carried on for an-
other seven years, you have to get concerned about our relatively low
level of investment, our low productivity, and our dependence on
foreign lending and investment. None of these can be dealt with by
monetary policy alone. Fiscal policy gives you an expansionary
thrust, which then has to be countered by tighter monetary policy —
by higher interest rates. This leaves you with a vulnerable economy,
increasingly dependent on money borrowed from overseas.
I.: Our economic relationship with other countries also includes the ex-
change of goods and services. In recent years we have been experi-
encing a substantial decline in net exports. What do you see as the
principal cause of the external trade deficit?
P.V.: It's an internal imbalance between our ability to produce and our pro-
pensity to spend. Our spending is mostly consumption, personal and
public. Investment is, at best just so-so a period of expansion. So a
major policy challenge is to find a way of cutting consumption. On
the other hand, there are imbalances in the opposite direction in other
economies. The Japanese are doing a good job in beginning to deal

128
with this problem. But it is true that there is a bias in the trading
world toward less openness. If you took a snapshot of the world trad-
ing scene, you'd have to agree that the United States is by far the
most open market of all, and our trading partners are more closed.
How do you deal with that complaint? You can't ignore how these
imbalances are aggravated by our own internal economic policies,
our own consumption.
I.: What will improve the situation?
P.V.: We've got to contain domestic spending and we've got to see foreign
markets open up so that foreign expenditure for our goods increases.
Of course, just opening foreign markets wouldn't induce any change
in our own spending by itself. Moreover, changing our spending pat-
tern can't be done just by monetary policy, by high interest rates.
Monetary policy won't move spending from consumption into in-
vestment. That means you've got to bring fiscal policy to bear. More
taxes or less spending or both. But now you've got a lot of political
choices. You'll have to make some political bargains in order to get
expenditure cuts.
I.: When a college student seeks your advice on the choice of a career,
what do you suggest?
P.V.: I'd strongly encourage him or her to consider a career in public ser-
vice. There are so many important jobs for people in the government.
Who do we look to for the solution of problems like AIDS? The gov-
ernment. Who's going to solve the drag problem, if anyone can? The
government. We need young people who recognize the challenge and
excitement and satisfaction of service to the public. Without their
contributions, we will have a serious problem in this country.

Ex. 1. Match the words in A with their definitions in B.


1) consumption a) The state of being legally acceptable
2) precision b) An amount used
3) coherence c) A period of economic decline in a country
4) correlation d) Accuracy
5) recession e) The action of becoming or making smth. greater in
size, number, or importance
6) expansion f) A mutual relationship
7) validity g) Sth. (of ideas, thoughts, speech etc.) logical or con-
sistent
8) vulnerable h) A tendency to behave in a certain way
9) propensity i) Exposed to being attacked or harmed

129
B.
Discuss the following issues.
1. What are the functions of money?
2. What is the difference between commodity and fiat money?
3. What are the basic motives for the transactions demand, precautionary de-
mand, and speculative demand?
4. What does the money supply of the U.S. consist of? What happens when
the money supply increases?
5. What are the basic instruments of monetary policy?
6. Do you think central banks should be controlled or independent from the
state? How does it work in your country?
7. What is the present day base interest rate in your country?

VOCABULARY

bill n – счёт; вексель; (AmE) банкнота


utility ~ счёт за коммунальные услуги
treasury ~ – казначейский вексель
cost n (syn. expenses, expenditures) – издержки, затраты, стоимость
historical ~ – цена приобретения, уплаченная за активы в период их
первоначального приобретения или строительства
replacement ~ – восстановительная стоимость
exchange n – средство, обмен
medium of ~ – средство международных расчетов
forgone interest – упущенные проценты
fee n – вознаграждение; денежный взнос
monetary adj – денежный
~ base–денежная база (часть денежной массы, которая признаётся в
качестве резервов банковской системы)
~ policy–денежно-кредитная политика
money n – деньги
precautionary demand for ~ – спрос на деньги для непредвиденных рас-
ходов
speculative demand for ~ – спекуляционный спрос на деньги
transactions demand for ~ – спрос на деньги для совершения сделок
~ multiplier – денежный мультипликатор
fiat/token ~ – неразменные бумажные деньги, денежные знаки
IOU (I owe you) ~ – деньги, которые будут получены по необеспечен-
ному обязательству платежа

130
securities n–ценные бумаги
government ~ – государственные ценные бумаги
tender n–тендер, предложение
legal ~ –законное средство платежа ( виды денег, которые кредитор
обязан по закону принимать при погашении долга)
velocity n – скорость обращения денег
withdrawal penalties – несение убытков в результате отвлечения капитала

GLOSSARY

· Medium of exchange is the most important function of money. This


means that money is widely accepted in payment for goods and services.
· Unit of account is another important function of money. Money is used to
measure relative values by serving as a common yardstick for valuing
goods and services.
· Store of value is the ability of money to hold its value over time. Money is
said to be highly liquid, which means it is readily usable in exchange.
· The demand for money in the Keynesian view consists of three reasons
why people hold money: (1) Transactions demand is money held to pay for
everyday predictable expenses. (2) Precautionary demand is money held to
pay unpredictable expenses. (3) Speculative demand is money held to take
advantage of price changes in nonmoney assets.
· An excess quantity of money demanded causes households and busi-
nesses to increase their money balances by selling bonds. This causes the
price of bonds to fall, thus driving up the interest rate.
· An excess quantity of money supplied causes households and businesses
to reduce their money balances by purchasing bonds. The effect is to cause
the price of bonds to rise, and, thereby, the rate of interest falls.
· Monetarism is the simpler view that changes in monetary policy directly
change aggregate demand and thereby prices, real GDP, and employment.
Thus, monetarists focus on the money supply, rather than on the rate of in-
terest.
· Monetary base is the stock of an economy’s most liquid financial assets.

131
3.6. FISCAL POLICY
The only good budget is a balanced budget.
Adam Smith of Glasgow (1776)
DISCOVERING CONNECTIONS

In the early 1980s, under President Ronald Reagan, the federal government re-
duced personal income tax rates by 25 percent. The goal was to expand aggregate
demand and boost national output and employment in order to end the recession of
1980-1981. During the 1996 presidential campaign, one of President Bill Clinton's
programs was supposed to stimulate economic growth by boosting government
spending on long-term investment. This investment program included highways,
bridges, fiber-optic communications networks, and education.
Examples of what are both Reagan's tax cut and Clinton's investment
spending programs? Is it one of the issues that touch everyone's life?
Does an increase in government spending or a tax cut of equal amount pro-
vide the greater stimulus to economic growth? Can Congress fight a recession
without taking any action? Why did Ronald Reagan think the federal govern-
ment could increase tax revenues by cutting taxes?

READING

Text 1
Scan the text and find definitions of the following terms: fiscal policy, deficit,
surplus. Read the text and do the tasks that follow.
Fiscal Policy
Policy aimed at changing the level of either government spending or taxes
to stimulate or slow down the economy is known as fiscal policy. It was in-
vented by the British economist John Maynard Keynes in the 1930s. Keynes
believed that increased demand for goods and services should be met by ex-
panded production. However, after a nation's economy reaches full capacity,
production cannot expand. If the demand for goods and services increases,
prices continue to rise and inflation occurs. In such cases, Keynes recom-
mended a tax increase, which would reduce the demand for goods and services
and relieve the pressure on prices.
Keynes maintained that governments should use fiscal policy (tax and
spending programs) to stabilize the economy. He said the overall level of eco-
nomic activity depends on effective demand – that is, total spending by indi-
viduals, businesses, and government.
According to Keynes, major depressions, such as the Great Depression of

132
the 1930's, occur as a result of a drop in effective demand. He argued that in
periods of depression the government should increase its spending, cut taxes,
or do both to stimulate the economy. These steps would result in a government
budget deficit (shortage). But Keynes said the actions could lead to higher lev-
els of investment and nongovernment spending and to full employment.
To understand how fiscal policy works, we need to understand three basic con-
cepts. First, the deficit. When government spending is greater than tax revenue, we
have a federal budget deficit. The government is paying out more than it's taking
in. How does it make up the difference? It borrows. Deficits have been much more
common than surpluses. This is not to say that deficits are always bad. Indeed,
during recessions, they are just what the economic doctor ordered.
Second, budget surpluses are the exact opposite of deficits. They are pre-
scribed to fight inflation. When the budget is in a surplus position, tax revenue
is greater than government spending.
Finally, we have a balanced budget when government expenditures are
equal to tax revenue.
Thus, fiscal policy is the manipulation of the government budget deficit or sur-
plus to influence the level of aggregate income (or GDP) in the economy. If aggre-
gate income is too low (actual income is below target income), the appropriate fis-
cal policy is expansionary fiscal policy: increase the deficit, or reduce a surplus,
which means the government spends more or takes in less. If aggregate income is
too high (actual income is above target income), the appropriate fiscal policy is
contractionary fiscal policy: reduce the deficit, or increase a surplus, which means
the government takes in more in taxes or spends less.
Expansionary and contractionary fiscal policies are two basic types of dis-
cretionary fiscal policy.
Exhibit 1 lists these types of fiscal policy and the corresponding ways in
which the government can pursue each of these options.
Exhibit 1
Discretionary fiscal policy
Expansionary fiscal policy Contractionary fiscal policy
Increase government spending Decrease government spending
Decrease taxes Increase taxes
Increase government spending and Decrease government spending and
taxes equally taxes equally

The fundamental purpose of fiscal policy is to eliminate unemployment or in-


flation. When recession exists, an expansionary fiscal policy is in order. This en-
tails increased government spending or lower taxes, or a combination of the two.

133
In other words, if the budget is balanced at the outset, fiscal policy should move
in the direction of a government budget deficit during a recession or depression.
Conversely when demand-pull inflation stalks the land, a restrictive or con-
tractionary fiscal policy is appropriate. A contractionary policy is composed of
decreased government spending, or higher taxes, or a combination of these
two policies. Fiscal policy should move toward a surplus in the government’s
budget when the economy is faced with the problem of controlling inflation.

Vocabulary Focus

Ex. 1. Which preposition? Complete each sentence with a suitable preposition.


1. Companies invest ….. new equipment that will increase production.
2. The government can use its spending and taxing programs to reduce the
demand ….. goods and services.
3. A tax increase reduces the demand ….. goods and services and relieves the
pressure ….. prices.
4. The overall level of economic activity depends ….. effective demand – that
is, total spending by individuals, businesses, and government.
5. The government takes ….. more ….. taxes or spends less.
6. The economy is faced ….. the problem ….. controlling inflation.

Ex. 2. What kind of movement do the verbs below describe? Match them to the
symbols. Then compare your answers with a partner. (Use some symbols more
than once.)

decline gain drop increase rocket plummet


double fall halve level off triple recover
decrease fluctuate improve peak rise zoom

134
Ex. 3. Match the following Russian common collocations with their English
equivalents:
A B
1) собирать налоги a) fiscal policy
2) дискреционная фискальная политика b) aggregate demand
3) совокупный спрос c) take in taxes
4) фискальная политика d) discretionary fiscal policy
5) стабилизировать экономику e) to reduce the demand for
goods and services
6) потребительский спрос f) to depend on effective demand
7) ликвидировать безработицу и инфляцию g) to stabilize the economy
8) сократить спрос на товары и услуги h) government spending
9) стимулирующая фискальная политика i) consumer spendings
10) дефицит федерального бюджета j) consumer demand
11) зависеть от платежеспособного баланса k) expansionary fiscal policy
12) государственные расходы l) to eliminate unemployment
or inflation
13) потребительские расходы m) income tax
14) подоходный налог n) federal budget deficit

Ex. 4. Choose the words with opposite meaning from two columns and ar-
range them in pairs.
A B
1) cut a) collective
2) exogenous b) contraction
3) expansion c) demand
4) flexible d) endogenous
5) individual e) increase
6) nominal f) poverty
7) private g) public
8) save h) real
9) supply i) rigid
10) wealth j) spend

Ex. 6. Make the following words negative by using one of the following prefixes:
de- dis- im- in- un-
1) … accelerating 4) …natural
2) … intended 5) …stabilize
3) …prove 6) …effective

135
7) …desirable 10) …perfect
8) … stable 11) …predictable
9) … efficiency 12) …voluntary

Comprehension

Ex. 1. Complete the sentences.


1. Sometimes the economy zooms … .
2. But there have also been periods … .
3. Until the 1930's, the government …
4. Policy aimed at … .
5. Keynes maintained that governments … .
6. If aggregate income is too low … .
7. If aggregate income is too high … .
8. Expansionary and concretionary fiscal policies are … .
9. The fundamental purpose of fiscal policy … .
10. A contractionary policy is composed of … .
11. Monetarists question whether … .

Ex. 2. Comment on the following issues.


1. What periods of business activity are mentioned in the text?
2. What happens to an economy during a boom?
3. How can the government influence the demand for goods and services?
4. Who invented fiscal policy? What kind of policy is it?
5. How do contractionary and expansionary fiscal policies differ?
6. What did economists blame Keynesian policies for?

Text 2
Look at the title of the text and say what problems might be discussed in the text.
Other Issues in Fiscal Policy
There are three other aspects of fiscal policy: automatic stabilizing influ-
ence of fiscal policy, the multiplier effect, and the propensity to spend or save.
First, fiscal policy exerts an automatic stabilizing effect on the economy,
even when the government makes no explicit changes in its tax or spending
plans.
When the economy contracts, tax receipts automatically decrease (because
incomes decrease). The effect is magnified by progressive taxation, (when the
system is applying higher tax rates to higher incomes). Workers who are laid
off automatically fall into a lower tax bracket. Their lower taxes will partially

136
offset the effect of their lost income. Similarly, when incomes rise, particu-
larly during inflation, bracket creep* pushes people into higher tax brackets.
The higher taxes they pay take money out of their pockets – money they can
no longer use to bid prices up even higher.
Government spending also acts as an automatic stabilizer, especially during
downturns. The government tends to maintain its general level of spending
during recession, which insures a solid baseline level of demand from gov-
ernment in C+I+G (Consumers, Investment, Government) formula. Also,
programs of unemployment insurance and public assistance help to ease the
burden of tough times on households.
Second, the multiplier will boost the effect of an increase or reduction in
taxes or spending. For instance, an extra dollar government spending will flow
through the economy and, by being repeatedly respent, will magnify the
stimulus provided by that dollar. Likewise, a dollar or reduced spending will
take a dollar out of the economy, and the multiplier applies to that as well.
Finally, like the multiplier, the propensities to spend and to save are at
work. If the government reduces taxes to stimulate consumption, but house-
holds save money rather than to spend it, consumption will not rise, nor will
investment. If people save the money, they are “sitting on their wallets” and
consumption remains low. Is consumption is low, businesses won’t invest.
This has been a problem in the application of fiscal stimulus in Japan, where
people tend to save increases in income.

Note:
1. bracket creep – переход в группу населения с доходами, подлежащими обложению
налогами по более высоким ставкам

Ex. 1. Based on your understanding of the text, are the following TRUE or
FALSE?
1. Fiscal policy exerts an automatic stabilizing effect on the economy, even when
the government makes no explicit changes in its tax or spending plans.
2. When the economy contracts, tax receipts automatically increase.
3. Workers who are laid off automatically fall into a higher tax bracket.
4. The multiplier will boost the effect of an increase or reduction in taxes or
spending.
5. If the government reduces taxes to stimulate consumption, but households save
money rather than to spend it, consumption will not rise, nor will investment.
6. If people save the money, they are “sitting on their wallets” and consump-
tion increases.

137
Ex. 2. Based on your understanding of the text, are the following TRUE or
FALSE?
1. Automatic stabilizers are federal expenditures and tax revenues. They
automatically change levels in order to stabilize an economic expansion
or contraction.
2. When the economy expands government spending for unemployment
compensation, welfare, and other transfer payments increases.
3. During an expansion, jobs are created, unemployment falls, and workers
earn less income and therefore pay less taxes.
4. Changes in federal spending and taxes moderate changes in aggregate de-
mand.

Ex. 3. Find information in the text to answer the following questions.


1. What are automatic stabilizers?
2. How does the multiplier work?
3. How can you account for the term propensity to consume or to save?

Text 3
Here are the opinions of two well-known North American economists about
the role of the government or the state. Read the texts and describe
Galbraith’s and the Friedman’s views on the role of the government. Which
opinion do you find more reasonable?
A.
The Role of Government
The first is an extract from a talk by J.K. Galbraith.
The good society accepts the basic market system and its managers, but
there are some things the market system does not do either well or badly. In
the good society these are the responsibility of the state.
Some areas of state action are evident. In no country does the market sys-
tem provide good low-cost housing. This is a matter of prime importance and
must everywhere be a public responsibility. Few things are more visibly at
odds1 with the good society than badly housed or homeless people.
Health care is also a public responsibility in all civilized lands. No one can
be assigned to illness or death because of poverty. Here Britain can proudly
point to its leadership.
The state has many other essential functions. It must also be borne in mind
that many of these – parks and recreational facilities, police, libraries, the arts,

138
others – are more needed by the underclass than by the affluent. Those who
attack the services of the state are usually those who can afford to provide
similar services for themselves.
In the good society, there must also be attention to a range of activities that
are beyond the time horizons of the market economy. This is true in the sci-
ences, not excluding medical research. The market system invests for rela-
tively short-run return. To support science is pre-eminently the responsibility
of the state.
Some of the truly important industrial achievements of recent generations –
the great improvements in agricultural productivity, modern air transport, ad-
vanced electronics – have depended heavily on such public investment. Nec-
essary also – a matter we are beginning reluctantly to recognize – is invest-
ment and regulation in the longer-run interest of the environment. The good
society protects and improves life in its planetary dimension.

B. Here is an extract from Milton and Rose Friedman’s book “Free to


Choose”.
Though the United States has not adopted central economic planning, we
have gone very far in the past 50 years in expanding the role of government in
the economy. That intervention has been costly in economic terms. The limita-
tions imposed on our economic freedom threaten to bring two centuries of
economic progress to an end. Intervention has also been costly in political
terms. It has greatly limited our human freedom.
An essential part of economic freedom is freedom to choose how to use our
income: how much to spend on ourselves and on what items; how much to
save and in what form; how much to give away and to whom. Currently, more
than 40% of our income is disposed of on our behalf by government at federal,
state and local levels combined.
As consumers, we are not even free to choose how to spend that part of our
income that is left after taxes. We are not free to buy cyclamates or laetrile,
and soon, perhaps, saccharin. Our physician is not free to prescribe many
drugs for us that he may regard as the most effective for our ailments, even
though the drugs may be widely available abroad. We are not free to buy an
automobile without seat belts.
Another essential part of economic freedom is freedom to use the resources
we possess in accordance with our own values – freedom to enter any occupa-
tion, engage in any business enterprise, buy from or sell to anyone else, so
long as we do so on a strictly voluntary basis and do not resort to force in or-
der to coerce others.

139
Today you are not free to offer your services as a lawyer, a physician, a
dentist, a plumber, a barber, a mortician, or engage in a host of other occupa-
tions, without first getting a permit or license from a government official. You
are not free to work overtime at terms mutually agreeable to you and your em-
ployer, unless thee terms conform to rules and regulations laid down by a gov-
ernment official.
You are not free to set up a bank, go into the taxicab business, or the
business of selling electricity or a telephone service, or running a railroad,
busline, or airline, without first receiving permission from a government
official.
Freedom cannot be absolute. We do live in an interdependent society.
Some restrictions on our freedom are necessary to avoid other, still worse, re-
strictions. However, we have gone far beyond that point. The urgent need to-
day is to eliminate restrictions, not add to them.

WRITING

Read the text below and write an abstract using the following clichés: The text
is headlined; the main idea of the text is; the aim of the text is to provide the
reader with some data on …; the text is divided into … parts ; the first part
deals with …; the second part tells of…; the third part touches upon …; in
conclusion the text reads…; I found the text interesting/ important/ boring/ of
no value ;it is easy/hard to understand.
Transition and the Changing Role of Government
Over the past decade many centrally planked economies have set out to
transform themselves into market economies. To be successful, They need to
develop the necessary institutions and ensure a proper role for government.
While much has been written about the economic changes that must take
place for centrally planned countries to become market economies, less has
been written about how the economic role of the state must change. In “shock
therapy”, advocated by some economists at the start of the transition, the main
ingredients for success were assumed to be price liberalization, macroeco-
nomic stabilization, and privatization. Little was said about the role of the
government in the new environment. A complete transformation of the econ-
omy, the institutions and economic process requires, in addition, that profit-
ability be the guiding criterion for most investment decisions; activities
deemed socially desirable be financed by the government and the government
effectively perform its core functions in the economy while withdrawing from,
or drastically reducing its role in, many secondary activities.

140
To function well, market economies need governments that can established
and enforce the “rules the game”, promote widely shored social objectives,
raise revenues to finance public sector activities, spend the revenues produc-
tively, enforce contracts and protect property, and produce public goods. The
guiding principle in a market economy should be that every thing is permitted
unless expressly forbidden.
Once a country has made the transition to a market economy, the role of
government is dramatically different. It operates not through direct controls
but mostly through the tax system, the budget, and a few essential regulations.
The tax system must be totally reformed to make i efficient and equitable, and
capable of raising reasonable revenues. Tax administration that had been used
to dealing with relatively few, friendly enterprises had to deal with hundreds
of thousands, or even millions, of unfriendly taxpayers. Expenditure policies
must be brought in live with the reduced public resources. The new regulation
will play a role in setting the rules of the game, regulating private pensions,
and enforcing competition. Most permits, authorizations, and other mecha-
nisms that are known to promote bribery must be eliminated, because they
lead to the corruption that is widespread in many transition countries.
Governments will be asked to play a more positive role in income redistri-
bution. Policy makers should work hard to harmonize the concept of the role
of the state that seems to prevail in many of legislatures with one that is feasi-
ble, given the existing macroeconomic conditions and level of institutional and
economic development.

Task: Write an essay on the issues of fiscal policy arising in connection transi-
tion of economy economy in your country.

TRANSLATION

A. Translate into Russian.


Budgets and Fiscal Policy
Budgets are systems used by governments and organizations to indicate
planned expenditures and revenues for a given year. Budgets are in surplus or
deficit depending on whether the government has revenues greater or less than
its expenditures.
Fiscal policy refers to taxation and expenditure policies. In this connection,
the modern economy is blessed with important “built-in stabilizers”. Requir-
ing no discretionary action, tax receipts change automatically when income
changes, reducing the multiplier and offsetting part of any disturbance. The

141
same stabilizing effect is produced by unemployment compensation and other
welfare transfers that grow automatically as income falls.
Automatic stabilizers never fully offset the instabilities of an economy.
They reduce the multiplier, but do not make it zero. Scope is left for discre-
tionary programs. Discretionary policies include public works, jobs programs,
and various tax programs. Public works involve such long time lags in getting
under way as to make their use for combating short recessions impractical.
Discretionary variations in tax rates offer greater short-run flexibility but suf-
fer from severe political complications in the United Stales. Most ma-
croeconomists believe that monetary policy is more useful than fiscal policy
for combating the short-term fluctuations of the business cycle.
When people began to drop the notion that the government’s budget had to
be balanced in everу year or month, they first thought it would be balance over
the business cycle – with boom-time surpluses matching depression deficits.
Today, we realize that only by coincidence would the surplus in prosperous
years just balance deficits in recession year.
To get a better measure of changes in discretionary fiscal policy, econo-
mists supplement knowledge of the budget by separating the actual budget
into its structural and cyclical components. The structural budget calculates
how much the government would collect and spend if the economy were oper-
ating at potential output. The cyclical budget accounts for the impact of the
business cycle on tax revenues, expenditures, and the deficit. To assess the
impact of usual policy on the economy, we should pay close attention to the
structural deficit: changes in the cyclical deficit are a result of changes in the
economy rather than a cause of changes in the economy.

B. Translate into English.


Сторонники концепции экономики предложения признают также, что
более низкие ставки налогов не обязательно должны приводить к
сокращению налоговых поступлений. В действительности можно
ожидать, что снижение ставок налогов обеспечит рост налоговых
поступлений за счет значительного роста национального выпуска и
доходов. Эта расширившаяся налоговая база обеспечит рост налоговых
доходов даже при более низких ставках. Таким образом, в то время как с
точки зрения традиционных кейнсианских подходов снижение
налоговых ставок вызовет сокращение налоговых поступлений и
увеличит дефицит бюджета, подход экономики предположения
предполагает, что сокращение ставок налогов может быть организовано
таким образом, что оно обеспечит рост налоговых поступлений и
сокращение дефицитов.

142
LISTENING

Briefing on Personal Taxation

Ex. 1. Answer the questions.


1. How is personal taxation structured in your country?
2. Is the trend in the load of personal taxation upwards or downwards?

Ex. 2. Listen to the presentation about personal taxation in the UK. As you lis-
ten, complete the information in Charts 1 and 2 (referred to in the tapescript
as transparencies).
Chart 1. Personal taxation.
Rates

Lower rate: up to £23,700: a. %


Higher rate: above £23,700: b. %

Allowances

Single person: c. £ .
Married person: d. £ .
Pensions: e. maximum % of income.
Mortgage interest relief: f. .

Chart 2. Collection of personal taxes.


Income tax

System: g. .

National insurance

Employee’s contribution: h. .
Employer’s contribution: i. .

Ex. 3. Answer the following questions.


1. How are the two parts of Geoff’s presentation structured?
2. What does Geoff suggest the majority think of British tax?
3. What new legislation has recently been introduced?
4. What do you think the government uses national insurance contributions for?

143
Ex. 4. Look at the following extracts from the Listening passage:
“Right, I’ll hand you straight over to Geoff.”
“Good afternoon, ladies and gentlemen …”
Now match the expressions with the functions they perform in a presentation
(match them under three headings).
Functions Expressions
Introduction
1) Introducing the subject. a) I've divided my presentation into two parts.
2) Time limits. b) I'll try to answer your questions at the end.
3) Giving an outline. c) What I'd like to do is talk to you about …
4) Place of questions. d) I know you're short of time so I'll be brief.
Main part
1) Introducing first point. a) I'll come to that later.
2) Closing first point. b) In other words.
3) Referring forwards. c) As I mentioned earlier.
4) Referring backwards. d) That brings me on the next point.
5) Digressing. e) So, let's start by considering.
6) Moving on to next point. f) That covers my first point.
7) Clarifying. g) By the way, you may be interested to know.
8) Dealing with interruptions. h) If you don't mind, I'd prefer to leave that till later.
Conclusion
1) Summarising a) Thank you for your attention
2) Concluding b) I'd be delighted to answer your questions
3) Closing c) We can draw the following conclusion
4) Inviting questions d) So, let's just go over the main points again

SPEAKING

Speak on:
– pros and cons of the Keynesian theory;
– ways of promoting economic stability;
– discretionary and non discretionary fiscal policies;
– possible complications in connection with fiscal policy.

VOCABULARY

budget n – бюджет
contractionary fiscal policy – сдерживающая фискальная политика
discretionary fiscal policy – дискреционная фискальная политика
downturn n (syn. decline) – 1) падение, спад; упадок; 2) экономический
144
спад; спад деловой активности; 3) спад, уменьшение
downward-sloping line – нисходящяя наклонная линия
effective demand – платежеспособный спрос
eliminate v – устранять, исключать, уничтожать, ликвидировать
expansionary fiscal policy–стимулирующая фискальная политика
laissez faire – невмешательство
long-term investment – долгосрочные инвестиции
maintain v (syn back up, uphold) – поддерживать, защищать, отстаивать
(закон, теорию, мнение и т. п.)
moderate v – умерять, сдерживать, обуздывать; ослаблять, смягчать
offset a recession – нейтрализовать; сбалансировать спад
propensity n – склонность
~ to consume – склонность к потреблению
~ to save – склонность к сбережению
shortage n – нехватка, недостаток, недостача, дефицит
soar v – стремительно повышаться

GLOSSARY

· Actual budget records the actual dollar expenditures, revenues, and defi-
cits in a given period.
· Automatic stabilizers are federal expenditures and tax revenues that
automatically change levels in order to stabilize an economic expansion or
contraction; sometimes referred to as nondiscretionary fiscal policy.
· Balance budget is a budget when revenues and expenditures are equal dur-
ing a given period.
· Budget deficit is a budget in which government expenditures exceed gov-
ernment revenues in a given time period.
· Budget surplus is a budget in which government revenues exceed gov-
ernment expenditures in a given time period.
· Discretionary fiscal policy is the deliberate use of changes in government
spending or taxes to alter aggregate demand and stabilize the economy.
· Fiscal policy is the use of government spending and taxes to influence the
nation's output, employment, and price level.
· Government debt (sometimes called public debt) consists of the total or
accumulated borrowings by the government; it is the total dollar value of
government bonds owned by the public (households, banks, businesses,
foreigners, and other non-federal entities).

145
· Spending multiplier is the change in aggregate demand (total spending)
resulting from an initial change in any component of aggregate demand,
including consumption, investment, government spending, and net export.
· Tax multiplier is the change in aggregate demand (total spending) result-
ing from an initial change in taxes.

146
4. THE MICROECONOMY

4.1. SUPPLY AND DEMAND

DISCOVERING CONNECTIONS

Have you ever heard the quip “Teach a parrot to say "Demand and sup-
ply" and you have an economist!"? Do you know that there is a strong element
of truth in it. Can you guess why? Why does the price of hotel rooms in the
Caribbean plummet when the weather turns warm in New England every
summer? Why does the price of gasoline in the United States rise when a war
breaks out in the Middle East? What do these events have in common? Do you
know that, in fact, they all show the workings of supply and demand.
So if you want to know how any event or policy will affect the economy,
you must think first about how it will affect supply and demand.

READING

Text 1
As you read the text, pay special attention to the definitions of terms in italics.
Supply and Demand
The terms supply and demand refer to the behavior of people as they
interact with one another in markets. A market is defined as an institution
or mechanism which brings together buyers – “demanders’ and sellers –
“suppliers”.
Demand is the amount of the good that buyers are willing and able to
purchase. What factors determine the demand for any good? They are as
following:
Price. The quantity demanded falls as the price rises and rises as the price
falls, so the quantity is negatively related to the price. The relationship be-
tween price and quantity demanded is true for most goods in the economy
and, in fact, is so pervasive that economists call it the law of demand: other
things equal (ceteris paribus in Latin), when the price of a good rises, the
quantity demanded of the good falls.
Income. A lower income means that you have less to spend in total so you
would have to spend less on some – and probably most – goods. If the de-
mand for a good falls when income falls, the good is called a normal good.
Not all goods are normal goods. If the demand for a good rises when income

147
falls, the good is called an inferior good. An example of an inferior good
might be bus rides. As your income falls, you are less likely to buy a car or
take a cab, and more likely to ride the bus.
Prices of Related Goods. Suppose that the price of frozen yogurt falls.
The law of demand says that you will buy more frozen yogurt. At the
same time you will probably buy less ice-cream. Ice-cream and frozen
yogurt are substitutes, that is pairs of goods that are used in place of each
other.
When a fall in one price of one good raises the demand for another good,
the two goods are called complements. Complements are often pairs of goods
that are used together, such as gasoline and automobiles, computers and
software.
Tastes. The most determinant of your demand is your tastes. If you like
ice-cream, you buy more of it.
Expectations. Your expectations about the future may affect your demand
for a good or service today too.
We now turn to supply that is the amount that sellers are willing and able to
sell. What determines the quantity an individual supplies? These are:
Price Because the quantity supplied rises as the price rises and falls as the
price falls, we say that the quantity supplied is positively related to the price of
the good. This relationship between price and quantity supplied is called the
law of supply: Other things equal, when the price of a good rises, the quan-
tity supplied of the good also rises.
Input Prices. The supply of a good is negatively related to the price of the
inputs used to make the good.
Technology. By reducing firms’ costs, the advance in technology raises the
supply of a good.
Expectations. The amount of goods you supply today may depend on your
expectations of the future. For example, if you expect the price of goods to
rise in the future, you will put some of your current production into storage
and supply less to the market today.

Vocabulary Focus

Ex. 1. Study the meaning of the following words.


1. To affect means ‘to influence’: The tax increases have affected us all.
2. An effect is a result or consequence of an event: The political crisis has al-
ready had an effect on the Stock Market.
3. The word ‘effect’ can have two other meanings: We tried exporting tea to

148
China but with little effect (impact). In effect(in fact) the two systems are
identical.
4. There is also a verb ‘to effect’, which is fairly formal: Production was
stopped until repairs were effected (made).

Choose the right word in italics:


1. Do you think a rise in interest rates will affect/ effect consumer spending?
2. Cultural attitudes can affect/effect the success or failure of a merger with an
overseas firm.
3. The bad publicity has had an adverse affect/effect on our reputation.

Ex. 2. Match the following common collocations with their Russian equivalents:
A.
A B
1) пользоваться большим спросом a) enormous / great demand (for)
2) создавать спрос b) to be in good /great demand
3) превышать спрос c) consumer market
4) ассортимент товаров d) to create/make demand
5) потребительский рынок e) to exceed/outgo demand
6) доход на человека/на душу населения f) to meet/ satisfy demand
7) спрос и предложение g) demand and supply
8) большой спрос h) range of goods
9) доход, облагаемый налогом i) taxable income
10) удовлетоврять спрос j) per capita income

B.
A B
1) стоимость затрат a) to be in (short /low) supply
2) быть в дефиците b) to exhaust supply
3) основной поставщик c) leading / major supplier
4) невыполнение обязательств поставщиком d) a supplier default
5) объем промышленного производства e) current inputs
6) ежедневный выпуск продукции f) cost of inputs
7) исчерпать запас g) industrial output
8) текущие расходы. h) daily output

Ex. 3. Express in one word:

149
1. something that is sold for money;
2. the desire of customers for goods or services which they wish to buy or use;
3. pairs of goods that are used together;
4. an idea or a principle relating to sth abstract;
5. pairs of goods that are used in place of each other;
6. to interact (with sth);
7. the price to be paid or amount of money needed for sth;
8. that which is put in;
9. the amount of sth that a person or thing produces;
10. to give sb that is needed or useful/ to provide sb with sth;
11. to establish a connection between, e.g. ideas, events or situations; to think
or associate sth with sth else.

Words for reference: compliments, concept , demand, goods, substitutes, to


act or have an effect on each other, to relate, output, input, to supply, costs.

Ex. 4. Choose the words with similar meaning from two columns and arrange
them in pairs.
A B
1) concept (n) a) rise (v)
2) interaction (n) b) idea (n)
3) loan (n) c) expenses (n)
4) supply(v) d) cooperation (n)
5) increase (v) e) credit (n)
6) purchase (v) f) buy (v)
7) transaction (n) g) bargain, deal (n)
8) affect(v) h) commodity (n)
9) demand (n) i) request (n)
10) good (n) j) influence (n)
11) costs (n) k) offer (v)

Ex. 5. Complete the sentences using the words given below.


1. The government increased prices on several basic … .
2. Computers and software, gasoline and automobiles are … .
3. … for these services is outgoing supply.
4. The … of demand and supply may be explained in the context of a mar-
ket for specific goods.
5. The new model comes in an exciting … of colors.
6. We made a small charge for parking to cover the … of hiring the hall.

150
7. Supply, the quantity of a product that suppliers will provide, is the seller's
side of a … transaction.
8. Manufacturing … has increased by 8% in two years.
9. They discussed the … of additional resources into the scheme.

Words for reference: input, range, output, concepts, demand, goods/com-


modities, market, compliments, cost.

Comprehension

Ex. 1. Complete the sentences.


1. A market is defined as an institution or mechanism which … .
2. Demand is the amount of the good that buyers… .
3. The law of demand says that … .
4. Ceteris paribus is … .
5. The good is called an inferior good if … .
6. The good is called a normal good if … .
7. Substitutes are … .
8. Complements are … .
9. The factors which affect the amount of the good that buyers are willing
and able to purchase are … .
10. The factors which affect the amount of the good that sellers are willing
and able to sell are … .
11. The law of supply is … .

Ex. 2. Answer the questions on the text.


1. What is a market?
2. What is demand? What does the law of demand say?
3. What factors affect the amount of the good that buyers are willing and able
to purchase?
4. What’s the difference between a normal good and an inferior good?
5. How can you define compliments and substitutes?
6. What is supply? What does the law of supply say?
7. What factors affect the amount of the good that sellers are willing and able
to sell?

Text 2
As you read the text, pay special attention how the activities of buyers and
sellers automatically push the market price forward the equilibrium price.

151
Equilibrium: Mr.Demand, Meet Mr.Supply
The beauty of the market is that the competing motivations of consumers
and producers interact to arrive at a price and quantity for a product that de-
termined by impersonal market forces. Having analyzed supply and demand
separately, we now combine them to see how they determine the quantity of a
good sold in a market and its price. To focus our thinking, let’s keep in mind a
particular good – ice cream.
Equilibrium
The graph below shows the market supply curve and market demand curve
together. Notice that there is one point at which the supply and demand curves
intersect; this point is called the market’s equilibrium. The price at which
these two curves cross is called the equilibrium price, and the quantity is
called the equilibrium quantity. Here the equilibrium price is $2.00 per cone,
and the equilibrium quantity is 7 ice-cream cones.

Supply

Equilibrium
Equilibrium price
$2.00

Equilibrium quantity Demand

1 2 3 4 5 6 7 8 9 10 11 12 13

The dictionary defines the word ‘equilibrium’ as a situation in which vari-


ous forces are in balance – and this also describes a market’s equilibrium. At
the equilibrium price, the quantity of the good that buyers are willing and able
to buy exactly balances the quantity that sellers are willing and able to sell.
The equilibrium price is sometimes called the market-clearing price because,
at this price, everyone in the market has been satisfied: buyers have bought all
they want to buy, and sellers have sold all they want to sell.
The actions of buyers and sellers naturally move markets toward the equi-
librium of supply and demand. To see why, consider what happens when the
market price is not equal to the equilibrium price.

152
Suppose first that the market price is above the equilibrium price, as in
panel (a).
(a) Excess Supply

Supply
Surplus

$2.50

$2.00

Demand

0 4 7 10
Quantity Quantity
Demanded Supplied

At a price of $2.50 per cone, the quantity of the good supplied (10 cones)
exceeds the quantity demanded (4 cones). There is a surplus of the good: sup-
pliers are unable to sell all they want at the going price. When there is a sur-
plus in the ice-cream market, for instance, sellers of ice cream find their freez-
ers increasingly full of ice cream they would like to sell but cannot. They re-
spond to the surplus by cutting their prices. Prices continue to fall until the

(b) Excess Demand

Supply

$2.00

$1.50
Demand
Shortage

0 4 7 10 Quantity of
Ice-Cream Cones
Quantity Quantity
Supplied Demanded

market reaches the equilibrium.


Suppose now that the market price is below the equilibrium price, as in
panel (b).

153
In this case, the price is $1.50 per cone, and the quantity of the good de-
manded exceeds the quantity supplied. There is a shortage of the good: De-
manders are unable to buy all they want at the going price. When a shortage
occurs in the ice-cream market, for instance, buyers have to wait in long lines
for a chance to buy one of the few cones that are available. With too many
buyers chasing too few goods, sellers can respond to the shortage by raising
their prices without losing sales. As prices rise, the market once again moves
toward the equilibrium.
Thus, the activities of the many buyers and sellers automatically push the
market price toward the equilibrium price. Once the market reaches its equi-
librium, all buyers and sellers are satisfied, and there is no upward or down-
ward pressure on the price. How quickly equilibrium is reached varies from
market to market, depending on how quickly prices adjust. In most free mar-
kets, however, surpluses and shortages are only temporary because prices
eventually move toward their equilibrium levels. Indeed, this phenomenon is
so pervasive that it is sometimes called the law of supply and demand: The
price of any good adjusts to bring the supply and demand for that good into
balance.

Ex. 1. Find words or phrases in the text which have the same meaning as the
following:
1. A situation in which opposing forces, influences, etc. are balanced and
under control;
2. equilibrium price;
3. a line that bends round;
4. an amount that remains after one has used all one needs;
5. a lack of sth needed;
6. an amount of money for which sth may be bought or sold;
7. moving, leading or pointing to a higher place, point or level;
8. moving, leading or pointing to what is lower or less important;
9. to become or to make sb/sth suited to new conditions; to adapt one-
self/sth.

Ex. 2. Based on your understanding of the text, are the following TRUE or
FALSE?
1. At the equilibrium price, the quantity of the good that buyers are willing
and able to buy exactly balances the quantity that sellers are willing and
able to sell.
2. There is no explanation why the equilibrium price is also called the mar-
ket-clearing price.
154
3. Suppliers respond to the surplus by increasing their prices.
4. Sellers respond to the shortage by decreasing their prices without losing
sales.
5. The price of any good adjusts to bring the supply and demand for that
good into balance.

Ex. 3. Find in the text information to answer the questions on the text.
1. What is called the market’s equilibrium?
2. What is the equilibrium price?
3. Why is the equilibrium price also called the market-clearing price?
4. Do the actions of buyers and sellers naturally move markets towards the
equilibrium of supply and demand? How do suppliers and buyers respond
to the market surplus and shortage of goods? Can we say that the actions
of buyers and sellers naturally move markets towards the equilibrium of
supply and demand?
5. What does the law of supply and demand say?

Text 3
As you read the text, find out what the term “elasticity” is.
Elasticity
Consumers are more sensitive to some price changes than to others. You
may not want to buy a car if its price goes up 10 percent. But if the price of
salt goes up 10%, you will pay extra amount rather than go without salt. The
degree to which changes in price cause changes in quantity demanded is called
elasticity of demand. The number of cars demanded changes greatly as car
prices change; so the demand for cars is highly elastic. The demand for salt is
more inelastic: people buy nearly the same amount even though the price of
salt changes. There are two basic reasons for elasticity of demand. The first
concerns the relationship between income and the cost of the product. A car,
for example, may easily cost 50% of your annual income. Salt probably costs
less than 50% of your annual income. The smaller the proportion of your in-
come that a product costs, the more inelastic is its demand. Demand tends to
be more elastic if the good is a luxuary rather than a necessity. The second
reason why demand is elastic concerns whether or not substitute product is
available.
Elasticity, a measure of how much buyers and sellers respond to changes
in market conditions, allows to analyze supply and demand with greater
precision.

155
Economists use the term ’elasticity' to describe the responsiveness of one
variable (demand) to another variable (price). The degree to which changes in
price cause changes in quantity demanded is called the price elasticity of de-
mand. The price elasticity of demand (ED) can be determined as follows:

Change in quantity demanded (%)


ED =
Change in price (%)

This is defined as the percentage change in quantity demanded, divided by


the percentage change in price.
This value varies between zero and infinity. Three ranges are identified:
— elastic, very responsive to price changes - greater than 1;
— unit elasticity;
— inelastic, not very responsive to price changes - less than 1.

Ex. 1. Based on your understanding of the text, are the following TRUE or
FALSE? Explain why.
1. The concept of elasticity looks at how much one factor changes as a result
of some other factor changing.
2. Elasticity, a measure of how much buyers respond to changes in market
conditions, allows to analyze demand with greater precision.
3. The smaller the proportion of your income that a product costs, the more elastic
is its demand.
4. Elasticity is a planning tool for managers.

Ex. 2. Answer the questions on the text.


1. What term do economists use to describe the responsiveness of one vari-
able (demand) to another variable (price)?
2. What is called the price elasticity of demand?
3. What are two basic reasons for elasticity of demand?
4. What is the equation of the price elasticity of demand (ED)?

WRITING

Write an essay on the concept of elasticity as a measure of how much buyers


and sellers respond to changes in market conditions. Illustrate it with the ex-
amples of your own.

156
TRANSLATION

A. Translate from English into Russian.


Besides price elasticity of demand the following types of elasticity are par-
ticularly useful in a business context:
Income elasticity of demand – the impact a change in income has on the
quantity demanded.
Advertising elasticity of demand – the impact a change in the amount spent
on advertising has on the quantity demanded.
Cross elasticity of demand – the impact a change in price of one product
has on the quantity demanded of a second product.
Elasticity is a planning tool for managers. It allows firms to ask ‘what if’
questions about their products, prices, advertising levels and so on. What will
happen to our sales if we increase price by 10 p, or if we increase our adver-
tising costs by 5%?

B. Translate from Russian into English.


Основными элементами рыночного механизма являются спрос, пред-
ложение, цена и конкуренция. Спрос – это форма выражения потребно-
сти. Объем спроса или количество товаров определяется такими факто-
рами как цена товара или услуги, доходы потребителей, вкусы покупате-
лей, общее число покупателей данного товара и др.
Одним из важнейших факторов, определяющих величину спроса,
является цена товара или услуги. Максимальная цена, за которую
покупатели готовы купить единицу товара в данный момент, есть цена
спроса. Существует обратная связь между ценой и величиной спроса.
Предложение – это количество товаров или услуг, которые
предложены для реализации на рынке в определенный промежуток
времени. Объем предложения зависит прежде всего от цены. Чем выше
цена товара, тем прибыльнее его производство.

LISTENING

Negotiating on the Phone


You’ll hear part of a telephone negotiation about the sale of yogurt between a
salesperson and a buyer. Note down your answers to these questions:
1. What are they talking about?
2. What significant points were made?
3. Who made them?
4. What do you think the salesperson will do after the telephone conversation?

157
5. Is the fax below an accurate reflection of the phone call?

North Holland Dairy Cooperative, Volendam, Postbus 4550NL-4452


Ms. Erena Eichelberger
Wholesale Groceries Inc.
P.O.B. 5678
A-1090 Vienna
Austria

Dear Ms. Eichelberger,


Telephone conversation 29 February 1999
This fax is to follow up our telephone call of this morning.
We are willing to supply 2,000 (two thousand) tonnes of our variety Splendide at $
150 ( one hundred and fifty dollars) per tonne. We expect to make the delivery at the
latest by 15 March.

Jan van Geelen

SPEAKING

Dwell on:
– market;
– the concept of demand and the factors which determine the quantity de-
manded of any good;
– the concept of supply and the factors which determine the quantity supplied
of any good;
– the mechanism of interaction between the demand and supply in setting a
price;
– what equilibrium price is;
– the way the market restores its equilibrium;
– types of elasticity;
– elasticity as a planning tool for managers.

VOCABULARY

complement n – дополнение / дополняющий товар


concept n – понятие, общее представление, идея
demand ( for) n – спрос, потребность, требование
demand v – требовать, нуждаться
equate (to sth) v – равнять, считать

158
equation n – уравнение, равенство
elasticity n – эластичность, адаптационная способность (процент измене-
ния величины одной переменной в результате изменения на одну еди-
ницу другой переменной)
price ~ – ценовая эластичность
unit ~ – единичная эластичность спроса
elastic adj – эластичный
equilibrium n – равновесие
extent n – 1. размер; 2. степень меры; 3. объем; 4. протяженность
inferior good – товар низкого качества; низший товар
interact (with) v – взаимодействовать
interaction (among, between; with) n – взаимодействие
infinity n – бесконечность
luxury good – предмет роскоши
necessity good – предмет первой необходимости
normal good – нормальный товар
related good – родственный товар
supply n – 1. снабжение, поставка; подача, поступление; 2. предложение
(например, товара)
supplement n – добавление, приложение
supplier n – поставщик
transaction n – сделка, соглашение

GLOSSARY

· The law of demand states there is an inverse relationship between the


price and the quantity demanded, ceteris paribus.
· Quantity demanded is the amount of a good that buyers are willing and
able to purchase.
· A change in quantity demanded is a movement along a stationary de-
mand curve caused by a change in price. When any of the nonprice deter-
minants of demand changes, the demand curve responds by shifting.
· Nonprice determinants of demand are as follows:
a. The number of buyers;
b. Tastes and preferences;
c. Income (normal and inferior goods);
d. Expectations of future price and income changes;
e. Prices of related goods (substitutes and complements).

159
· The law of supply states there is a direct relationship between the price and
the quantity supplied, ceteris paribus. The market supply curve is the hori-
zontal summation of individual supply curves.
· A change in quantity supplied is a movement along a stationary supply
curve caused by a change in price. When any of the nonprice determinants
of supply changes, the supply curve responds by shifting.
· A surplus or shortage exists at any price where the quantity demanded
and the quantity supplied are not equal. When the price of a good is greater
than the equilibrium price, there is an excess quantity supplied, or surplus.
When the price is less than the equilibrium price, there is an excess quan-
tity demanded, or shortage.
· Normal good is a good for which, other things equal, an increase in in-
come leads to an increase in demand.
· Inferior good is a good for which, other things equal, an increase in in-
come leads to a decrease in demand.
· Substitutes are two goods for which an increase in the price of one leads to
an increase in the demand of the other
· Complements are two goods for which an increase in the price of one
leads to a decrease in the demand of the other.
· Quantity supplied is the amount of a good that sellers are willing and able to sell.
· Nonprice determinants of supply are as follows:
a. The number of sellers;
b. Technology;
c. Resource prices;
d. Taxes and subsidies;
e. Expectations of future price changes;
f. Prices of other goods.
· Law of supply and demand is the claim that the price of any good adjusts
to bring the supply and demand for that good into balance.
· Equilibrium is the unique price and quantity established at the intersection
of the supply and demand curves. Only at equilibrium does quantity de-
manded equal quantity supplied.
· Elasticity is a measure of how much buyers and sellers respond to changes
in market conditions.

160
4.2. MARKET STRUCTURE

DISCOVERING CONNECTIONS

Think of some durable consumer goods that your family possesses – perhaps
a car, a television, a stereo, a camera, a personal computer, a cooker, a fridge, a
hair dryer, and so on. Think of your casual clothes, especially jeans and sports
shoes. Think of toys you had as a child. Think of the brands of food and drink
you habitually consume, including breakfast cereals, chocolate, tea and instant
coffee. Think of the products you use to wash yourself and your clothes.
In each case, do you know whether the company that makes them is one of
the following?
– the market leader (with the biggest market share);
– the market challenger (the second-biggest company in the industry);
– one of many smaller market followers.
If you buy or have bought products that are not produced by the market
leader or a well-known market challenger, what is the reason?
– chance;
– price;
– because the product has a unique selling proposition that appeals to you;
– because you need something special.

READING

Text 1
Before reading, take a few minutes to preview the text. Briefly answer the fol-
lowing questions.
1. How many parts are there in the reading?
2. Identify the headings. What do they tell you about the topic of this reading?
3. What do you already know about the topic?

Market Structures
Market structure is determined primarily by (1) the number of firms selling
in the market; (2) the extent to which the products of different firms in the
market are the same or different; (3) the ease with which firms can enter into
or exit from the market. Based on these three criteria, economists usually
group market structures into four basic categories: (1) pure competition; (2)
monopoly; (3) oligopoly; and (4) monopolistic competition. Let us examine
each of these market structures.

161
Pure Competition
The main characteristics of the pure competition are:
1. Many sellers: There are many sellers, and each firm is so small relative to
the entire market that its actions will have no effect on the price of its
product. Instead, it must accept the going market price, established by the
forces of supply and demand.
2. Standardized product: The products of the various firms in the market are
so nearly identical that buyers do not prefer the product of any one firm
over that of any other firm.
3. Easy entry and exit: There are no significant financial, legal, technological,
or other barriers to prevent new firms from entering the market or to pre-
vent existing firms from leaving the market. Firms are free to enter and
leave the market at will.
4. No artificial restrictions: There are no wage and price controls, minimum
wage laws, labour unions, or other artificial restrictions on the free move-
ment of prices and wages up and down.
Pure competition has its limitations. Although it works well in an industry
such as agriculture, it is not practical for all markets and all industries. Never-
theless, since competition is the controlling mechanism of a market economy,
a high degree of competition is usually desirable in most markets.
Monopoly
Monopoly is the extreme opposite of pure competition and has the follow-
ing characteristics: (1) the market consists of a single seller; (2) the seller sells
a product for which there are no close substitutes; (3) there are barriers to en-
try that prevent competitors from entering the market; and (4) the seller can
control the price of his or her product.
Monopoly disadvantages include the following: (1) a monopolist
charges a higher price and produces less output than a perfectly competi-
tive firm, (2) resource allocation is inefficient because the monopolist
produces less than if competition existed, (3) monopoly produces higher
long-run profits than if competition existed, and (4) monopoly transfers
income from consumers to producers to a greater degree than under com-
petition.
Oligopoly
Although few industries are controlled by a single firm, main industries in
the United States are dominated by a few giant firms. Such a market structure
is known as oligopoly, and it is the market structure under which most large
corporations operate. Oligopoly has the following characteristics: (1) a few
sellers; (2) substantial barriers to entry; (3) standardized or differentiated
products; and (4) substantial nonprice competition.

162
Nonprice competition includes advertising, packaging, product devel-
opment, better quality, and better service. Under imperfect competition,
firms may compete using nonprice competition, rather than price competi-
tion.
Monopolistic Competition
Monopolistic competition is a market structure that is characterized by (1)
many sellers; (2) differentiated products; (3) nonprice competition; (4) relatively
easy entry and exit. It has similarities to both pure competition and oligopoly.
Monopolistic competition is similar to pure competition in the sense that
there are many sellers and no strong barriers to entry. Firms can enter and
leave markets on a regular basis and, indeed, do so. The amount of money re-
quired to go into business is relatively small, and there are few government
regulations restricting those wishing to enter a market. In addition, each seller
controls such a small share of the market that each believes that his or her ac-
tions will bring no reactions from competitors.
Unlike pure competition, however, monopolistic competition is character-
ized by product differentiation and nonprice competition. The latter involves
efforts to persuade consumers to buy a particular product for reasons other
than price. In fact, product differentiation and nonprice competition are the
most important characteristics that distinguish monopolistic competition from
pure competition. Firms operating in markets characterized by monopolistic
competition do extensive advertising in an effort to convince consumers that
their products are better than those of their competitors. Often there is little or
no actual difference in the products, but advertising campaigns lead at least
some consumers to believe otherwise.
Most retail stores in medium-to-large-sized cities fall into the category of
monopolistic competition. They advertise heavily and try to convince con-
sumers that their products and services are superior to those of their competi-
tors. A store may emphasize such things as convenient location, ample parking
space, courteous service, and a large selection of merchandise.

Vocabulary Focus

Ex. 1. Read the international words and guess their meaning.


Criteria, monopoly, oligopoly, limitation, economy, substitute, permanent,
service.

Ex. 2. Memorize the following singular and plural forms:


datum – data criterion – criteria

163
basis – bases phenomenon – phenomena
crisis – crises memorandum – memoranda
thesis – theses

Ex. 3. From two columns choose the words with similar meaning and arrange
them in pairs.
A B
1) to produce a) customer
2) wage b) to manufacture
3) limitation c) salary
4) to persuade d) to convince
5) pure e) clean
6) competition f) restriction
7) substantial g) rivalry
8) advertising h) considerable
9) share i) publicity
10) premium j) portion
11) to consume k) reward
12) buyer l) to use up
13) artificial m) fake

Ex. 4. From two columns choose the words with opposite meaning and ar-
range them in pairs.
A B
1) standardized a) entry
2) insignificant b) substantial
3) exit c) differentiated
4) vigorous d) weak
5) to expand e) to narrow
6) combined f) pure

Ex. 5. Complete the table by inserting the missing forms.


Noun Verb Adjective/Participle
monopoly
complete
product
pay
reduction
differentiated
restriction

164
standardized
engage
stipulate
dominate

Ex. 6. Match English and Russian equivalents.


A B
a) отсутствие искусственных ограничений 1)a free movement of prices
b) свободное движение цен 2) a differentiated product
c) потенциальный конкурент 3) monopolistic competition
d) стандартный продукт 4) pure competition
e) рыночная структура 5) market structure
f) чистая конкуренция 6) substantial barriers to entry
g) монополистическая конкуренция 7) a standardized product
h) дифференцированный продукт 8) a potential competitor
i) существенные барьеры ко входу 9) no artificial restrictions
j) бесценовая конкуренция 10) nonprice competition
k) отсутствие близких заменителей 11) no close substitutes
l) относительно легкий вход и выход 12) relatively easy entry and exit

Comprehension

Ex. 1. Match the words with their definitions.


1) Oligopoly a) A market structure characterized by a few sellers,
standardized or differentiated products and sub-
stantial nonprice competition.
2) Pure competi- b) A market structure characterized by a single seller,
tion a product for which there are no close substitutes,
and strong barriers to entry that prevent potential
competitors from entering into the market.
3) Monopoly c) A market structure characterized by many sellers,
standardized products, easy entry and exit, and no
artificial restrictions on the free movement of
prices and wages up and down.
4) Monopolistic d) A market structure characterized by many sellers,
competition differentiated products, nonprice competition, and
relatively easy entry and exit.

Ex. 2. Fill in the missing words from the text.

165
1. Although few ….. are controlled by a single firm, main ….. in the United
States are dominated by a few giant firms.
2. Such a ….. is known as oligopoly, and it is …… under which most large
corporations operate.
3. ……usually define oligopoly as few enough firms so that there is mutual
interdependence among the firms.
4. Nonprice ……involves efforts to persuade consumers to buy a particular
product for reasons other than price.
5. Monopolistic competition is similar to pure competition in the sense that
there are … and no strong barriers to entry.
6. Unlike …, however, monopolistic competition is characterized by product
differentiation and nonprice competition.

Ex. 3. Expand the sentences.


1. Market structure is determined primarily by… .
2. Economists usually group market structures into four basic categories: … .
3. The main characteristics of the pure competition are … .
4. Monopoly is the extreme opposite of pure competition and has the follow-
ing characteristics: .… .
5. Oligopoly has the following characteristics: …. .
6. Monopolistic competition is a market structure that is characterized by … .

Ex. 4. Answer the following questions, using the text.


1. What are the four characteristics of pure competition? Does pure competi-
tion exist?
2. What problems would exist in a purely competitive economy?
3. Describe four characteristics of monopoly.
4. Identify four characteristics of oligopoly. What is meant by “mutual inter-
dependence”? Describe nonprice competition.
5. What are the four characteristics of monopolistic competition? In what
ways is monopolistic competition similar to oligopoly? In what ways is it
similar to pure competition?

Text 2
Scan the text and find definitions of the following terms: cost-plus pricing,
competitive pricing, value pricing. Give their Russian equivalents.
Three Pricing Strategies
There are three basic pricing strategies: cost-plus pricing, competitive pric-
ing, and value pricing.

166
In cost-plus pricing, you look at the cost of what you sell-that is, the total
marginal cost–then add on the profit you need to make. That’s your price.
Cost-plus means “cost plus profit.”
This method of pricing is straightforward and ensures that you will make
money on what you sell. Unfortunately, it does not ensure that you will sell it. The
success of this pricing strategy depends on targeting a “reasonable” profit and con-
trolling your costs. It also depends on not being under-priced by a competitor.
A competitive pricing strategy aims to price the product at the lowest price
among all recognized competitors. Low prices are one way to compete effec-
tively, and sometimes competitive pricing is essential. For instance, in an in-
dustry selling a commodity, the outfit with the lowest price will usually suc-
ceed. That’s because when the products themselves are not differentiated,
price becomes the differentiating factor.
Competitive pricing is not just for commodities. In retail, for example,
portable CD players are not a commodity, but once a customer has decided
she wants to buy one, price will play a big role in which type she buys. So
competitive pricing is common in retailing. In fact, some retailers offer to beat
any other advertised price.
In general, the success of a competitive pricing strategy depends on achiev-
ing high volume and low cost – preferably the lowest in the industry – so you
can maintain the lowest price and still make a profit. Success also depends on
avoiding a destructive price war.
A value pricing strategy is the alternative to basing your prices on your
costs or your competitors’ prices. Instead, you base your prices on the value
you deliver to customers. In this strategy, you deliver as much value as possi-
ble to your customers – and charge them for it. With this strategy, you charge
a high price and justify it by delivering high value.
Value pricing is common in high technology and luxury items, such as
clothing, restaurants, and automobiles.
In practice, a business considers all three pricing strategies. You have to
consider you costs, or your profits will suffer. You have to consider your
competitor’s prices, even if you’re not competing on price. You must consider
the value you deliver because no matter what you sell, customers want value
for their money.

Ex. 1. According to the text


1. A cost plus profit pricing is
a. a straightforward method;
b. a method that ensures that you will make money on what you sell;
c. a method that includes total marginal cost and profit you need to make;

167
d. all of the above.
2. A competitive pricing strategy aims
a. to beat any other advertised price;
b. to price the product at the lowest price among all recognized competitors;
c. to compete effectively;
d. all of the above.
3. A value pricing stratage suggests that you should base your prices on
a. your costs and expenses;
b. your competitor’s prices;
c. the value you deliver to customers.

Ex. 2. Speak on the following issues:


1. Advantages and disadvantages of cost-plus, competitive and value pricing.
2. You own a business. What type of pricing would you prefer? Why?

Text 3
As you read the text, write a short heading for each paragraph.
Market Leaders, Challengers and Followers
In most markets there is a definite market leader: the firm with the largest
market share. This is often the first company to have entered the field, or at
least the first to have succeeded in it. The market leader is frequently able to
lead other firms in the introduction of new products, in price changes, in the
level or intensity of promotions, and so on.
Market leaders usually want to increase their market share even further,
or at least to protect their current market share. One way to do this is to try
to find ways to increase the size of the entire market. Contrary to a common
belief, wholly dominating a market, or having a monopoly, is seldom an
advantage: competitors expand markets and find new uses and users for
products, which enriches everyone in the field, but the market leader more
than its competitors. A market can also be expanded by stimulating more
usage: for example, many households no longer have only one radio or cas-
sette player, but perhaps one in each room, one in the car, plus a Walkman
or two.
In many markets, there is often also a distinct market challenger, with the
second-largest market share. In the car hire business, the challenger actually
advertises this fact: for many years Avis used the slogan “We're number two.
We try harder.” Market challengers can either attempt to attack the leader, or
to increase their market share by attacking various market followers.

168
The majority of companies in any industry are merely market followers
which present no threat to the leader. Many market followers concentrate on
market segmentation: finding a profitable niche in the market that is not satis-
fied by other goods or services, and that offers growth potential or gives the
company a differential advantage because of its specific competencies.
A market follower which does not establish its own niche is in a vulnerable
position: if its product does not have a “unique selling proposition” there is no
reason for anyone to buy it. In fact, in most established industries, there is only
room for two or three major companies: think of soft drinks, soap and washing
powders, jeans, sports shoes, and so on. Although small companies are gener-
ally flexible, and can quickly respond to market conditions, their narrow range
of customers causes problematic fluctuations in turnover and profit. Further-
more, they are vulnerable in a recession when, largely for psychological rea-
sons, distributors, retailers and customers all prefer to buy from big, well-
known suppliers.

Ex. 1. Find words in the text which mean the following.


1) a company's sales expressed as a percentage of the total market;
2) short-term tactics designed to stimulate stronger sales of a product;
3) the situation in which there is only one seller of a product;
4) companies offering similar goods or services to the same set of customers;
5) a short and easily memorized phrase used in advertising;
6) the division of a market into submarkets according to the needs or buying
habits of different groups of potential customers;
7) a small and specific market segment;
8) a factor which makes you superior to competitors in a certain respect;
9) a business's total sales revenue;
10) a period during which an economy is working below its potential.

Ex. 2. Which of the following three paragraphs most accurately summarizes


the text, and what is wrong with the others?
First summary:
In most markets there is a definite market leader, with the largest market
share, which frequently helps other firms to introduce new products. In many
cases, there is also a market challenger, which wants to replace the leader, and
various market followers, which seek out particular niches that do not interest
the leader. Other followers merely imitate the products of larger companies,
but this is a dangerous strategy during recessions.
Second summary:

169
In most markets there is a leader that strongly influences other firms in the
introduction of new products, price changes, promotions, and so on. There is
frequently also a market challenger, with the second-largest market share,
which can attempt to increase its market share by attacking either the leader or
some market followers. Market followers concentrate on profitable niche
products that are in some way differentiated from the products of larger com-
panies.
Third summary:
The first company in a particular market nearly always becomes the market
leader, a position it will try to keep by regularly attacking distinct market challeng-
ers and followers. Most followers can either concentrate on small market segments
or niches, or follow the safer strategy of imitating the leader’s products.

WRITING

Rearrange the following sentences and part-sentences to make up a short text


about market concentration in writing. Follow the following guidelines:
– Begin with a paragraph containing arguments both against and in favour of
monopoly.
– Continue with a paragraph defending or justifying market concentration.
– End with a paragraph arguing that monopolies are always short-lived, and
so not a problem.

A. According to this position, the government only needs to ensure that there
is no monopoly over important inputs, because there will never be a mo-
nopoly of scientific or artistic genius or business ideas.
В. According to this view, market concentration arises naturally from a few
successful firms growing larger as a result of increased efficiency, innova-
tion, and economies of scale in production, distribution, R&D, capital fi-
nancing, and so on.
С. A counter argument is that erecting barriers – for example, by process in-
novation, product differentiation, persuasive advertising, or pricing policy
– in order to be successful and to make competitors less successful, is a
normal part of rivalry and competition.
D. Although some people argue that any barrier to competition will inevitably
lead to inefficiency.
E. An example here would be telecommunications.
F. and businesses facing no competition have no incentive to find ways to re-
duce costs.

170
G. Even the profits made by a natural monopoly will be temporary, because
they are an incentive for entrepreneurs to discover and implement new low-
cost technologies.
H. For example, although entrepreneurs introduce new products and techniques
and open up new markets, their profits are soon competed away by rivals.
I. it is right that inventors should be granted a temporary monopoly as a re-
ward for innovation or discovery.
J. monopolists are always able to make excessive profits.
К Some people even argue that monopolies are always temporary and conse-
quently not a problem.
L. The arguments against market concentration, or at least against monopoly,
are obvious…
M. The only common argument in favour of monopoly concerns patents…

TRANSLATION

A. Translate from English into Russian.


Market
No matter how independent we may be in spirit, virtually none of us is self-
sufficient. Our mutual interdependence for goods and services is a fact of life. We
rely on others to satisfy our most basic needs. There is an incredibly complex divi-
sion of labour and specialization in economic activities. Specialized firms and agen-
cies make particular goods and services available to: consumers, investors and gov-
ernments. Workers specialize in particular trades and occupations and this makes
economic interdependence inevitable. The most common way we obtain goods and
services is to buy them from others who specialize in producing them. To make such
purchases, buyers seek out sellers in markets.
A market is an arrangement through which buyers and sellers meet or
communicate for the purpose of trading goods or services. Markets are a way
in which buyers and sellers can conduct transactions resulting in mutual net
gains that otherwise wouldn't be possible. Many market transactions are con-
ducted without buyers and sellers actually meeting at a particular location. For
example, you can browse through catalogues or magazine advertisements to
see what various sellers are offering. If you find something you like, you can
order it by mail or telephone, without face-to-face contact with the seller. You
can also hire an intermediary to carry out a transaction for you.
The purpose of a market is to make information available on the goods and
services sellers are willing to sell and buyers want to purchase. This exchange
of information is the basis for determining prices which in turn influence the

171
actual amount of goods and services exchanged. Prices are a major determi-
nant of the choices we make as both buyers and sellers. Market prices play a
vital role in coping with the problem of scarcity because they ration available
amounts of goods and services.
To analyze the way markets operate, we first must understand the concept
of supply and demand. Supply and demand analysis explains how prices are
established in markets through competition among buyers and sellers and how
those prices affect quantities traded.

B. Translate from Russian into English.


1. Японские товары имеют репутацию высококачественных.
2. Главная забота отечественных производителей – повышение качества
изделий.
3. Производитель гарантирует доставку товара в любую часть страны.
4. Внешний вид изделия имеет большое значение для его
конкурентоспособности.
5. Изучение рынка очень важно для успеха в бизнесе.
6. Начиная новое дело, необходимо провести тщательное изучение
рынка сбыта товаров и услуг.
7. Многие покупатели оценивают качество товара по его надежности и
долговечности.

LISTENING

Listen to Kate Barker, an economist, talking about the causes of the business cycle.
Ex. 1. Answer the following questions.
1. When Kate Barker talks about the level of companies' investments, does
she mean:
a) their financial reserves (deposited in a bank, or invested in treasury
bonds, shares in other companies, and so on) or
b) the money they spend on their plant (i.e. factories, and the machines and
equipment inside them)?
2. When she talks about the level of companies' stocks, does she mean:
a) their inventories of unsold goods, or
b) the current price of their shares at the stock exchange?
3. According to Kate Barker, what do companies tend to do:
a) when demand is very strong, and
b) when demand weakens a little?

172
4. According to the standard theory, when will companies begin to invest
again after a downturn, and why?
5. What was the external or exogenous shock that caused the downturns in
both the early 1970s and the early 1980s?
6. What were the two factors which led many European business people to
invest too much in the late 1980s?
7. What was the exogenous shock that caused the downturn in the early
1990s?

SPEAKING

A. Dwell on the following issues:


1. What are the four basic categories of market structure?
2. What are examples of each basic category of market structure in the
American economy?
3. What is monopoly characterized by?
4. What are characteristics of oligopoly?
5. What is monopolistic competition characterized by?
6. Speak about market leaders, challengers and followers.

B. Discussion Points:
1. Which firm is likely to be a price maker, a monopolist or a firm in perfect
competition? Why?
2. How might firms in monopolistic competition compete with each other?
3. Why might oligopolists use promotion rather than price changes as the
main form of competition?
4. Apart from those mentioned in the text, can you think of two more exam-
ples of:
(a) monopolistically competitive industries;
(b) oligopolistic industries?

VOCABULARY

acquisition n – приобретение
challenger n – претендент
competition n – конкуренция, соревнование
monopolistic ~ – монополистическая конкуренция
nonprice ~ – неценовая конкуренция
pure ~ – чистая конкуренция
facilities n – средства, оборудование

173
follower n – последователь, сторонник
growth n – рост, увеличение
household n – дом, домашнее хозяйство
increase v – увеличивать, расти
limited adj – ограниченный
market n – рынок, сбыт
monopoly n – монополия
oligopoly n – олигополия
price n – цена
premium ~ – дополнительная цена
pricing n – ценообразование
competitive ~ – конкурентное ценообразование
cost-plus ~ – ценообразование по принципу «издержки плюс прибыль»
value ~ –
produce v – производить
product n – продукт
differentiated ~ – дифференцированный продукт
standardized ~ – стандартный продукт
production n – производство
reduce v – уменьшать, снижать
reduction n – спад
restriction n – ограничение
artificial ~ – искусственное ограничение
standardized adj – стандартный
stipulate v – обусловливать
substantial adj – значительный, существенный
~ barrier – существенный барьер
substitute n – заменитель
close ~ – близкий заменитель
sufficient adj – достаточный

GLOSSARY

· Monopoly is a single seller facing the entire industry demand curve. The
monopolist sells a unique product, and extremely high barriers to entry pro-
tect it from competition.
· Barriers to entry that prevent new firms from entering an industry are (1)
ownership of an essential resource, (2) legal barriers, and (3) economies of
scale. Government franchises, licenses, patents, and copyrights are the
most obvious legal barriers to entry.

174
· Monopolistic competition is a market structure characterized by (1)
many small sellers, (2) a differentiated product, and (3) easy market entry
and exit. Given these characteristics, firms in monopolistic competition
have a negligible effect on the market price.
· Oligopoly is a market structure characterized by (1) few sellers, (2) a ho-
mogeneous or a differentiated product, and (3) difficult market entry.
· Oligopolies are mutually interdependent because an action by one firm
may cause a reaction from other firms.

175
5. THE GLOBAL ECONOMY

5.1. INTERNATIONAL TRADE

DISCOVERING CONNECTIONS

Consider the clothes and shoes you are wearing, and those you wore last
weekend. Where were they made? Try to recall the meals you’ve eaten in the
last 24 hours. How much of the food came from abroad? If you have them,
where do your car, television, stereo, camera, watch, and so on come from?
Where was the last DVD or CD you bought manufactured?
Can you even imagine living in a country that did not import anything,
where only locally produced food and textiles and products were available?

READING

Text 1
As you read the text, focus on the difference between absolute and compara-
tive advantages and pay attention to trade restrictions.
International Trade
Since ancient times people have strived to expand their trading as far as
technology allowed.
Today, container ships laden with cars and machines and Boeing 747s
shuttled with fresh fruit, fresh New Zealand lamb, and French cheeses ply the
sea and air routes, carrying billions of dollars worth of goods and services.
Trade in goods such as food, raw materials, and manufactured goods is known
as visible exports and visible imports. Trade in services such as banking, in-
surance, and tourism is known as invisible exports or invisible imports. So
why do people go to great lengths to trade with those in other nations?
International trade is a form of specialization. Sri Lanka specializes in tea be-
cause it has an appropriate climate and soil, and skilled growers and packers. The
principle is just the same as individual specialization: Jill specializes in math
teaching because she is good at math and at dealing with people, Jack specializes
in dentistry because he understands the biology and is deft with his hands. Of
course, it is important for both that there is demand for what they are offering.
Economic theory distinguishes between absolute advantage and comparative
advantage.
Absolute advantage is the ability of a country to produce a good using fewer re-
sources than another country.
176
Comparative advantage is a bit harder to understand, but more important
for trade. The principle of comparative advantage is a central concept in inter-
national trade theory which holds that a country or a region should specialize
in the production and export of those goods and services that it can produce
relatively more efficiently than other goods and services, and import those
goods and services in which it has a comparative disadvantage.
Comparative advantage is the ability of a country to produce a good at a
lower opportunity cost than another country.Comparative advantage refers to
the relative opportunity costs between countries of producing the same goods.
World output and consumption are maximised when each country specialises
in producing and trading goods for which it has a comparative advantage.
The majority of economists believe that international trade should be based
on comparative advantage and free trade. Free trade is a system which allows
certain countries to buy and sell goods from each other without any financial
restrictions. In practice, despite the advice of economists, every nation protects
its own domestic producers to some degree from foreign competition. Behind
these barriers to trade are people whose jobs and income are threatened, so
they clamour to the government for protectionism. Protectionism is the gov-
ernment’s use of embargoes, tariffs, quotas, and other restrictions to protect
domestic producers from foreign competition.
Embargoes are the strongest limit on trade. An embargo is a law that bars trade
with another country. For example, the United States and other nations in the
world imposed an arms embargo on Iraq in response to Iraq’s invasion of Kuwait
in 1990.
Tariffs are the most popular and visible measures used to discourage trade.
A tariff is a tax on an import. Tariffs are also called customs duties. Histori-
cally, these provided revenue to governments when taxes were not easily col-
lected from other sources. Modern tariffs are usually imposed for a different
reason: to shut out (or add to the price of) certain imports in order to protect
home producers from foreign competition. An obvious example is the protec-
tionist policy used by European Union for many agricultural products. The
current US tariff code specifies tariffs on nearly 70 percent of U.S. imports. A
tariff can be based on weight, volume, or number of units.
Another way to limit foreign competition is to impose a quota. A quota is a
limit on the quantity of a good that may be imported in a given time period.
For example, the United States might allow 10 million tons of sugar to be im-
ported over a one-year period. Once this quantity is reached, no more sugar
can be imported for the year. Quotas can limit imports from all foreign suppli-
ers or from specific countries. Like all barriers to trade, quotas invite other na-
tions to retaliate with more measures to restrict trade. With tariffs, it is impos-

177
sible to know the quantity that will be imported, because prices might be elas-
tic. With quotas, governments can set a limit to imports. Yet unlike tariffs,
quotas provide no revenue for the government.

Vocabulary Focus

Ex. 1.
export: /’ekspo:t/ or /ik’spo:t/?
1. Look at these words. Where is the stress when the word is used as a noun
and when it is a verb?
a. export d. increase g. refund j. transport
b. import e. progress h. produce k. insult
c. decrease f. record i. permit l. protest

2. Fill the gaps with one of the words in its correct form.
a. Scotland _____ a lot of its food from other countries. Its _____ includes
oil, beef, and whisky.
b. I’m very pleased with my English. I’m making a lot of _____.
c. Ministers are worried. There has been an _____ in the number of unem-
ployed.
d. But the number of crimes has _____, so that’s good news.
e. How dare you call me a liar and a cheat! What an _____!
f. There was a demonstration yesterday. People were _____ about blood
sports.
g. People usually buy CDs these days. Not many people buy _____ any more.
h. Don’t touch the video! I’m _____ a film.
i. Britain _____ about 75% of its own oil.

Ex. 2. Match the following common collocations with their Russian equiva-
lents:
1) to exceed one's quota a) назначать тарифные ставки
2) under embargo b) сравнительное преимущество
3) absolute advantage c) абсолютное преимущество
4) comparative advantage d) таможенный сбор
5) to remove an embargo e) составлять квоту
6) customs duty f) превосходить квоту
7) to impose, levy a tariff g) вводить, налагать ограничения
8) to fill/fulfill/ meet a quota h) снимать запрет
9) to impose, place, put restrictions i) под запретом

178
on

Ex. 3. Match the words in column A with their synonyms in column B.


A B
1) tariff a) benefit/profit
2) embargo b) prohibition/interdiction
3) restriction c) limitation/restraint
4) advantage d) complete/total
5) quota e) Relative
6) absolute f) a fixed amount
7) comparative g) Rate

Ex. 4. There is a logical connection among three of the four words in each of
the following groups. Which is the odd one out, and why?
1) absolute advantage – barriers – comparative advantage – free trade
2) balance – deficit – dumping – surplus
3) banking – insurance – merchandise – tourism
4) comparative advantage – protectionism – quotas – tariffs
5) non-tariff barriers – norms – quotas – taxes
6) barter – import substitution – infant industries – tariff barriers
7) liberalize – protect – subsidize – substitute

Ex. 5. Match each headword on the left with a set of examples on the right.
1) imports a) taxes, tariffs, quotas on imported goods
2) free trade b) wheat, oil, being brought into the country
3) domestic market c) no restrictions on imports
4) exports d) rice, wool being sent abroad
5) open market e) customers in the same country
6) protectionism f) f. products available to anyone willing to buy

Ex. 6. Complete the following sentences, use the prompts below:


1. ________________ means that each nation specializes in a product for
which its opportunity cost is lower in terms of the production of another
product and then nations trade.
2. ________________ benefits a nation as a whole but individuals may lose
jobs and incomes from the competition from foreign goods and services.
3. A government’s use of embargoes, tariffs, quotas, and other methods to
protect particular domestic industries by imposing barriers that reduce im-
ports is called ___________.

179
4. A (an) ________________ prohibits the import or export of particular
goods and a (an) __________________ discourages imports by making
them more expensive. These trade barriers often result primarily from do-
mestic groups that exert political pressure to gain from these barriers.
5. The _________________ is a summary bookkeeping record of all the in-
ternational transactions a country makes during a year. It is divided into
different accounts including the current account, the capital account and the
statistical discrepancy.
6. The __________________ measures only goods (not services) that a nation
exports and imports. It is the most widely reported and largest part of the
current account.
7. A (an) _________________ is the price of one nation’s currency in terms
of another nation’s currency. The intersection of the supply and demand curves
for dollars determines the number of units of a foreign currency per dollar.
8. A __________________ is a limit on the quantity of a good that may be
imported in a given time period.

Words for reference: comparative advantage; free trade; protectionism; em-


bargo; tariff; balance of payments; balance of trade; exchange rate; quota.

Comprehension

Ex. 1. Based on your understanding of the text, are the following TRUE or
FALSE? Explain why.
1. International trade is a form of specialization.
2. Comparative advantage is the ability of a country to produce a good using
fewer resources than another country.
3. Protectionism is the government’s use of embargoes, tariffs, quotas, and
other restrictions to protect domestic producers from foreign competition.
4. Tariffs are the strongest limit on trade.
5. Embargoes are the most popular and visible measures used to discourage
trade.
6. Tariffs provide no revenue for the government.

Ex. 2. Find in the text the answers to the following questions.


1. What is the basis for trade between nations? Why does international trade
bring gains to all countries?
2. What’s the difference between absolute advantage and comparative advan-
tage? Which of them is more important for international trade? Why?

180
3. What encourages governments to impose tariffs and quotas?
4. What’s the difference between embargoes, tariffs and quotas? Which of
them provides revenue for the government? In what way?
5. What are the ways of liberalizing international trade?

Ex. 3. Write questions, relating to the text, to which these could be the an-
swers.
1. People have strived to expand their trading as far as technology allowed.
2. A form of specialization
3. The ability of a country to produce a good using fewer resources than an-
other country.
4. The ability of a country to produce a good at a lower opportunity cost than
another country.
5. Tariffs are.
6. Unlike quotas they produce revenue.
7. So-called safety norms, and the deliberate creation of customs difficulties
and delays.

Ex. 4. Speak on:


1. the international trade as a form of specialization.
2. the principle of comparative advantage and its role in international trade.
3. trade restrictions.

Text 2
While reading the text state the economist’s case for free trade. Explain the
existence of artificial barriers to international trade.
The Arguments for and against Free Trade
The effects of free trade can be determined by comparing the domestic
price without trade to the world price. A low domestic price indicates that the
country has a comparative advantage in producing the good and that the coun-
try will become an exporter. A high domestic price indicates that the rest of
the world has a comparative advantage in producing the good and that the
country will become an importer.
When a country allows trade and becomes an exporter of a good, producers of
the good are better off, and consumers of the good are worse off. When a country
allows trade and becomes an importer of a good, consumers are better off, and
producers are worse off. In both cases, the gains from trade exceed the losses.
The other economic benefits of trade are:

181
Increased variety of goods: Goods produced in different countries are not
exactly the same. Free trade gives consumers in all countries greater variety
from which to choose.
Lower costs through economic of scale: Some goods can be produced at low
cost only if they are produced in large quantities – a phenomenon called economies
of scale. A form in a small country cannot take full advantage of economies of
scale if it can sell only in a small domestic market. Free trade gives firms access to
larger world markets and allows them to realize economies of scale more fully.
Increased competition: A company shielded from foreign competitors is more
likely to have market power, which in turn gives it ability to raise prices above
competitive levels. This is the type of market failure. Opening up trade fosters
competition and gives the invisible hand a better chance to work its magic.
Enhanced flow of ideas: The transfer of technological advances around the world is
often thought to be linked to international trade in the goods that embody those ad-
vances.
There are various arguments for restricting trade: They are as follows:
– to protect strategic industries – notably agricultural – without which the
country would be in danger if there was a war.
– to make imports more expensive than home-produced substitutes, and
thereby reduce a balance of payment deficit;
– as a protection against dumping (the selling of goods abroad at below cost
price in order to destroy or weaken competitors or to earn foreign currency
to pay for necessary imports);
– to retaliate against restrictions imposed by other countries;
– to protect ‘infant industries’ until they are large enough to achieve econo-
mies of scale and strong enough to compete internationally.
Economists and the general public often disagree about free trade. In 1933,
for example, the United States faced the question of whether to ratify the
North American Free Trade Agreement, which reduced trade restrictions
among the United States, Canada, and Mexico. Opinion polls showed the gen-
eral public in the United States about every split on the issue, and the agree-
ment passed in Congress by only a narrow margin. Opponents viewed free
trade as a threat to job security and the American standard of living. By con-
trast, economists overwhelmingly supported the agreement. They viewed free
trade as a way of allocating production efficiently and raising living standards
in all three countries.
To better understand economists’ view of trade, let’s suppose that the
imaginary country of Isoland ignores the advice of its economics team and de-
cides not to allow free trade in steel. The country remains in the equilibrium
without international trade.

182
Then, one day, some Isolandian inventor discovers a new way to make
steel at very low cost. The process is quite mysterious, however, and the in-
ventor insists on keeping it a secret. What is odd is that the inventor doesn’t
need any workers or iron to make steel. The only input he requires is wheat.
The inventor is hailed as genius. Because steel is used in so many products,
the invention lowers the cost of many goods and allows all Isolandians to en-
joy a higher standard of living. Workers who had previously produced steel do
suffer when their factories close, but eventually they find work in other indus-
tries. Some become farmers and grow the wheat that the inventor turns into
steel. Others enter new industries that emerge as a result of higher Isolandian
living standards. Everyone understands that the displacement of these workers
is an inevitable part of progress.
After several years, a newspaper reporter decides to investigate this myste-
rious new steel process. She sneaks into inventor’s factory and learns that the
inventor is a fraud. The inventor has not been making steel at all. Instead, he
has been smuggling wheat abroad in exchange for steel from other countries.
The only thing that the inventor has discovered was the gains from interna-
tional trade.
When the truth is revealed, the government shuts down the inventor’s opera-
tion. The price of steel rises, and workers return to jobs to steel factories. Living
standards in Isoland fall back to their former levels. The inventor is jailed and held
up top public ridicule. After all, he was no inventor. He was just an economist.

Text 3
As you read the passage, focus on the WTO origine and its functions.
The WTO
During the worldwide depression of the 1930s, when one nation raised its
tariffs to protect its industries, other nations retaliated by raising their tariffs.
In 1947, most of the world’s industrialised nations mutually agreed to end the
tariff wars by signing the General Agreement on Tariffs and Trade (GATT).
The General Agreement on Tariffs and Trade, an internationally organization
set up in 1947, had the objectives of encouraging international trade, of mak-
ing tariffs the only form of protectionism, and of reducing these as much as
possible. The most favoured nation clause of the GATT agreement specified
that countries could not have favoured trading patterns, but had to grant
equally favourable conditions to all trading partners. The final GATT agree-
ment – including services, copyright, and investment, as well as trade in goods
– was signed in Marrakech in 1994, and the organization was superseded by
the World Trade Organization (WTO).

183
It took nearly 50 years to arrive at the final GATT agreement because until
the 1980s, most developing countries opposed free trade. They wanted to in-
dustrialize in order to counteract what they rightly saw as an inevitable fall in
commodity prices. They practised import substitution (producing and protect-
ing goods that cost more than those made abroad), and imposed high tariff
barriers to protect their infant industries.
Nowadays the WTO has more than 130 members, with membership condi-
tional on countries following trade policies of a broadly free-trading nature.
The WTO is staffed by an international team of trade specialists. It can influ-
ence international trade discussions, almost always in a free-trade direction,
although on controversial issues member governments are likely to dig in their
heels before making any compromises or deals. In the umpiring role, the WTO
Dispute Settlement Body can intervene when one country accuses another of
breaking agreed WTO rules. It normally does this by initiating some sort of
protectionist measure. Like the GATT the WTO provides a forum for multi-
lateral trade negotiations; conducts reviews of member country trade policies;
and cooperates with the World Bank and the International Monetary Fund
(IMF) in an attempt to achieve greater coherence in global economic policy
making.

Ex. 1. Complete the paragraph, use the following terms:


Free trade protectionism tariffs customs duties quotas
imports exchange rates

The WTO was set up in 1995 to encourage free trade in the global market
place. It is therefore designed to resist … . No new barriers to trade can be set
up, and governments cannot set new … or … or increase ones that already ex-
ist as there are really taxes that prevent … . Similarly the WTO opposes the
use of … since these limit the amount of … coming into a country. This may
protect a country’s industry in the short term, but if its trading partners reply
with similar measures, then … will suffer. The WTO governs trade in many
products and raw materials, but the world of finance is largely outside of its
scope, therefore it has no control over … .

Ex. 2. Circle the terms below which encourage the movement of goods across
borders, explain your choice.
Favorable exchange rates, customs duties, WTO, tariffs, import quotas,
protectionism, free trade agreements.

184
Ex. 3. Answer the questions about the information in the text.
1. When do most of the world’s industrialised nations mutually agree to end
the tariff wars?
a. in 1941;
b. in 1952;
c. in 1947.
2. What objectives did the General Agreement on Tariffs and Trade have?
a. encouraging international trade;
b. making tariffs the only form of protectionism;
c. reducing these as much as possible;
d. all of the above.
3. What did the most favoured nation clause of the GATT agreement specify?
a. that countries could not have favoured trading patterns;
b. countries had to grant equally favourable conditions to all trading partners;
c. both a) and b).

Ex. 4. Dwell on the following issues.


1. What are tariff wars?
2. When was the GATT superseded by the World Trade Organization?
3. What are the functions and the structure of WTO at present?

WRITING

A. Insert the following words in the spaces in the text below.


although as consequently due to for example
furthermore however in other words moreover
nevertheless whereas yet

B. Prepare a written report either defending free trade, or defending the right of
the EU to indirectly subsidize Caribbean banana producers on the basis of the
text.
The Banana Wars
The progressive reduction of tariff barriers has caused World Trade to in-
crease by several hundred per cent since 1945, and there is no doubt that this
has created both work and prosperity. It has also improved products: (1)
………….. the planned economies of the Soviet Union and the Communist
block countries created industries that produced nearly as much as Western
companies, the products were much less sophisticated, reliable or marketable,

185
(2) …………. they were excluded from competition. Today, most economists
argue that nations which try to shelter declining industries behind tariff barri-
ers are simply resisting the inevitable, and that they could use those subsidies
to create new jobs in more modern industries. (3) ………….., tariff barriers
penalize consumers: the Japanese, (4) …………., pay ten times more for rice
than they would if they could buy rice from South East Asia.
(5) …………… for many years, the banana industry had a special status.
The European Union allowed former British and French colonies in Africa,
the Caribbean and the Pacific islands to export to Europe as many bananas as
they wished, at slightly above world prices. Banana production costs are
higher in the Caribbean than on American-owned plantations in Latin Amer-
ica, (6) ………… the small size of family-run farms, the difficult terrain, and the
climate.
In 1999, (7) ……………., the US-based company Chiquita Brands made a
$500,000 donation to the Democratic Party. The very next day, the US gov-
ernment complained to the World Trade Organization about Europe’s banana
trade, and put a 100% import tariff on various European goods.
Opponents of the American case pointed out that only 7% of the 2.5 billion
tonnes of bananas imported into Europe every year come from the Caribbean.
The US’s banana policy only cost American companies abut $200 million a
year, (8) ……… trade between the US and the EU is worth about £200 billion.
Half the population of the Caribbean relies on the banana industry to sup-
ply their basic needs such as food, shelter and education. Small states such as
Dominica depend on banana exports to the EU for around 70 per cent of all
export earnings and much of their employment. No other countries in the
world have the same degree of dependence on a single product. (9)
……………., if the Caribbean banana industry was taken away without farm-
ers being given enough time to develop other ways of using the land, the coun-
ties’ economy would collapse. (10) …………., the results of entirely free
trade in bananas could be disastrous.
It could also be pointed out that American, Japanese and European farmers
are currently subsidized by billions of dollars every year. (11) ……….., Amer-
ica itself erected massive tariff barriers in the 19th century. (12) …………., the
Americans wanted to end subsidies to Caribbean banana producers, even
though the consequences might have included many of the farmers turning to
drug production and trafficking, or trying to immigrate illegally to the US.
The ‘banana wars’ ended in July 2001 when the Americans ended their
special import taxes on selected European goods after the European Union
agreed to import more Latin American bananas from the large US banana
companies, while still also buying bananas from their former colonies.

186
TRANSLATION

A. Translate from English into Russian.


The Legacy of Adam Smith and David Ricardo
Economists have long understood the principle of comparative advantage.
Here is how the great economist Adam Smith put the argument:
It is a maxim of every prudent master of a family, never to attempt to make
at home what it will cost him more to make than to buy. The tailor does not
attempt to make his own shoes, but buys them of the shoemaker. The shoe-
maker does not attempt to make his own clothes but employs a tailor. The
farmer attempts to make neither the one nor the other, but employs those dif-
ferent artificers. All of them find it for their interest to employ their whole in-
dustry in a way in which they have some advantage over their neighbours, and
to purchase with a part of its produce, or what is the same thing, with the price
of part of it, whatever else they have occasion for.
This quotation is from Smith’s 1776 book, An Inquiry into the Nature and
Causes of the Wealth of Nations, which was a landmark in the analysis of
trade and economic interdependence.
Smith’s book inspired David Ricardo, a millionaire stockbroker, to become
an economist. In his 1817 book, Principles of Political Economy and Taxation,
Ricardo developed the principle of comparative advantage as we know it to-
day. His defence of free trade was not a mere academic exercise. Ricardo put
his economic beliefs to work as a member of the British Parliament, where he
opposed the Corn Laws, which restricted the import of grain.
The conclusions of Adam Smith and David Ricardo on the gains from trade
have held up well over time. Although economists often disagree on questions
of policy, they are united in their support of free trade. Moreover, the central
argument for free trade has not changed much in the past two centuries. Even
though the field of economics has broadened its scope and refined its theories
since the time of Smith and Ricardo, economists’ opposition to trade restric-
tions is still based largely on the principle of comparative advantage.

B. Translate from Russian into English.


1. Сравнительное преимущество – основополагающий принцип свобод-
ной торговли.
2. Преподаватель объяснил разницу между видимым и невидимым экс-
портом и импортом.

187
3. Всемирная торговая организация была учреждена в 1995 году в целях
развития свободной торговли.
4. Ограничение внешней торговли может касаться не только экспорта,
но и импорта.
5. Введение ограничений на импорт иностранной продукции – средство
защиты отчественного производителя, исползуемое правительствами
многих стран.

LISTENING

You will hear Ajit Singh, Professor of Economics at Cambridge University,


talking about free trade and unemployment.
A. Listen to the first part of the interview, and then listen a second time and
complete the following sentences.
1. Formerly, the less developed countries were against free trade because …
2. Countries like South Korea and Malaysia are competitive today because
they’ve been able to …
3. Free trade is disruptive; in other words …
4. The advantage of free trade is that …
5. People in industrial countries can only put up with the disruption caused by
free trade if …

B. Listen to the second part of the interview and answer these questions.
1. What would African countries need to do if they wanted to develop a car industry?
2. What does Ajit Singh say could lead to full employment in the rich countries?
3. What does he say will be the consequence if mass unemployment continues?
4. Does he foresee an end to mass unemployment?

SPEAKING

A.
Read the dialogue, identify how each speaker makes himself sound ‘nice’. Act
the conversation out.
Rusconi: Jupiter Products. Tony Rusconi speaking.
Garcia: Hello, this is Al Garcia.
Rusconi: Hello, Mr Garcia. How are you?
Garcia: Fine, thanks. I’m phoning about our delivery next week.
Rusconi: Ah, yes, good. I was just about to call you. Er … could you tell me
when we can expect the consignment to arrive in our warehouse?

188
Garcia: Yes, as far as I know, the trucks should arrive late Thursday or
early Friday, it depends on traffic and weather. Er … what time
will you accept deliveries?
Rusconi: The latest time we can start unloading is 4 pm, but we can start
as early as 7.30 am. Could you tell me whose trucks are deliver-
ing the goods?
Garcia: Yes, certainly. Two of them will be ours, and the others are on
hire from Alpha Transport.
Rusconi: Let me just make a note of that. Can you tell me how you spell
Alpha?
Garcia: Yes, of course. It’s A-L-P-H-A.
Rusconi: Fine. And I’d also like to know how many trucks will be coming.
Garcia: Ah … there will be five altogether.
Rusconi: Can you tell me if they will arrive on the same day?
Garcia: I’m not entirely sure, but as two will be setting off half a day
early, they should arrive Thursday. The other three will arrive
towards midday Friday. Could you let me know how long it will
take to unload each truck?
Rusconi: Yes, each truck will take about an hour. I think you should know
that we can’t unload more than two trucks at a time.
Garcia: I see, well, thanks for letting me know that. I wonder if you can
tell me what’ll happen if one of the trucks arrives later and can’t
be unloaded on Friday? Do you know if it can be unloaded on
Saturday?
Rusconi: I’m afraid I don’t know, it might have to wait till Monday.
You’d have to ask our warehouse manager about that.
Garcia: Could you just remind me what his name is again?
Rusconi: Yes, of course. He’s Mr Ferrari.
Garcia: Ah, and can you tell me his number?
Rusconi: Yes, it’s 345 9800 extension 71.
Garcia: Good. Thank you very much. It’s nice to talk to you. Goodbye.
Rusconi: Bye now, Mr Garcia.

B.
Role-play
Divide into two groups – economists and the government.
The government use arguments to advocate trade restrictions.
The economists prove the benefits of free trade.

189
C.
1. Do you agree that people’s tastes today are more homogeneous? Why?
Which products do you know of that are found in most parts of the world
today?
2. What does your country export and import? What are the reasons for this?
3. Which countries are your major trading partners?
4. Which ‘uneconomic’ (or internationally uncompetitive) sectors, if any, do
you think should be protected in your country?
5. Would total free trade result in the creation of jobs, or in unemployment, in
your country?

VOCABULARY

absolute advantage – абсолютное преимущество


comparative advantage – сравнительное преимущество
customs duty – таможенная пошлина
embargo n – юридический запрет торговой деятельности
export n – экспорт
protectionism n – протекционизм (политика государств направленная на
ограждение национальной экономики от иностранной конкуренции)
restriction n – ограничение
specialization n – специализация
tariff n – тариф пошлина расценка

GLOSSARY

· Visible exports and visible imports – trade in goods such as food, raw
materials, and manufactured goods.
· Invisible exports or invisible imports – trade in services such as banking,
insurance and tourism.
· Absolute advantage is the ability of a country to produce a good using
fewer resources than another country.
· Comparative advantage is the ability of a country to produce a good at a
lower opportunity cost than another country.
· Protectionism is the government’s use of embargoes, tariffs, quotas, and
other restrictions to protect domestic producers from foreign competition.
· Free trade is a system which allows certain countries to buy and sell goods
from each other without any financial restrictions.
· Embargo is a law that bars trade with another country.

190
· Tariff is a tax on an import.
· Quota is a limit on the quantity of a good that may be imported in a given
time period.
· WTO – World Trade Organization.

191
5.2. GLOBAL MARKET AND DEVELOPING NATIONS
DISCOVERING CONNECTIONS

1. How would you define global economy, global market?


2. Do you agree that countries should be divided into industrialized and de-
veloping? Give your reasons.
3. What international economic organizations do you know? What are their
functions?
4. What is globalization? What do you think about it?

READING

Text 1
The author organizes the following reading by considering industrialized na-
tions, newly industrialized nations, developing nations and less developed na-
tions. While reading pay attention to the problems facing different types of
countries.
The World’s Economies
Economists classify the world’s economies as: industrial or developed na-
tions (IN); newly industrialized nations (NIC); developing nations or less de-
veloped nations (LDC). Each of these types of countries has fairly specific
characteristics, and economic issues.
Industrialized nations: Growing and Growing Old
An industrialized economy has a large base of productive capital, sophisti-
cated banking systems and financial markets, a variety of industries producing
a broad range of products, and vigorous and varied international trade. Indus-
trialized nations also have well-established systems of government and law,
and provide educational opportunities for their people.
Less than 20% of the world’s population live in industrial nations, and they
account for about 70% of world output. The countries in the Group of Seven
(G-7) have the most industrialized economies. The G-7 are the United States,
Canada, Japan, Germany, France, the United Kingdom, and Italy (with Ger-
many, France, the United Kingdom, and Italy comprising Europe’s so-called
Big Four). The G-8 includes G-7 plus Russia, which may best be described as
an economy in transition.
The entire EU – which also includes Austria, Belgium, Finland, Greece,
Ireland, Luxembourg, the Netherlands, Portugal, and Spain – and some Euro-
pean nations outside the EU, such as Switzerland, Sweden, and Denmark, are

192
also industrialized. So are Australia, New Zealand, and Taiwan.
But there is an income inequality, which creates some of the questions
these countries face. The term sustainable growth refers to economic growth
based on renewable resources and minimal environmental degradation.
However, the threat of terrorism, mainly from Islamic extremists from less
developed counties, may well represent the most difficult and dangerous prob-
lem for industrialized nations, particularly the United States.
Newly Industrialized Nations: Getting Going
Newly industrialized nations (NICs) have a rapidly growing base of pro-
ductive capital and rising incomes. Most of these nations have sound govern-
ments and banking and financial systems, although they may occasionally be
subject to financial or political dislocation. For instance, Brazil is weighed
down with international debt and must work hard to control inflation. Pakistan
may face political instability and a shaky relationship with neighbouring India.
Newly industrialized nations include Hong Kong, Singapore, Taiwan, and
South Korea (which are known as Asia’s “Four Tigers”), Pakistan, Malaysia,
Indonesia, Thailand, Mexico, Brazil, Chile, Venezuela, Israel, South Africa,
and Hungary.
Less than 5 percent of the world’s population lives in NICs, and they earn
less than 5 percent of the world’s income.
The Four Tigers followed a strategy of export-oriented industrialization in
which they moved from the status of developing country to that of NIC in the
1970s and 1980s. These nations ambitiously took Japan as a role model, but
concentrated on light manufacturing. The World Bank and the International
Monetary Fund have held up the Tigers as models for other developing and
underdeveloped nations. However, export-oriented growth isn’t possible for
every nation, especially when other nations, including China and some indus-
trialized nations, still engage in protectionism.
NICs face a variety of problems, depending on their specific situations.
One common issue is financing growth. A number of newly industrialized
countries need more sophisticated banking and financial systems, and more
stable governments.
Developing Nations
Developing nations range from the poorest in the world to those that have
begun to build an industrial base, but have yet to achieve stable growth in pro-
duction and income. These economies are also called underdeveloped, unde-
veloped, and, most commonly, less developed countries (LDCs). A number of
these nations have large, growing urban populations and serious difficulties
with unemployment, crime, and poverty in the cities.
The Organization for Economic Cooperation and Development, which I’ll

193
discuss later in this chapter, includes the following nations in its official list of
less developed countries: all countries of Africa except the Republic of South
Africa; all countries of Asia except Cambodia, China, Japan, Laos, North Ko-
rea, and Vietnam; all countries in Latin America, except Cuba; all countries in
the Middle East and Malta, Portugal, Spain, Greece, and Turkey.
The People’s Republic of China could be considered an LDC. However,
most economists view the PRC as a special case because it is beginning to in-
dustrialize but still relies heavily on small farms.

Vocabulary Focus

Ex. 1. Various expressions are used to indicate categories of countries ac-


cording to wealth of development.
Developed, developing, less developed, underdeveloped, undeveloped.
Use the following words to complete the sentences below:
1. To develop, development, developed, developing
2. The ___ countries are mainly agricultural primary producers whose econ-
omy is based on relatively primitive farming methods.
3. Such countries rely heavily on the export earning from the sale of their
primary products to the ___ countries.
4. It is usually advantageous for countries ___ their own manufacturing industries.
5. Many countries aim at ___, but few are successful.

Ex. 2. Match the following common collocations with their Russian equivalents:
A B
1) промышленно развитые страны a) stem from economics
2) новые промышленнo развитые b) industrialized or developed
страны countries
3) развивающиеся страны c) newly developed countries
4) сложная банковская система d) developing countries
5) возникать из экономики e) vigorous trade
6) энергичная торговля f) G-8
7) большая восьмерка g) account for
8) Всемирный банк h) threat of terrorism
9) Международный валютный фонд i) to be weighted down with
10) мировое производство j) the Оrganization for Economic
11) составлять Cooperation and Development
12) справляться (OECD)
13) угроза терроризма k) world output

194
14) быть отягощенным l) cope with
15) Организация по экономическо- m) sophisticated banking system
му сотрудничеству и развитию n) International Monetary Fund
(IMF)
o) the World Bank (WB)

Ex. 3. Math the verbs in column A with nouns in column C. Do not forget the
proper preposition in column B.
A B C
stem for poverty
cope from 70%
account down with economics
weight on protectionism
concentrate in light manufacturing
engage on debt
rely on foreign borrowings
depend with specific situation

Ex. 4. There is a logical connection among three of the four words (or word com-
binations) in each of the following groups. Which is the odd one out, and why?
1) global economy -international trade-multinational corporations- fiscal policy;
2) GDP- IMF – OECD – WB;
3) the UK-the USA-Germany-Pakistan;
4) Hong Kong – Singapore – Taiwan – Chile;
5) IN – NID – LDC – VAT;
6) low income - poverty- unemployment – broad range of products;
7) productive capital – sophisticated banking system- vigorous international
trade- political dislocation.

Ex. 5. Complete the following sentences, use the prompts below:


1. Economists classify the world’s economies as _______, ______and
________ nations.
2. The term ______refers to economic growth based on renewable resources
and minimal environmental degradation.
3. An _____has a large base of productive capital, sophisticated banking sys-
tems and financial markets, a variety of industries producing a broad range
of products, and vigorous and varied international trade.
4. Newly industrialized nations (NICs) have a rapidly growing base of pro-
ductive capital and ______ .

195
5. A number of developing nations have large, growing urban populations and
serious difficulties with___,___ and ___.

Words for reference: industrialized, newly developed and developing; sustain-


able growth; industrialized economy; rising incomes; unemployment, crime,
and poverty in the cities.

Comprehension

Ex. 1. Based on your understanding of the text, are the following TRUE or
FALSE? Explain why.
1. Industrialized nations also have well-established systems of government
and law, and provide educational opportunities for their people.
2. Greece may best be described as an economy in transition.
3. EU includes only countries of Europe.
4. The term sustainable growth refers to political growth based on renewable
resources and average environmental degradation.
5. Newly industrialized nations (NICs) have a slowly growing base of pro-
ductive capital and rising incomes. Most of these nations have poor gov-
ernments and primitive banking and financial systems
6. Brazil is weighed down with international debt and must work hard to control inflation.
7. Developing nations range from the poorest in the world to those that have
begun to build an industrial base.

Ex. 2. Find in the text the answers to the following questions.


1. What countries are considered as industrialized countries?
2. What are problems facing the developed countries?
3. What countries are called Asian Tigers?
4. Why Asian Tigers succeeded in their economic development?
5. What is Brazil weighed down with?
6. What problems does Pakistan face?
7. How can you characterize the problems of developing countries?
Ex. 3. Speak on:
1. Classification of the nations according to the development of their economy.
2. International trade as a form of specialization.
3. Main features of industrialized countries
4. Sectors of the economy the NIC need to develop.
5. Primary issues of concern in LDC.

196
Text 2
Scan the text and find information on the following issues.
– three factors for successful development;
– functions of ICC;
– the location of ICC;
– mission of APEC;
– difference between APEC and other multilateral trade bodies.
Economic Cooperation
Only international co-operation can shape globalization in a positive way,
and make it equitable for all. Development is a long-term process. Three fac-
tors in particular account for successful development: ownership of the proc-
ess by developing countries; effective dialogue between developing and de-
veloped countries; and coherent policies in developed countries, in areas such
as trade, investment, and agriculture, that will have a maximum positive im-
pact on developing countries.
Different international organizations appeared in different parts of the
world. One of them is International Chamber of Commerce (ICC) is the voice
of world business championing the global economy as a force for economic
growth, job creation and prosperity. Because national economies are now so
closely interwoven, government decisions have far stronger international
repercussions than in the past. ICC – the world's only truly global business
organization responds by being more assertive in expressing business views.
Transformations in Europe, gave European nations a completely new
chance of cooperation and friendship. An example for cooperation is European
Union, which attempts to form infrastructure that crosses state borders. Last
years have shown, that the neighbouring cooperation between countries is
possible and mutually advantageous, and the borders, which used to be
burdened with the weight of conflicts from the past, have become a symbol of
the reconciliation and integration between countries. the European Union
Harmonised standards create a larger, more efficient market – member states
can form a single customs union without loss of health or safety. For example,
states whose people would never agree to eat the same food might still agree
on standards for labelling and cleanliness.
Another example of international coperation is Asia-Pacific Economic
Cooperation, or APEC, is the premier forum for facilitating economic growth,
cooperation, trade and investment in the Asia-Pacific region. APEC was
established in 1989 to further enhance economic growth and prosperity for the
region and to strengthen the Asia-Pacific community.

197
APEC is the only inter governmental grouping in the world operating on
the basis of non-binding commitments, open dialogue and equal respect for
the views of all participants. Unlike the WTO or other multilateral trade
bodies, APEC has no treaty obligations required of its participants. Decisions
made within APEC are reached by consensus and commitments are
undertaken on a voluntary basis.
APEC's 21 Member Economies are Australia; Brunei Darussalam; Canada;
Chile; People's Republic of China; Hong Kong, China; Indonesia; Japan;
Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea;
Peru; The Republic of the Philippines; The Russian Federation; Singapore;
Chinese Taipei; Thailand; United States of America; Viet Nam.

Text 3
Skim the text and find the following information:
1. Location of IFM.
2. Goals of IFM.
3. USA contribution to the fund.

The International Monetary Fund is like a central bank for the world’s
central banks. It is headquartered in Washington, D.C., has 184 member
nations, and cooperates closely with the World bank, which we discuss in
Chapter 19. The IMF has a board of governors consisting of one representative
from each member nation. The board of governors elects a 20-member
executive board to conduct regular operations.
The goals of the IMF are to promote world trade, stable exchange rates,
and orderly correction of balance of payments problems. One important part
of this is preventing situations in which a nation devalues its currency purely
to promote its exports. That kind of devaluation is often considered unfairly
competitive if underlying issues, such as poor fiscal and monetary policies, are
not addressed by the nation.
Member nations maintain funds in the form of currency reserve units called
Special Drawing Rights (SDRs) on deposit with the IMF. (This is a bit like the
federal funds that. commercial banks keep on deposit with the Central Bank
reserve.) The value of SDRs is reassigned every five years. SDRs are held in
the accounts of IMF nations in proportion to their contribution to the fund.
(The United States is the largest contributor, accounting for about 25 percent
of the fund.) Participating nations agree to accept SDRs in exchange for
reserve currencies – that is, foreign exchange currencies – in settling
international accounts. All IMF accounting is done in SDRs, and commercial

198
banks accept SDR-denominated deposits. By using SDRs as the unit of value,
the IMF simplifies its own and its member nations’ payment and accounting
procedures.

CASE STUDY

A. Introduction to the problem


1. What do you know about Boeing and Airbus companies?
2. Do you know any other aircraft producers?
3. When you fly, are you aware of the company producing the airplane?
4. Should you be aware? Give your reasons.

B. Scanning for Information


Work in pairs. Each person should scan one of the two articles on Airbus
Industrie and the Boeing Company and fill in the table after the texts in the
appropriate section. Then, share information so that partner has the same
data and can fill in Airbus Industrie and the Boeing Company table.

Text A
Airbus Industrie
In 1970, four European nations created Airbus Industrie to offset a decline
in the airframe industry and challenge U.S. dominance in the global commer-
cial aircraft market. Airbus is a four-country international consortium: In this
unusual business structure, the four partners are both owners and suppliers, the
common language of business is English, and all sales are transacted in U.S.
dollars.
In the early years, Airbus Industrie was clearly the underdog, lagging far
behind the U.S. companies of Boeing and McDonnell Douglas, which had
dominated the industry for years. Since the consortium had no track record on
safety or maintenance, airlines were reluctant to purchase the new aircraft.
Through favourable pricing, generous maintenance contracts, and other com-
petitive offers, the company was able to attract a number of carriers, including
some in the United States. As a result, in less than twenty years, Airbus was
able to produce a full family of airplanes and, with over 100 customers, it
moved into the number two spot in the global aircraft industry.
Airbus succeeds because civil aircraft manufacturers from four nations
pool their financial and technological resources in a true multinational partner-
ship. It also succeeds because officials in these countries believe that Euro-
pean industry must be supported and protected by a strong industrial policy.

199
For Airbus Industrie (the largest single industrial undertaking in the EC) sup-
port takes the form of an estimated $26 billion in subsidies. As a result of this
financial backing Airbus has been able to recover from 70 to 100 percent of its
product development costs, which are enormous in the industry. It can easily
take four to six years, for example, for a plane to move from the design stage
to actual production. During this time, the project yields no profits.
Airbus officials defend subsidies as a way to help level the playing field.
They are quick to point out that Boeing and McDonnell Douglas receive mil-
lions of dollars in contracts to build military aircraft and spacecraft for the
U.S. government, which is clearly a form of subsidy. It is hypocritical, say
Airbus executives, to argue that the market is or can be completely free from
government intervention.
Airbus officials point out that the consortium is a source of pride for the
European Community, a model of international cooperation that can inspire
future economic development in the area. Moreover, high quality Airbus
products provide a viable alternative to U.S. airframes, assuring customers all
over the world of the benefits of industrial competition.
With 30 percent of the global airframe market already, Airbus officials are
gunning for at least 40 percent over the next several years. Predictions of in-
creasing worldwide air traffic are fuelling Airbus’s growth. The consortium is
already anticipating the need for airplanes that are quieter, more fuel efficient,
and more comfortable for air travellers on long trips. According to company
literature, “Airbus Industrie looks forward to lasting financial success well
into the twenty-first century.”

Text B
The Boeing Company
Bill Boeing, a wealthy lumberman from Washington State, founded the Boe-
ing Company. In 1916, he set up an airplane factory in Seattle, Washington, a
city, which now depends on the aircraft industry. Fascinated with the technol-
ogy of flying, Bill Boeing when he founded the company promised, “to let no
new improvement in flying and flying equipment pass us by.”
During World War II, the Boeing Company established its reputation as a
supplier of military aircraft. After the war, in the early fifties, Boeing made the
first passenger jet, which soon replaced all of the propeller-driven aircraft in
the passenger market. It has also built a number of spacecraft used in the U.S.
space program. Over the years, the company has developed a strong reputation
for reliable products and the service of those products. It has been number one
in worldwide sales for years, controlling over 50 percent of the market for
commercial aircraft.

200
Aerospace products are the number one U.S. export after agricultural prod-
ucts. The country has a long and proud tradition of dominating the industry
with technological breakthroughs leading to superior products. But this domi-
nance is now being challenged. Boeing executives argue that they cannot
compete against the deep pockets of the four European governments that sub-
sidize Airbus.
Traditionally, the United States has maintained a free-market philosophy,
which holds that government should not regulate market forces. In this view,
better and more efficient production occurs when world markets are open, al-
lowing the forces of competition to work freely. According to Boeing and
other executives, this philosophy has been the backbone of American indus-
trial power from the beginning. For the health of the civil aviation industry,
the free-trade argument goes, the United States must convince the EC to stop
subsidizing Airbus.
However, there is less agreement than there used to be on the issue of gov-
ernment’s role in industry and trade. Some U.S. officials and academics point
out that the free-market philosophy no longer suits global economic condi-
tions. Advocates of this emerging view urge the development of a strong in-
dustrial policy that would develop and support important U.S. industries. Such
a policy could work through such protective measures as tariffs, import quotas
or direct subsidies to industry, and through policies that encourage research in
certain high-tech industries.
Those in favour of the traditional free trade and open market philosophy re-
ject the notion of an industrial policy. At worst, it sounds like the centralized
planning of a socialist system. At best, it sounds like protectionism, a policy
that simply uses government money to protect industries that would fail in the
market without it. Even the free traders have to admit that U.S. industry is not
as competitive in the global economy as it once was and that, increasingly, it
must compete against nations that have strong industrial policies and are
unlikely to change them.

Airbus Industrie Boeing company


History
Type of company
Place in the world’s market
Products
Reasons for success
Government subsidies
Predictions for the future

201
C. Interpreting Information
Work in small groups. Read the questions below. Discuss your answers
with your group mates. Give your arguments.
1. What is the history of Airbus Industrie and the Boeing Company?
2. What is the nature of competition between the two companies?
3. Airbus Industrie, a four-nation European consortium, was established in
1970 to challenge U.S. dominance in aerospace. How well has the com-
pany accomplished its goals?

D. Discussion
1. Why do Airbus and EC officials believe subsidies for Airbus are necessary
and important?
2. Why most Boeing and Us officials opposed to financial backing of the air-
frame industry by the government?
3. If Boeing were not loosing ground in the global airframe market, would it
complain about Airbus subsidies?
4. What advantages might multinational companies enjoy?
5. What industries are subsidized in your country? Do you agree with this
policy?

WRITING

Write an essay on Globlilzation. You may use the information from the text.
Multinational Corporations and Globalization: the Pros and Cons
First, let’s define these two terms. A multinational corporation (MNC) is a
large company engaged in international production and, usually, sales. The
largest MNCs - also known as MNEs, for multinational enterprises – have
production sites in several or even dozens of nations. An MNC typically scans
the whole world, or at least substantial regions of the world, for markets, pro-
duction sites, and sources of raw materials.
Globalization essentially means free movement of goods, services, people,
and capital across national borders. This creates global markets for goods, ser-
vices, labor, and capital. However, the term globalization has also come to
mean something more: economic and cultural hegemony on the part of indus-
trial enterprises, such as MNCs, and industrialized nations, particularly the
United States. Those who oppose globalization use the term to describe these

202
negative phenomena and to raise the specter of a world controlled by a handful
of MNCs.
We are discussing MNCs and globalization together because they are re-
lated. An MNC benefits from free movement of goods, services, people, and
capital across national borders, just as U.S. companies have benefited from
that situation in North America. As a corporation, an MNC has one main ob-
jective – to make a profit – and the free movement of goods, services, work-
ers, and capital enhances profitability. It does that by giving management freer
access to the factors of production and the ability to make decisions based
more purely on cost and revenue considerations.
Also, MNCs promote globalization by their very existence and business
practices. When McDonald’s introduces its “customer experience” and its
menu, even in modified form, to another culture, it begins to change that cul-
ture. When Ford sets up an assembly plant in Brazil, it attracts workers from
the countryside and changes their economic aspirations, for better or worse.
Similarly, the agenda of the World Bank and the IMF generally favour freer
trade – a force for globalization – but many developing nations find free trade
to be a mixed blessing.
The key problem in talking about MNCs and globalization, aside from the
emotions they stir up, is that they are both creatures of the industrialized
world. That is an undeniable fact, whether you oppose or support MNCs and
globalization. The poorest nations in the world are not launching MNCs.
Given that economically powerful entities rarely aim to benefit the poor, those
who oppose MNCs and globalization – regardless of how emotionally they
state their case – do have a case.

TRANSLATION

A. Translate from English into Russian.


The Real World
Various nongovernmental organizations (NGOs) organize protests against
globalization. NGOs typically state that they represent the interests of poor,
working, oppressed, and economically disadvantaged people. Critics view
them as uninformed elitists, while supporters see them as fighting exploitation
and economic injustice. In truth, some NGOs, such as Amnesty International,
and the Red Cross, do much to alleviate misery and aid the suffering. Others
indeed amount to radical fringe groups.
People from each type of NGO, as well as unaffiliated protesters, have tar-
geted globalization as evil. They have mounted protests in Washington
(against the international Monetary Fund and the World Bank), Seattle

203
(against the World Trade Organization), Barcelona (against the European Un-
ion), Genoa (against the G-7), and Davos, Switzerland (against the World
Economic Forum, which is sponsored by some 1,000 major corporations from
across the industrialized world), to name a few.

B. Translate from Russian into English.


Междунаронные кредитные, валютно-финансовые и торговые
организации
Из многочисленных организаций занимающихся валютно-финасвыми
проблемами можно выделить Всемирный банк, Международный банк
реконструкции и развития (МБРР), Международный валютный фонд
(МВФ) и другие.
Международный банк реконструкции и развития (МБРР) создан в
соответствии с Соглашением, подписанным в Бреттон-Вудсе (США) в
1944г. Целями МБРР являются: оказание помощи в реконструкции и
развитии государств путем осуществления капиталовложений для вос-
становления экономики, конверсии, производственных предприятий;
оказание содействия частным иностранным инвестициям путём предос-
тавления гарантий или участия в займах и иных капиталовложениях.
Штаб-квартира Банка расположена в Вашингтоне.
Международный валютный фонд (МВФ)- это специализированное
учреждение ООН.
МВФ имеет следующие цели: содействовать международному со-
трудничеству путём обеспечения механизма для консультации согласо-
ванных действий по международным валютным вопросам, способство-
вать сбалансированному росту международной торговли и тем самым
содействовать высоким уровнем занятости и реального дохода.

SPEAKING

A.
You are working in a multinational corporation. You are to export the product
of your company. Speak with your manager about the formalities and all nec-
essary papers for transportation. You may use the following dialogue as a
model. First, scan the dialogue and write down the names of papers necessary
for export of goods.
Earl: I just heard from the freight forwarder (1) that our container is going
to be picked up tomorrow. We’d better make sure everything is
ready to go.

204
Ted: Let’s see … our general export license is current and the destination
control statement (2) has been filed.
Earl: … and the shipping container has the proper markings (3). We also
have the certificate of inspection (4).
Ted: We already calculated the weight of the shipment and we know the
tare weight(5). Now we just need to subtract it from the gross weight
to get the correct net weight.
Earl: We inspected the shipment and know that it’s in good condition, so
we should receive a clean bill of lading (6) from the shipping line.
Ted: Well, that sounds like everything. As soon as we receive a copy of
the dock receipt(7) we can submit our collection papers (8).

Notes:
1. freight forwarder – company which prepares shipping and insurance documents, arranges
cargo deliveries
2. destination control statement – required statement, listing the authorized export desti-
nation for cargo
3. markings –letters, numbers, symbols for identification
4. certificate of inspection – the document which certifies that merchandise was in accept-
able condition before being shipped.
5. tare weight – the entire weight of the cargo including the container
6. bill of lading – declaration indicating that all cargo accepted for transportation was in
good condition when received.
7. dock receipt – receipt issued by the ocean carrier to acknowledge arrival of the cargo at
the carrier’s warehouse or dock facilities
8. collection papers – documents (including bills of lading, invoices, etc.) to the buyer in
order to get paid for the shipment.

B.
Discuss the following issues:
1. What is the responsible role for developed nations to play in the economies
of less developed nations?
2. What are moral and ecological implications of using huge earth resources
to sustain the levels of production and growth?
3. What constitutes a sustainable growth?
4. How much can and should NIC rely on foreign borrowing?
5. How much money for capital investment can NICs reasonably expect to
generate themselves?
6. What is your opinion of the classification of nations into developed, newly
developed and developing ones? Can you think of another principle of
classification?

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VOCABULARY

alleviate v – ослаблять, смягчать


~ benefits уменьшать льготы
~ economic crisis смягчать экономический кризис
APEC Asia-Pacific Economic Cooperation – экономическое сотрудничест-
во стран АТР
coherent policy –последовательная, согласованная политика
devaluation n – обесценивание, девальвация
dislocation n – нарушение, расстройство
elitist n – человек, принадлежащий к элите
European Union (EU) – Европейский союз
export-oriented – ориентированное на экспорт
fringe groups – группы, не пользующиеся поддержкой
global adj – глобальный, всемирный, мировой
~market – мировой рынок
~economy – мировая экономика
globalization n – глобализация
Group of Seven G-7 – Большая семерка
Group of Eight G-8 – Большая восьмерка
hegemony n – гегемония, господство
economic ~ – экономическое господство
cultural ~ – культурное господство
industrialized or developed nations – промышленно развитые страны
instability n – нестабильность, неустойчивость
International Monetary Fund (IMF) – международный валютный фонд
less developed countries (LDC) –развивающиеся страны
multinational adj – многонациональный
~corporation (MNC) – многонациональная корпорация
~ enterprise (MNE) – многонациональное предприятие
newly industrialized countries (NIC) – новые промышленно развитые
страны
non-government organization (NGO) – неправительственные организации
Organization for Economic Cooperation and Development (OECD) –
Организация по экономическому сотрудничеству и развитию
site n –стройплощадка, местонахождение
Special Drawing Rights – специальные права на заимствования/ на полу-
чение валюты (из всемирного валютного фонда)
transformation n – трансформация, превращение

206
GLOSSARY

· Global Market – When a business, company or industry has the opportu-


nity to go beyond its domestic market to sell in some other country, one
speaks of it entering the international market.
· Globalization – Globalization essentially means free movement of goods,
services, people, and capital across national borders. This creates global
markets for goods, services, labour, and capital. However, the term global-
ization has also come to mean something more: economic and cultural he-
gemony on the part of industrial enterprises and industrialized nations, par-
ticularly the United States.
· G-7 Group of Seven - the United States, Canada, Japan, Germany,
France, the United Kingdom, and Italy (with Germany, France, the United
Kingdom, and Italy comprising Europe’s so-called Big Four).
G-8 Group of Eight – The G-8 includes G-7 plus Russia, which may best
be described as an economy in transition.
· Industrialized or developed nations - An industrialized economy has a
large base of productive capital, sophisticated banking systems and finan-
cial markets, a variety of industries producing a broad range of products,
and vigorous and varied international trade.
· Newly industrialized countries (NIC) - Newly industrialized nations
(NICs) have a rapidly growing base of productive capital and rising in-
comes. Most of these nations have sound governments and banking and fi-
nancial systems, although they may occasionally be subject to financial or
political dislocation.
· Less developed countries (LDC) - Developing nations range from the
poorest in the world to those that have begun to build an industrial base,
but have yet to achieve stable growth in production and income. These
economies are also called underdeveloped, undeveloped, and, most com-
monly, less developed countries (LDCs). A number of these nations have
large, growing urban populations and serious difficulties with unemploy-
ment, crime, and poverty in the cities.
· IMF- International Monetary Fund - The International Monetary Fund
is like a central bank for the world’s central banks. It is headquartered in
Washington, D.C., has 184 member nations, and cooperates closely with
the World bank. The IMF has a board of governors consisting of one
representative from each member nation. The board of governors elects a
20-member executive board to conduct regular operations. The goals of the
IMF are to promote world trade, stable exchange rates, and orderly
correction of balance of payments problems.

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6. BUSINESS ADMINISTRATION

6.1. COMPANY STRUCTURE

DISCOVERING CONNECTIONS

1. Which types of business are popular in your country?


2. What kind of company would you like to work for: state-owned, private
limited company, multinational cooperation, etc.? Why? Give your rea-
sons. Some people compare a small company to a family. In your view, is
this analogy valid and useful? What are the benefits and risks of viewing a
company as a family?
3. What do you think your fist position will be? What are the qualities of an
effective team player? What qualities could you contribute to a company
after getting a degree?

READING

Text 1
While reading the text, focus on the forms of business organization and pay
attention to their advantages and disadvantages.
Forms of Business Organization
A business organization is frequently referred to as a business entity. A
business entity is any business organization that exists as an economic unit.
The business entity concept applies to all forms of businesses, single proprie-
torship, a partnership, and a corporation.
A sole proprietorship is a business owned and usually operated by a single
individual. Its major characteristic is that the owner and the business are one
and the same. In other words, the revenues, expenses, assets and liabilities of
the sole proprietorship are also the revenues, expenses, assets, liabilities of the
owner.
Advantages
A sole proprietorship is the easiest form of business to organize. The only
legal requirements for starting such a business are a municipal licence to oper-
ate a business and a registration licence to ensure that two firms do not use the
same name. A sole proprietorship can be dissolved as easily as it can be
started. A sole proprietorship offers the owner freedom and flexibility in mak-

208
ing decisions. Major policies can be changed according to the owner's wishes
because the firm does not operate under a rigid charter.
Disadvantages
The financial condition of the firm is the same as the financial condition of
the owner. Because of this situation, the owner is legally liable for all debts of
the company. If the assets of the firm cannot cover all the liabilities, the sole
proprietor must pay these debts from his or her own pocket. A sole proprietor-
ship, dependent on its size and provision for succession, may have difficulty in
obtaining capital because lenders are leery of giving money to only one person
who is pledged to repay. A proprietorship has a limited life, being terminated
on the death, bankruptcy, insanity, imprisonment, retirement, or whim of the
owner.
A partnership is an unincorporated enterprise owned by two or more indi-
viduals. A partnership agreement, oral or written, expresses the rights and ob-
ligations of each partner. There are three types of partnerships: general part-
nerships, limited partnerships, and joint ventures. The most common form is
the general partnership, often used by lawyers, doctors, dentists, and chartered
accountants.
Advantages
Partnerships, like sole proprietorships, are easy to start up. Partners' inter-
ests can be protected by formulation of an “Agreement of Partnership”. This
agreement specifies all the details of the partnership. Complementary man-
agement skills are a major advantage of partnerships. Consequently partner-
ships are a stronger entity and can attract new employees more easily than
proprietorships.
The stronger entity also makes it easier for partnerships to raise additional
capital. Lenders are often more willing to advance money to partnerships than
to proprietorships because all of the partners are subject to unlimited financial
liability.
Disadvantages
The major disadvantage of partnerships is that partners, like sole proprie-
tors, are legally liable for all debts of the firm. In partnerships, the unlimited
liability is both joint and personal. This means that the partners together are
responsible for all the firm's liabilities. If one of the partners cannot meet his
or her share of the debts the other partner(s) must pay all debts.
Partnerships are not as easy to dissolve as sole proprietorships.
Limited companies, unlike proprietorships or partnerships, are created by
law and are separate from the people who own and manage them. Limited
companies are also referred to as corporations. In limited companies, owner-
ship is represented by shares of stock. The owners, at an annual meeting, elect

209
a board of directors which has the responsibility of appointing company offi-
cers and setting the enterprise's objectives.
Advantages
Limited companies are the least risky from an owner's point of view.
Shareholders of corporations can only lose the amount of money they have in-
vested in company stock. If an incorporated business goes bankrupt, owners
do not have to meet the liabilities with their own personal holdings. orpora-
tions can raise larger amounts of capital than proprietorships or partnerships
through the addition of new investors or through better borrowing power.
Disadvantages
Limited companies are subject to federal and provincial income taxes.
Dividends to shareholders are also taxed on an individual basis. Thus, limited
companies are taxed twice: on the profits they earn and on the dividends
which come out of the profits. In proprietorships and partnerships earnings are
only taxed once – as the personal income of the individuals involved.
With diverse ownerships, corporations do not enjoy the secrecy that pro-
prietorships and partnerships have. A company must send each shareholder an
annual report detailing the financial condition of the firm.

Vocabulary Focus

Ex. 1. Study the meaning of the following words agency; branch; enterprise;
subsidiary, then use them to fill in the gaps:
agency – a business or place of business providing a service
branch – a local office belonging to a national firm or organization
subsidiary – firm owned by a parent company
enterprise – new commercial activity, often a small one.
1. Coca-Cola has a(n)… in more countries than there are in the United States.
2. A travel… can organize business trips as well as holidays.
3. A(n) … is a company of which more than half the share capital is owned
by the holding company.
4. The major banks have at least one… in all large cites.
5. There are plenty of small industrial … .

Ex. 2. Fill in the missing words from the text.


1. A business organization is frequently referred to as a business…
2. A single proprietorship is business … by an individual and often … by
the same individual.

210
3. The major disadvantage of partnerships is that partners are legally liable
for all … of the firm.
4. The partners together are … for all the firm’s liabilities.
5. Partnerships are not as easy to … as sole proprietorship.
6. In limited companies, ownership is represented by….
7. A board of directors has the responsibility of setting the enterprise’s …
8. If an incorporated business goes …, owners do not have to meet the li-
abilities with their own personal holdings.
9. Limited companies are … to federal and provincial income taxes.
10. Limited companies are … twice.

Ex. 3. Match the words in column A with their antonyms in column B.


A B
1) borrow (v) a) income (n)
2) expenses (n) b) lend (v)
3) liabilities (n) c) fail (v)
4) survive (v) d) revenue (n)
5) costs (n) e) insider (n)
6) dissolve (v) f) assets (n)
7) lender (n) g) start up (v)
8) outsider (n) h) borrower (n)

Ex. 4. Match the words in column A with their English equivalents in column B.
A B
1) фондовая биржа a) assets
2) акционер b) entity
3) ценные бумаги c) expenses
4) акция d) insurance
5) право собственности e) lender
6) доход f) liability
7) ответственность g) liabilities
8) кредитор h) ownership
9) пассивы i) revenue
10) активы j) securities
11) дебитор k) shareholder
12) страхование l) share
13) расходы m) borrower
14) организация n) stock exchange

211
Ex. 5. Fill in the missing word(s) in each of the following sentences. Choose
from the alternatives beneath each sentence. The first has been done for you.
1. The Board of Directors is responsible for deciding on and controlling the
strategy of a corporation or company.
a. workers; b. directors; c. cooperative.
2. Small businesses depend on investors providing .................capital.
a. venture; b. individual; c. cooperative.
3. Investors are influenced by the projected ………….. on their capital.
a. market; b. return; c. rate.
4. The capital needed to run a business is provided by .................... .
a. a gain; b. risk ; с. investment.
5. Rent and rates, which do not change as turnover volume changes, make up
the ............. costs of a company.
a. fixed; b. contribution; с. variable.
6. Materials and direct labour costs, which change as turnover volume
changes, make up the …………….. costs of a company.
a. fixed; b. marginal; с. variable.
7. Every company must watch its …………… carefully if it is to avoid bank-
ruptcy.
a. market manager; b. cash flow; с. production line.
8. The.................. account above whether the company is profitable or not.
a. profit and loss; b. volume; с. shareholder.
9. Banks, require ................. to guarantee а lоаn.
a. account; b. shares; c. securities.
10. The Stock Exchange deals with the purchase and sale of ................... .
a. stocks and shares; b. bulls and bears; c. statements and invoices.

Ex. 6. Express in one word.


1. Having a responsibility or an obligation to do something, e.g. to pay a
debt;
2. a person or organization to whom money is owed (for goods or services
rendered, or as repayment of a loan);
3. to be insolvent: unable to pay debts;
4. everything of value owned by a business that can be used to produce
goods, pay liabilities and so on;
5. to sell all the possessions of a bankrupt business;
6. money that a company will have to pay to someone else (bills, taxes,
debts, interest and mortgage payments, etc.);

212
7. money invested in a possibly risky new business;
8. the place in which a company does business: an office, shop, workshop,
factory, warehouse, and so on;
9. to guarantee to buy an entire new share issue, if no one else wants it;
10. a proportion of the annual profits of a limited company, paid to shareholders.

Words for reference: dividend; premises; underwrite; liabilities; venture capi-


tal; liquidate; bankrupt; liability; creditor; assets.

Comprehension

Ex. 1. Read the information about four companies below and say which
matches each of the following terms: a sole trader/sole proprietor; a partner-
ship; a limited company; a plc.
1. Mike Gobb set up an art gallery last year. He owns the gallery and manag-
ers it by himself.
2. Craftplay is a medium-sized firm whose shares are available on the stock
market.
3. Ovenclean went bankrupt last year, but its shareholders were not made re-
sponsible for all the money it owed.
4. Brothers Gianfranco and Giancarlo Belew recently set up an import-export
company. They run the business together.

Ex. 2. Complete the sentences using information from the text.


1. Business entities can be grouped according to …
2. A single proprietorship is a business….
3. A sole proprietor often has to rely on….
4. The major disadvantage of partnerships is ….
5. If one of the partners cannot meet his share of the debts….
6. Complementary management skills are ….
7. Shareholders of corporations can only lose….
8. If an incorporated business goes bankrupt, owners….
9. Limited companies are subject to….
10. Limited companies are taxed twice: ….

Ex. 3. Say if the statements are true or false:


1. The revenues, expenses, assets and liabilities of the sole proprietorship are
also the revenues, expenses, assets and liabilities of the owner.
2. A sole proprietorship cannot be dissolved as easily as it can be started.

213
3. The major advantage of partnerships is that partners are legally liable for
all debts of the firm.
4. Partnerships are as easy to dissolve as sole proprietorships.
5. Limited companies are the most risky from an owner’s point of view.
6. If an incorporated business goes bankrupt, owners have to meet the liabili-
ties with their own personal holdings.

Ex. 4. Dwell on the following questions.


1. What are three most common types of business firm?
2. What factors affect the decision to choose a legal form of business?
3. What kind of firm is a sole proprietorship?
4. What is the proprietor solely responsible for?
5. How does a partnership differ from a proprietorship?
6. What is the procedure of starting a business as a limited company?
7. What are the advantages of doing business as a limited company?
8. What are the advantages and disadvantages of each type of business firm?
9. What is the most risky form of ownership? Why?

Ex. 5. Speak on three main forms of business organizations, their advantages


and disadvantages.

Text 2
After reading the text comment:
– on the functions of the board of directors;
– on the company structure.

Shareholders, since they provide the capital, chooose the people who run
company for them, i.e. the board of directors. The directors are appointed by
the shareholders, normally at the company's annual general meeting, at which
the chairman of the board will be expected to account for their stewardship
during the previous year. The company's accounts will be presented to the
shareholders at that time so they can judge for themselves whether or not the
board has been successful.
The board of directors of a limited company is primarily responsible for
determining the objectives and policies of a business. It is the directors who
determine the direction the business is going to take. They will need to ensure
that the necessary funds are available and will appoint key staff to which they
will delegate the authority to run the business on a day-to-day basis. They will
need to design an effective organisation structure so that there is both a chain
of command linking one level of management with another and an effective
214
communication network so that instructions can be passed downward and in-
formation passed upward.
Most organisations have a hierachical or pyramidal structure, with one per-
son or a group of people at the top, and an increasing nuber of people below
them at each successive level. There is a clear line or chain of command run-
ning down the pyramid. All the people in the organization know what deci-
sions they are able to make, who their superior (or boss) is (to whom they re-
port), and who their immediate subordinates are (to whom) they can give in-
structions. It is the so called line structure.
Some people in an organization have colleagues who help them: for exam-
ple, there might be an Assistant to the Marketing Manager. This is known as a
staff position: its holder has no line authority, and is not integrated into the
chain of command, unlike, for example, the Assistant Marketing Manager,
who is nuber two in the marketing department.
Today, most large manufacturing organizations have a functional structure,
including (among others) production, finance, marketing, sales, and personnel
or human resources departments. This means, for example, that the production
and marketing departments cannot take financial decisions without consulting
the finance department.
If a company has matrix structure work is structured around specific pro-
jects, products or customer groups. People with variet backgrounds are as-
signed together because the expertise is required for the project or to serve the
customers. The assigmnets may be temporary or long-term.

Text 3
Read the text and answer the following questions:
1. What is the difference between a limited company and a public limited
company?
2. What is flotation?
3. What are the steps of flotation?
4. What details does the company propectus include? What are potential in-
vestors supposed to do?
5. What occurs on the day of flotation?
6. What does the underwrite guarantee?
7. What happens to the price of the shares if the share issue was under- or
oversubscribed?

Flotation
Companies in the private sector consist of two basic types: public and pri-
vate. Public companies in general are large scale organizations such as banks,

215
insuarance companies and privatised companies. The nubber of public compa-
nies are fewere than that of private companies. Private companies on the
wholw are smaller or family-run business.
The difference between public and private firms on paper at least, can be
found in their manners the word “limited” (often shortened to “Ltd”) after a
company’s name shows that it is private. On the other hand, the status of a
public company is shown by the letters “plc” after its name. This is short for
“public limited company”. In practice, however, the real difference between
the two arises from the fact that private companies cannot raise money by sell-
ing shares, in contrast to public companies which can do so by issuing shares
and bonds to be offered for sale on the stock Exchange.
A public limited company (plc) is the only type of business organisation
whose shares can be traded on the stock market. The process of becoming a
public limited company is commonly reffered to as flotation – the shares in the
company are “floated” on the stock market.
When a company decides to float on the market it will appoint a financial
advisor, usually a merchant bank, to help it through the process. The key role
of the advisor will be also to advise on the prise at which shares are to be of-
fered for sale. Once an offer price has been decided, a glossy prospectus will
be produced to aid the sale of the firm’s shares. The prospectus will include
details of:
– what the firm plans to do with the money it is trying to raise;
– a fully audited financial statement of the firm’s current financial posi-
tion and history;
– details of where the shares being offered to the market are coming from
– they may be newly created shares or alternatively shares that are
owned by existing shareholders.
The prospectus will also include an application form, to be filled out by
anyone wishing to purchase shares. Those applying will fill out the form, stat-
ing how many shares they wish to purchase and send off a cheque to cover the
cost of those shares. On the day of flotation, the results of the application
process will be announced. The company will declare how many of the shares
being offered have been sold, with any unsold shares being purchased by the
underwriter.
Each new share will be underwritten, usually by the bank offereing advice
to the company floating. The underwriter will charge a fee, which is often set
as a percentage of the sum the company hopes to raise by floating. In return,
the underwriter will guarantee to buy any shares that are unsold from the
original application process.

216
Immediately the resultts of the isssue have been publicized, trading in
shares is likely to start on the market. The original issue price will be the stat-
ing price, but this may change dramatically within minutes, particularly if the
share issue was under or oversubscribed. An oversubscribed offer will see in-
vestors looking to offload their overpriced shares in an attempt to cut their
lossses.

WRITING

Describing Company Structure

The typical structure of the company looks like that:

Board of Directors with a Chairman (GB)


or President (US)

Managing Director (GB)


or
Chief Executive Officer (US)

Production Marketing Finance Research & Personnel


Development

Market Sales Advertising Financial Accounting


Research & Promotion Management

The most common words for describing structure are:

consist of contains includes is composed of


is made up of is diveded into
e.g. The company consists of five main departments.
The marketing department is made up of three units.
The sales department is divided into two sections.

to be in charge of to support or to be supported by to be accountable to


to be responsible for to assist or to be assisted by
e.g. The marketing department is in charge of the sales force.
The marketing department is responsible for advertising, sales pro-
motion and market research.

217
The five department heads are accoutable to the Managing Director.
Now write a description of either the organisation chart above, or a company
you know, in about 100–150 words.

TRANSLATION

A. Translate from English into Russian.


Business entities can be grouped according to the type of business activity
they perform.
1. Service companies perform services for a fee. This group includes com-
panies such as accounting firms, law firms, repair shops, and many others.
2. Merchandising companies purchase goods that are ready for sale and
sell them to customers. They include such companies as auto dealer-ships,
clothing stores, and supermarkets.
3. Manufacturing companies buy materials, convert them into products,
and then sell the products to the companies or to the final customer. Examples
are steel miles, auto manufacturers, and so on.
Most of the British companies are private. The number of state owned
companies as telecommunications, water, gas has been decreased lately.
Companies in the private sector consist of two basic types: public and pri-
vate. Public companies in general are large scale organizations such as banks,
insurance companies and privatised companies. The number of public compa-
nies are fewer than that of private companies. Private companies on the whole
are smaller or family-run business.
The difference between public and private firms on paper at least, can be
found in their names the word “limited” (often shortened to “Ltd”) after a
company’s name shows that it is private. On the other hand, the status of a
public company is shown by the letters “plc” after its name. This is short for
“public limited company”. In practice, however, the real difference between
the two arises from the fact that private companies cannot raise money by sell-
ing shares, in contract to public companies which can do so by issuing shares
and bonds to be offered for sale on the stock Exchange.
The size of the company is often measured in terms of its assets. Two ma-
jor categories of assets are current assets and fixed assets. Fixed assets include
property, plant and equipment. Current asets generally consist of cash, mar-
ketable securities, receivables, inventories and prepayments.

B. Translate from Russian into English.

218
Основными социально-экономическими формами организации
предпринимательства являются: единоличное владение, партнерство и
корпорация. Единоличное владение основано на собственности одного
лица или его семьи. Его признаками являются: неограниченная ответ-
ственность; ограниченные возможности; максимальная гибкость и
оперативность.
Партнерство базируется на собственности нескольких человек или
семей. Основными признаками являются: неограниченная ответствен-
ность; ограниченные возможности; временный характер соглашения,
разделения вклада, труда и доли доходов.
Корпорация представляет собой объединение собственности множе-
ства субъектов. Основной способ объединения – выпуск акций. Харак-
терными признаками корпорации являются: широкие возможности в свя-
зи с привлечением капитала других юридических и физических лиц;
длительность участия; ограниченная гибкость (действие устава).

LISTENING

You’ll hear a radio discussion in which a business consultant, Robert, and an


industrial correspondent, Jane, are asked by the radio programme host what
they think about the company.
A. Listen to the recording for the first time and tick which of the following
general topics are mentioned:
– bureaucracy at work;
– staff promotion systems;
– management elections by the workers;
– the design of Semco’s factory buildings;
– the success of large corporations.
B. Listen carefully for a second time and mark whether the statements below
are true or false.
1. The industrial assembly line system has a further 100 years’ life in it.
2. Democratic values of public life are limited in some countries.
3. Managers are evaluated by their employees.
4. Managers from outside the company are always welcome.
5. Employees have developed a sense of responsibility.
6. The associates just walk around the factory doing what they like.
7. Many companies have not survived the high inflationary period.
8. IBM has not been following Semco’s example.
9. Hundreds of companies have been eager to try out new ideas.

219
10. Corporate executives are eager to try.

SPEAKING

A.
a) Read the interview with Thomas Whillhite Can-Am’s International Vice
President.
b) Act out the conversation.
Interview with Willhite
Interviewer: Mr Willhite, what's your position in Can-Am?
Willhite: I'm International Vice President
Interviewer: You're responsible for export sales.
Willhite: That's right.
Interviewer: What type of company is Car Am?
Willhite: We're a multinational corporate. We manufacture and market
sporting goods.
Interviewer: Where are your Headquarters
Willhite: In Toronto.
Interviewer: You say you manufacture sporting goods...
Willhite: Yes...
Interviewer: What are your main product lines?
Willhite: Well, we specialize in baseball and football equipment that's
American football, of course.
Interviewer: You're competing against US Corporations like Donzis and
Wilson. What's Can-Am's position in the market''
Willhite: We're seventh. There are six big American companies, and then us.
Interviewer: How important are your export markets to you?
Willhite: They're very important. Canada is a big country but a small mar-
ket. 75% of our annual revenue comes from export sales.
Interviewer: 75% - that's very high.
Willhite: Yes, well we sell a lot in the States.
Interviewer: And what about Europe?
Willhite: The European market is very important to us. Interest is
growing fast over there.
Interviewer: Especially in Britain.
Willhite: Yes, but also in France and Germany... Finland. Europe is a
growth market. Interviewer You have a European distribu-
tor, don't you?
Willhite: That's right - Touchline Trading.

220
Interviewer: And are you satisfied with your sales in Europe?
Willhite: They could be better - our sales in Britain are good.
Interviewer: We understand that your sales in the rest of Europe are not so good.
Willhite: Yes, we have a problem there. But we intend to change that.

Task: Conduct an interview with David Clare, the president of John-


son&Johnson about the company’s sales in Europe.

B.
Summarize the information of the Unit to be ready to speak on Company Or-
ganization. Use the following prompts as a plan.
– common types of business firm;
– advantages and disadvantages of each type of business firm;
– the role of the Board of Directors and Senior Executives;
– the most common departments in big companies; their responsibilities and
subordination inside the company.

VOCABULARY

asset (s) n – актив(ы)


bankruptcy n – банкротство
board n – совет
~ of directors – совет директоров
chairman n – председатель
charter n – устав
be in charge of – руководить, быть ответственным
company n – компания
limited ~ (Ltd) – закрытая акционерная компания с ограниченной ответ-
ственностью (ЗАО)
public limited (plc)~ – открытая компания с ограничеккой ответственно-
стью (ООО)
director n – директор
financial ~ – финансовый директор
managing ~ – управляющий директор
marketing ~ – директор по маркетингу
production ~ – руководитель производства
entity n – субъект
flotation n – учреждение, образование, основание (предприятия)
liabilities n – пассивы, обязательства

221
liability n – ответственность, обязательство
manager n – руководитель
purchasing ~ – начальник отдела снабжения
personnel ~ – начальник отдела кадров
advertising ~ – руководитель рекламного отдела
home sales ~ – управляющий сбытом на внутреннем рынке
public relations ~ – руководитель по связям с общественностью
overseas sales ~ – управляющий экспортными операциями
merger n – слияние; объединение фирм в одну новую фирму
partner n – партнер
partnership n – партнерство
proprietor n – предприниматель, собственник
proprietorship n – собственность
sole ~ – частное предпринимательство
stock exchange n – фондовая биржа
structure n – структура
line ~ – линейная структура
functional ~ – функциональная структура
staff position ~ – организационная схема подчиненности
matrix ~ – матричная структура
underwrite v – гарантировать размещение (займа)

GLOSSARY

· Board of directors is a group of people who run company for the share-
holders.
· Flotation is the process of becoming a public limited company (the shares
of the company are floated on the stock market).
· Limited company is a company whose owners are legally responsible for
only a part of any money that it may owe if it goes bankrupt.
· A merger is the joining together of two separate companies or organiza-
tions so that they become one.
· Partnership is a relationship in which two or more people, business or in-
dustries work together as partners.
· Public limited company is a company whose shares are offered on the
stock exchange for the public to buy.
· A sole proprietor is a person who owns his own business and does not
have a partner or any shareholders.

222
· A takeover is the act of gaining control of a company by buying more of
its shares than anyone else.

223
6.2. MANAGEMENT

DISCOVERING CONNECTIONS

1. Can you imagine a company performing successfully without management?


2. What is management? Is it an art or a science? An instinct or a set of skills
and techniques that can be taught?
3. Do you agree that a manager is a continual problem-solver, decision-maker,
and innovator? Do you share the opinion that “Poorly considered solution
will be costly in dollars, happiness, or both?”
4. What qualities, from your point of view, is a person supposed to be born with
or to acquire to become an effective manager? What do you think of the state-
ment “Excellence costs, … but in the long run mediocrity costs far more?”

READING

Text 1
While reading the text focus on the following issues:
− a variety of resources used by most businesses;
− functions of management;
− levels of management.
Nature of Management
Management is a set of activities designed to achieve an organization’s ob-
jectives by using its resources effectively and efficiently in a changing environ-
ment. Effectively means having intended results; efficiently means accomplishing
the objectives with a minimum of resources.
Managers work in an organization. An organization is a managed system de-
signed and operated to achieve a specific set of objectives. A system is a set of
interdependent parts that processes inputs (such as raw materials) into outputs
(products). Business inputs are usually called resources. Most businesses use a
variety of human, financial, physical, and informational resources. Managers
function to transform these resources into the outputs of the business, i.e. goods
and services.
Organizational members are divided into two categories: operatives and man-
agers. Operatives are people who work directly on a job or task and have no re-
sponsibility for overseeing the work of the others. Managers are individuals who
initiate and oversee new projects, make decisions about the use of the organiza-
tion’s resources, and are concerned with planning, organizing, leading, and con-
trolling the organization’s activities so as to reach its objectives. A manager’s

224
job is to achieve high performance relative to the organization’s objectives.
Almost everything a manager does involves decision. In decision-making
there is always some uncertainty and risk. Successful managers are given the op-
portunity to manage more resources and asked to make decisions that have even
more impact on the organization.
Resources Functions Objectives
1. Human (employees) 1. Planning 1. Quantity
2. Physical (equipment) 2. Organizing 2. Quality
3. Financial (funds) 3. Leading 3. Attitudes of employees
4. Informational (data) 4. Controlling 4. Customer satisfaction
The above-cited objectives are characteristic of both profit-making and non-
profit organizations. As to the former their ultimate goal is profit-making.
Changing environment. Another thing that makes management difficult is
that the work situation constantly changes. The factors that define a specific
work situation fall into two categories: external remote environment and ex-
ternal task environment. The former includes such factors as economic, tech-
nological, political/legal, social/cultural, and ecological. The latter comprises
the following: customers, creditors, suppliers, competitors, employees, share-
holders.
To make a good manager, some basic skills are essential. Alongside with de-
cision-making, these involve technical, conceptual, analytical, people (interper-
sonal, communication), and computer skills.
Level of management. Managers may be classified according to their level
or position within the organization. We commonly categorize managers as being
in lower, middle, or upper levels of management. Upper managers spend most
of their time planning and leading because they make decisions about the overall
performance and direction of the organization. Therefore, they are usually in-
volved in the development of goals and strategies to achieve those goals. Con-
ceptual and interpersonal skills are especially important. Chief executive officer
(CEO), chief financial officer (CFO), chairman, president, and executive vice
president are common titles at this level. Middle managers are those managers
who receive broad statements of strategy and policy from upper-level managers
and develop specific objectives and plans. They spend a large portion of their
time in planning and organizing activities. Conceptual and technical skills under-
lie these activities. Examples of the titles of middle managers are product man-
ager, department head, plant manager, and quality control manager. Lower or
first-line managers are those concerned with the direct production of items or de-
livery of services. These actions require leading and controlling. Because first-
line managers train and monitor the performance of their subordinates, technical

225
skills are especially important. Common titles are supervisor, sales manager,
loan officer, and store manager. Middle- and upper-level managers coordinate
the activities of specialized, lower-level managers.

Vocabulary Focus

Ex. 1.
A. Study the meaning of the following words:
1. aim (n) – purpose, object;
2. end (n) – purpose, aim (to this end);
3. goal (n) – object of efforts or ambition;
4. objective (n) – object aimed at, purpose;
5. purpose (n) – that which one means to do;
6. target (n) – total which it is desired to reach.
B. Choose the right word in italics:
1. All our objectives/purposes were won.
2. The end/aim justifies the means.
3. For what goal/purpose do you want to go to Canada?
4. He has only one aim/target in life – to make a fortune.

Ex. 2. Express in one word:


– person who controls a business;
– ability to do sth expertly and well;
– set of interdependent parts that processes inputs into outputs;
– settlement of a question;
– managed system designed and operated to achieve a specific set of objectives;
– people who work directly on a job or task and have no responsibility for
overseeing the work of the others;
– individuals who initiate and oversee new projects, make decisions about the
use of the organization’s resources, and are concerned with planning, organiz-
ing, leading and controlling the organization’s activities so as to reach the
organization’s objectives.

Ex. 3. Match the words in column A with their synonyms in column B.


A B
1) achieve a) executive
2) managerial b) efficiently
3) manage c) top
4) effectively d) accomplish

226
5) function e) worker
6) upper f) operate
7) operative g) control/govern

Comprehension

Ex. 1. Complete the sentences using information from the text:


Another thing that makes management … is that the work situation … … .
To make a … manager, some basic … are essential.
Managers may be classified according to their … … within the organization.
Middle managers are those managers who receive broad statements of … …
… from upper-level managers and develop … … … … .

Ex. 2. Answer the questions to the text:


1. What are a company’s objectives?
2. What types of resources is manager in control of?
3. What are the six managerial skills?
4. Which do you think is the most important of these? Give your reasoning.
5. Describe the four managerial functions.
6. Give the three levels of management authority.
7. Describe factors that shape business environment.

Text 2
Scan the text and find Sam Walton’s managerial decisions that ensured the suc-
cess of Wal-Mart.
Wal-Mart
Wal-Mart, an American retailer was founded 40 years ago by Sam Walton.
He opened his first Wal-Mart store, in Rogers, Arkansas on 2 July 1962. He was
44 at that time.
Initially, Sam Walton set up traditional retail outlets with relatively high
prices. But then on he sought to drive out unnecessary costs wherever he could,
all with the aim of bringing prices down.
Since Walton was operating on small profit margins he appreciated the need
for growth. If you are not going to make much on each item you had better sell a
lot of them. Walton would fly around America literally looking at the land be-
low. When he saw a piece of property that was fairly near to a few small towns
he would land the plane, buy the property and order a new Wal-Mart to be built.
Compared to most city centre supermarkets Wal-Mart stores are enormous
and offer an extremely wide range of goods: everything from food to mobile

227
phones, CDs, prams, paint, cameras, tools, bikes and so on. Wal-Mart stores
have now become something of a national institution in America.
Sam Walton not only brought about the dominance of low-price stores in
America, he also appreciated the importance of information technology very
early. In the late 1960s he visited IBM to find the best person he could, hired him
and got him to computerise Wal-Mart’s operations. Nowadays Wal-Mart’s com-
puter database is second only to the Pentagon’s in capacity.
In the 30 years before his death in 1992 Walton built an empire that turned
him into the wealthiest man in America and led the way in retailing worldwide.
There are now over 1,700 Wal-Mart stores in the USA. Wal-Mart also has over
1,000 stores outside America. Its profits last year were an astonishing $6bn and
the company’s market value was over $260bn. Wal-Mart became the biggest
company in the world in terms of sales.

CASE STUDY

A. Introduction to the problem


Where do you prefer shopping: in a large supermarket or a small convenience
store? Give your arguments
Task: (in groups of three).
You are working for a huge supermarket “Sosedy “(Neighbours) . You are
the Executive Manager, the Marketing Manager and the Personnel Manager of
the supermarket. Discuss the future progress of the supermarket. What is to be
done to improve the supermarket sales?

Background information:
Stew Leonard has been very successful in the competitive US supermarket
business. In addition to high profits, he has won high praise, including the Presi-
dential Award for Entrepreneurial Achievement and an Honoraty Doctorate of
Business from the University of Bridgeport. He approaches the often dull busi-
ness of buying and selling groceries with creativity and fun.

B. Scanning for Information


Work in groups of three. Look at the Stew Leonard’s Fact Sheet. Each person
should scan one of the tree articles and take notes in the appropriate section of
the outline. Then, share the information so that everyone in your group has the
same data and can fill in the Stew Leonard’s Fact Sheet completely.

228
Text A
Beginning the Business
In Connecticut, a northeastern state near New York, Stew Leonard’s father
was the owner of a small dairy. He used to take Stew along when he delivered
milk to families in the morning. From childhood, Stew Leonard remembers
wanting to be somebody, wanting to be noticed and appreciated. Perhaps, it has
something to do with being the sixth out of seven children. After studying dairy
manufacturing at the University of Connecticut, Stew Leonard assumed he
would go into a partnership with his father. But his father died suddenly, and
Stew found himself taking over the family business with his brother.
Fifteen years later, unexpected circumstances caused another change: The state
put a high way right through the land where the dairy was located. Stew surveyed
customers to see what they wanted, and he visited other small dairies to find out how
they were doing. He found out that the farmer who was bottling and selling his milk
on the premises1, rather than selling it to a middleman2 was doing well, while many
of the old-fashioned dairies were going under. Stew Leonard decided to redesign his
dairy business to suit the changing times and his personality.
More than door-to-door service, Stew Leonard found out that customers
wanted good milk prices. So, he ended deliveries and instead created a factory-
outlet3 dairy-store. He bought raw milk from farmers in huge quantities, proc-
essed it in glass-enclosed plant in the middle of the store and sold it in standard
half-gallon (1.8 liter) cartons with his name and a picture of a cow on them. His
slogan was, “You’d have to own a cow to get a fresh milk.”
As the business grew, he created more and more of a Disneyland Dairy Store
where customers might come and bring their children to be entertained. As Leo-
nard remarks, “Where children go, their mothers will follow.” Not long after, he
began adding to his original list of eight products and enlarging the building until
it became( as proclaimed on the building) “the world’s largest dairy store.”

Notes:
1. in the building;
2. a distributor who handles goods between the producer and the consumer;
3. discount store selling large quantities of products.

Text B
Business Principle: Supermarket Shopping Should Be Fun
To Stew Leonard, the distinction between a supermarket and an amusement
park is slight, and not necessarily useful.
“Everyone feels supermarket shopping is drudgery,1” Mr. Leonard said in an
interview in his office overlooking the selling floor. “I try to make it fun”.

229
Mr. Leonard clearly has the most fun greeting customers, and most are de-
lighted to see him. As he made his way through the produce2 section during the
interview, Dr. Shelley Dreisman of Westport, Connecticut, happily shook his
hand, but her daughter, Emily, age six, shyly turned away. “She only wants to
shake hands with the cow,” Dr. Dreisman explained.
That cow, it turns out, is often Mr. Leonard, too. When the burdens of run-
ning a $100 million business seem too great, he puts on a cow suit he keeps in
his office closet and goes out and hugs customers…
Outside the store, in the parking lot, there is a petting zoo, a collection of live
barnyard animals including geese, calves, baby goats, and sheep.
Even the petting zoo serves several purposes. Mr. Leonard talks of it as an af-
terthought. When he sought to buy the property twenty years ago, the elderly
woman, who owned it insisted on keeping her farm animals on it.
Now, farmers lend him baby animals, which he periodically exchanges for
younger models. The farmers like the arrangement because the animals come
back well fed. Mr. Leonard pays for part of their diet, but the animals also get
food from shoppers, who buy it in the store.

Notes:
1. unpleasant work;
2. fruits and vegetables.

Text C
Business Principle: Listen to the Customer
Stew Leonard elicits opinions from his supermarket customers through
monthly customer interviews, called focus groups, and a suggestion box. Every
day over 100 suggestions are received, typed up, and distributed to the appropriate
departments. He tries out many of these suggestions, even if they seem unlikely.
According to Mr. Leonard, two recent pieces of success came from customer
ideas put into the suggestion box.
One was to sell strawberries loose, like tomatoes, in the big flat trays from the
farm, not in plastic one-pint (0.551 liter) baskets.
The produce manager said that if the strawberries were set out loose, people
would eat them and the leftovers would never sell. He turned out to be right, but
customers who can choose strawberries individually will drop them into plastic
bags without watching the total, Mr. Leonard discovered, and some will buy
twelve dollars worth. Sales tripled.
Then there were the turkey dinners. Mr. Leonard was selling them with vege-
table and stuffing1, fresh but refrigerated, at $5.59 each, and roasting just three
turkeys a day in the store’s kitchens to keep up with demand. A customer sug-

230
gested selling them at the hot-food2 bar, a growing part of the business; so he
did, and demand jumped to twenty-one turkeys a day.
But some customers said they did not like paying $2.99 a pound for the gravy
mixed in, or that the gravy had too many calories. Others said there was not
enough gravy. So he started putting the gravy on the side3, and demand rose to
more than fifty turkeys a day.

Notes:
1. filling made of bread and spices;
2. area inside the store where hot food is sold;
3. in a separate container.

Stew Leonard’s Fact Sheet


1. Beginning the Business 2. Business Principle: 3. Business Principle:
Supermarket Shopping Listen to the Customer
A. The Leonard Family Should Be Fun
Dairy A. Ways of Eliciting
1. Stew’s father A. Stew Leonard’s Role Suggestions
1. Greeting customers

2. Stew’s childhood and 2. Entertaining customers


youth

B. The Petting Zoo B. The Strawberry Sug-


B. Changing Times 1. History gestion
1. New roads 1. A change in packaging

2. Business Purposes
2. New kinds of dairies 2. Advantages and Disad-
vantages

3. Effect on sales

C. Designing the Dairy C. The Turkey Sugges-


Store tions
1. Factory-outlet store 1. A change in packaging;
effect on sales

2. Disneyland store 2. A further change on


packaging; effect on
sales

231
Look at the Stew Leonard's Approach to Supermarket Sales. What do you think
about his ideas of running the business.

Stew Leonard's Approach to Supermarket Sales


Dealing with Customers
1. "Our mission is to create happy customers."
2. "The customer who complains is our friend."
3. "It's five times harder to find a new customer than it is to keep an old one".

Marketing the Product


4. "Lower the price and sell the best. Word of mouth (personal recommenda-
tions) will do the rest.
5. "Pile it (the product) high and watch them buy."
6. "If you wouldn't take it home to your mother, don't put it out for our cus-
tomers."

Managing Employees
7. "Hire people more for their attitudes than for their skills or intelligence."
8. "Management by appreciation: appreciate your customers, employees, and
suppliers."

C. Interpreting Information
Speak on the following issues:
1. Too much entertainment in a supermarket could decrease sales.
2. Price is more important than the entertainment in attracting shoppers that will
consistently return to a supermarket.
3. Employees at Stew Leonard’s probably work harder than those at other large
supermarkets.
4. When sales are slow, Stew Leonard’s is less likely to pay attention to cus-
tomer suggestions.

D. Discussion
Dwell on the following:
1. What would you change in your policy after acquiring information from the
case?
2. Write the main steps in improving sales of your supermarket.

232
WRITING

As you read the text, take down the principles in the work of a manager you find
the most important and exemplify your choice in writing.
Principles of Management
Different scholars offer different sets of principles of management. The
most famous are the following fourteen. But the main principle should be read as
follows: “There is nothing rigid or absolute in management affairs, it is all a
question of proportion.”
1. Division of work. Within limits, reduction in the number of tasks a worker
performs or the number of responsibilities a manager has can increase skill
and performance.
2. Authority. Authority is the right to give orders and enforce them with re-
ward or penalty. Responsibility is accountability for results. The two
should be balanced, neither exceeding nor being less than the other.
3. Discipline. Discipline is the condition of compliance and commitment that
results from the network of stated or implied understandings between em-
ployees and managers. Discipline is mostly a result of the ability of lead-
ership. It depends upon good supervisors at all levels making and keeping
clear and fair agreements concerning work.
4. Unity of command. Each employee should receive orders from one supe-
rior only.
5. Unity of direction. One manager and one plan for each group of activities hav-
ing the same objective is necessary to coordinate, unify and focus action.
6. Subordination of individual interests to general interest. Ignorance, ambi-
tion, selfishness, laziness, weakness, and all human passion tend to cause
self-serving instead of organization-serving behavior on the job. Managers
need to find ways to reconcile these interests by setting a good example
and supervising firmly and fairly.
7. Remuneration of personnel. Various methods of payment may be suitable,
but amounts should reflect economic conditions and be administered to
reward well-directed effort.
8. Centralization. Like other organisms, organizations need direction and coor-
dination from a central nervous system. But how much centralization or de-
centralization is appropriate depends on the situation. The degree of centrali-
zation that makes best use of the abilities of employees is the goal.
9. Scalar chain (line of authority). The scalar chain is the chain of command
ranging from the top executive to the lowest ranks. Adhering to the chain of
command helps implement unity of direction, but sometimes the chain is too

233
long, and better communication and better decisions can result from two or
more department heads solving problems directly rather than referring them
up the chain until a common superior is reached.
10. Order. Both equipment and people must be well chosen, well placed, and
well organized for a smooth-running organization.
11. Equity. Kindliness and justice will encourage employees to work well and
be loyal.
12. Stability of tenure of personnel. Changes in employee assignments will be neces-
sary, but if they occur too frequently they can damage morale and efficiency.
13. Initiative. Thinking through a plan and carrying it out successfully can be
deeply satisfying. Managers should set aside personal vanity and encour-
age employees to do this as much as possible.
14. Build teamwork.

TRANSLATION

A. Translate from English into Russian.


What Makes a Good Manager?
(10 Tips for a Successful Manager by Bill Gates)
There isn’t a magic formula for good management, of course, but if you’re a
manager perhaps these tips will help you be more effective.
1. Choose a field thoughtfully. Make it one you enjoy. It’s hard to be produc-
tive without genuine enthusiasm.
2. Hire carefully and be willing to fire. You need a strong team, because a
mediocre team gives mediocre results, no matter how well managed it is.
3. Create a productive environment. This is a particular challenge because it
requires different approaches depending on the context.
4. Define success. Make it clear to your employees what constitutes success
and how they should measure up their achievements.
Goals must be realistic. Project schedules, for example, must be set up by the
people who do the work. People will accept a “bottoms-up” deadline they helped
to set but they’ll be cynical about a schedule imposed from the top that doesn’t
map to reality. Unachievable goals undermine an organization.
5. To be a good manager, you have to like people and be good at communi-
cating. This is hard to fake. If you don’t genuinely enjoy interacting with people,
it’ll be hard to manage them well.
6. Develop your people to do there jobs better than you can. Transfer your
skills to them.

234
7. Give people a sense of the importance of what they’re working on – its im-
portance to the company, its importance to the customers.
When you achieve great results, everybody involved should share in the
credit and feel good about it.
8. Take on projects yourself. You need to do more than communicate.
The last thing people want is a boss who just doles out stuff. From time to time
prove you can be hands-on by taking on one of the less attractive tasks and using
it as an example of how your employees should meet challenges.
9. Don’t make the same decision twice. People hate indecisive leadership so
you have to make choices.
10. Let people know whom to please. Maybe it’s you, maybe it’s your boss
and maybe it’s somebody who works for you.

B. Translate from Russian into English.


Семь заповедей бизнесмена
Давать обещания и не выполнять их стало у нас просто нормой жизни. В
этой связи полезно вспомнить 1912 год, когда российскими
предпринимателями было выработано семь основных принципов ведения дел:
Первый принцип – «Уважай власть». Власть – необходимое условие для
эффективного ведения дел. Во всём должен быть порядок. В связи с этим
проявляй уважение к блюстителям порядка в узаконенных эшелонах власти.
Второй принцип – «Будь честен и правдив». Это – фундамент
предпринимательства, предпосылка здоровой прибыли и нормальных
отношений в делах. Российский предприниматель должен быть
безупречным носителем добродетелей, честности и правдивости.
Третий принцип – «Уважай право частной собственности». Свободное
предпринимательство – основа благополучия государства. Российский
предприниматель обязан в поте лица своего трудиться на благо своей отчизны.
Такое рвение можно проявить только при опоре на частную собственность.
Четвертый принцип – «Люби и уважай человека». Любовь и уважение к
человеку труда со стороны предпринимателя порождает ответную любовь
и уважение. В таких условиях возникает гармония интересов, что создаёт
атмосферу для развития у людей самых разнообразных способностей,
побуждает их проявлять себя во всём блеске.
Пятый принцип – «Будь верен своему слову». Успех в деле во многом
зависит от того, в какой степени окружающие доверяют тебе.
Шестой принцип – «Живи по средствам». Не зарывайся. Выбирай дело
по плечу. Всегда оценивай свои возможности. Действуй сообразно своим
средствам.

235
Седьмой принцип – «Будь целеустремленным». Всегда имей перед
собой ясную цель. Предпринимателю такая цель нужна как воздух. Не
отвлекайся на другие цели. Служение двум господам противоестественно.
В стремлении достичь своей заветной цели не переходи грани
дозволенного. Никакая цель не может затмить моральные ценности.

LISTENING

You will hear part of an interview with Steve Moody, the manager of the Marks
& Spencer store in Cambridge, England. What do you know about Marks &
Spencer? What do they sell?

A. Listen to Part One, in which Steve Moody describes the role and responsibility
of a store manager. Which of the following tasks is he responsible for?
1) designing the store and its layout
2) displaying the merchandise
3) employing the sales staff
4) insuring the safety of staff and customers
5) establishing the company’s principles
6) getting commitment from the staff
7) increasing profits
8) maintaining a pleasant working environment
9) motivating staff
10) organizing the day-to day logistics
11) pricing the merchandise
12) running 40 out of 280 stores
13) selecting the merchandise
14) supervising the day-to-day running of the store
15) training staff

B. Listen to Part Two, and answer these questions:


1. Why are Marks & Spencer’s store managers limited in giving accountability
to their staff and delegating responsibility?
2. What do they concentrate on instead?

C. Listen to Part Three, and answer the following questions:


1. Steve Moody mentions two kinds of regular meetings. The first is weekly
meetings for management and supervisory staff. What is the second kind of
meetings called?

236
2. Who attends them?
3. What are they designed to achieve?
4. What kind of problems cannot be dealt with by meetings?
5. How are such problems dealt with?

SPEAKING

A.
As the President of the company you would like to know about the results of ne-
gotiations with distributors held by your executive manager.You would like to
know the answers to the following questions:
– Do the sales depend on the distributors?
– Have the company signed a new contract with the distributors or amended the
existing one?
– Were negotiations tough?
– How long did it take to make any solutions?
– Does your manager consider the improvement of sales possible?
You may use the dialogue below as a model.
Janet: Were you able to work everything out with our distributors? Did
you get the reason of our poor sales performance?
David: All in all, it went pretty well. We had an in-depth discussion
about the importance of working hand in hand. Since our success
hinges on their efforts to push our products, we renegotiated our
contract. After a lot of give-and-take, and back-and-forth, we
reached an agreement. It only took an hour or so to thrash it all
out and while there are still some loose ends, I think it’ll work
out in the long run.
Janet: They certainly do know the ins and outs of distribution. It
sounds like all systems will work.
David: Everything should run smoothly now. I predict that sales will
pick up in a month.

B.
Summarize the information of the Unit to be ready to speak on Management. Use
the following prompts as a plan.
– definition of management;
– the four functions of management;
– the four kinds of resources;
– management objectives;

237
– changing environment;
– managerial skills;
– information processing;
– decision-making.

C.
Dwell on the following issues:
After acquiring information from the unit do you think you have the right skills to
be a manager?
Would you be able, for example, to set objectives, motivate and coordinate the
staff, and manage a department store, or a computer manufacturer?

VOCABULARY

authority n – власть, полномочие, сфера компетенции; авторитет; орган


управления
~ to sign – право подписи
the ~ies – власти
authoritative adj – авторитетный, властный
authorize v – уполномочивать, поручать, санкционировать
~d agent – уполномоченный агент
~ capital – уставный капитал
decide v – решать(ся), принимать решение
~ against (in favour of) sb – выносить решение против (в пользу ) кого-л.
~ on a question – принимать решение по вопросу
decision n – решение, заключение, приговор
come to, arrive at a ~ – принять решение
decisive adj – решающий, решительный, убедительный
division of work - разделение труда
manage v – управлять, заведовать, стоять во главе; уметь обращаться (с чем-
л.); справляться, ухитряться
~ing director – директор-распорядитель
~ed exchange rate – регулируемые валютные курсы
manager n – управляющий, заведующий; хозяин; импресарио
assistant ~ – помощник заведующего
general ~ – главный управляющий
management n – управление, заведование; правление, администрация, дирекция;
умение справляться (с работой)
manageable adj – поддающийся управлению, выполнимый

238
managerial adj – директорский, относящийся к управлению,
организационный, управленческий
operative n – рабочий, производственный персонал
perform v – выполнять, исполнять, совершать
~ a contract – исполнить договор
~ an obligation – выполнить обязательство
~ a test – производить испытание
performance n – исполнение, выполнение; характеристика,
эксплуатационные качества (машины)
performer n – исполнитель
responsibility n - ответственность, обязанность
set v – ставить, помещать, располагать; устанавливать, назначать; пускать, приво-
дить (в ход, в действие)
~ someone a term – назначить срок кому-н.
~ the seal – поставить печать
~ going – пустить в ход
~ in order (to rights) – приводить в порядок
~ up a business – основать дело, открыть собственное дело
~ value upon sth – придавать значение чему-л.
setting n – окружающая обстановка; регулирование, установка
setup n – организация, устройство
skill n – квалификация, умение

GLOSSARY

· Management is a set of activities designed to achieve an organization’s ob-


jectives by using its resources effectively and efficiently in a changing envi-
ronment.
· Operatives are people who work directly on a job or task and have no re-
sponsibility for overseeing the work of the others.
· Managers are individuals who initiate and oversee new projects, make deci-
sions about the use of the organization’s resources, and are concerned with
planning, organizing, leading, and controlling the organization’s activities so
as to reach its objectives.
· Managerial functions are planning, organizing, leading and controlling
· Level of management is determined by the managers’ position within the or-
ganization. We commonly categorize managers as being in lower, middle, or up-
per levels of management.
· Upper managers make decisions about the overall performance and direction of
the organization.

239
· Middle managers receive broad statements of strategy and policy from upper-
level managers and develop specific objectives and plans.
· Lower or first-line managers are those concerned with the direct production of
items or delivery of services.

240
6.3. ACCOUNTING

DISCOVERING CONNECTIONS

1. Do you know what accounting is?


2. What is the view on accountancy as a job in your country? How important is
accountancy for running business?
3. What particular skills do you think an accountant needs? Do you possess the
skills like that?
4. Do you find this job prestigious or do you think it is rather boring to deal with
figures.

READING

Text 1
The author organizes the following reading by showing the difference between
bookkeeping and accounting. As you read, focus on this point and pay attention
to the functions of accounting.
What is Accounting?
Accounting is the process by which the profitability and solvency of the company
can be measured. It also provides information needed as a basis for making decisions,
that will enable management to guide the company on a profitable and solvent course.
The range of those who use accounting information is not limited by busi-
nesses only. It also includes:
Individuals. People use accounting information in day-to-day affairs to man-
age their bank accounts, to evaluate job prospects, to make investments, and to
decide whether to rent or to buy a house.
Investors and Creditors. Investors provide the money that businesses need to
begin operations. To decide whether to help start a new venture, potential inves-
tors evaluate what income they can reasonably expect on their investment.
Government Regulatory Agencies base their regulatory activity on the ac-
counting information they receive from firms.
Taxing Authorities. Local, state, and federal governments levy taxes on indi-
viduals and businesses using the accounting information they present.
Non-profit Organisations such as churches, most hospitals, government agen-
cies, and colleges, which operate for purposes other than to earn a profit – use
accounting information in much the same way that profit-oriented businesses do.
The methods used by a business to keep records of its financial activities and
to summarize these activities in periodic accounting reports comprise the ac-

241
counting system.
The first function of an accounting system is creating information, that is a
systematic record of the daily business activity. It is carried out by means of re-
cording, classifying and summarizing information.
The second function of an accounting system is communicating the summa-
rized information to interested parties.
The third function is interpreting the accounting information as it relates to
specific business decisions.
In accounting, business activities are associated with transactions. A transac-
tion occurs whenever the firm enters into a legal contract for the acquisition of
means of production or the sale of goods and services.
Transactions between the firm and its markets - both its supply markets and its
selling markets – are defined as “external transactions”. Transactions within the
firm, consisting of the exchanges which occur between the various departments are
defined as “internal transactions”. The totality of “internal transactions” forms the
subject matter of cost or managerial accounting. The main task of managerial ac-
counting is preparing budgets and other financial reports necessary for manage-
ment. Cost accounting deals with working out the unit cost of products, including
materials, labour and all other expenses. Other types of accounting are tax account-
ing and creative accounting. Tax accounting is used for calculating an individual's
or a company's liability for tax. Creative accounting uses all available accounting
procedures and tricks, to disguise the true financial position of a company.
Persons with little knowledge of accounting may fail to understand the differ-
ence between accounting and bookkeeping.
Bookkeeping means the recording of transactions, the record-making phase of
accounting. The recording of transactions tends to be mechanical and repetitive,
it is only a small part of the field of accounting and probably the simplest.
Accounting includes the design of accounting systems, preparation of financial
statements, audits, cost studies, development of forecasts, income tax work, com-
puter applications to accounting processes, and the analysis and interpretation of ac-
counting information as an aid to making business decisions. A person might be-
come a reasonable proficient bookkeeper in a few weeks or months, however, to
become a professional accountant requires several years of study and experience.

Vocabulary Focus

Ex. 1. Study the difference between the following synonyms. Then use them in the
sentences that follow.
Evaluate. If you evaluate something you decide on its significance, value, or
quality after carefully studying its good and bad features.

242
Estimate. If you estimate an amount or quality you calculate it approximately,
you make judgment about it based on the available evidence.
Appreciate. If you appreciate something, for example a piece of music or
good food, you recognize and understand the good qualities or features that it has
and like or admire it because of them.

a. They meet monthly to discuss policy and ... the current political situation.
b. They really ... the peace and quiet of rural Wales.
c. The hurricane caused damage ... at 300 mln pounds.
d. How would you ... our chances?
e. He is the kind of individual that's very hard to ... .
f. The lawyers ... the property at 90 thousand pounds.
g. The builder ... the cost of repairing of roof at 600 pounds.
h. It can explain why actual costs varied from cost... .
i. I would ... the size of the garden at 1000 square metres.

Ex. 2. Choose the right definition from column B to the words and expressions
from column A.
A B
1) bookkeeping a) calculating an individual's or a company's liability
for tax
2) accounting b) writing down the details of transactions (debits and
credits)
3) managerial c) keeping financial records, recording income and ex-
accounting penditure, valuing assets and liabilities, and so on
4) cost account- d) preparing budgets and other financial reports neces-
ing sary for management
5) tax account- e) inspection and evaluation of accounts by a second
ing set of accountants
6) auditing f) using all available accounting procedures and tricks,
to disguise the true financial position of a company
7) creative ac- g) working out the unit cost of products, including ma-
counting terials, labour and all other expenses

Ex. 3. Choose the right variant from the words given below.
The purpose of ________ is to provide financial information about the eco-
nomic entity. 2. The _________ of creating accounting information are re-
cording, classifying and summarizing. 3. Financial information provided by an
accountant is needed by managerial ________ ________ to help them plan the

243
company’s activities. 4. The purpose of each business to earn ________. 5.
Every economic entity should stay _______, that is to have sufficient cash to
play debts. 6. The company that is unable to meet its obligations is called
_______ . 7. To meet _______ of our society we need some knowledge of ac-
counting.

Words for reference: challenge; insolvent; profit; makers; solvent; decision;


means; accounting.

Ex. 4. Find the sentences with the following expressions in the text and translate
them into Russian.
Managerial accounting, external transaction, taxing authorities, levy taxes
(on), legal contract, non-profit organisations, financial statement, audit, cost ac-
counting, creative accounting, bookkeeping.

Comprehension

Ex. 1. Answer the questions.


1. What is the definition of accounting?
2. What information does accounting provide business entities with?
3. Who are the users of accounting information? Why do they need it?
4. What are the functions of accounting??
5. What means are used for creating information?
6. What are business activities in accounting associated with?
7. What is the difference between external and internal transactions?
8. What are the subjects of managerial, cost, tax and creative accounting?
9. What is the difference between accounting and bookkeeping?

Text 2
As you read the text, focus on the main types of financial statements.
Accounting and Financial Statements
In accounting, it is always assumed that a business is a going concern, i.e. that
it will continue indefinitely into the future, which means that the current market
value of its fixed assets is irrelevant, as they are not for sale. Consequently, the
most common accounting system is historical cost accounting, which records
assets at their original purchase price, minus accumulated depreciation charges.
In times of inflation, this understates the value of appreciating assets such as
land, but overstates profits as it does not record the replacement cost of plant or
stock (GB) or inventory (US). The value of a business's assets under historical
244
cost accounting – purchase price minus depreciation - is known as its net book
value. Countries with persistently high inflation often prefer to use current cost
or replacement cost accounting, which values assets (and related expenses like
depreciation) at the price that would have to be paid to replace them (or to buy a
more modern equivalent) today.
Company law specifies that shareholders (GB) or stockholders (US) must be
given certain financial information. Companies generally include three financial
statements in their annual reports.
The profit and loss account (GB) or income statement (US) shows revenue or
earnings or income and expenditure. It usually gives figures for total sales or
turnover, and costs and overheads (GB) or overhead (US). The first figure
should obviously be higher than the second, i.e. there should be a profit. Part of
the profit goes to the government in taxation, part is usually distributed to share-
holders (stockholders) as a dividend, and part is retained by the company.
The balance sheet shows a company's financial situation on a particular date,
generally the last day of the financial year. It lists the company's assets, its li-
abilities, and shareholders' (stockholders') funds. A business's assets include
debtors (GB) or accounts receivable (US) as it is assumed that these will be
paid. Liabilities include creditors (GB) or accounts payable (US), as these will
have to be paid. Negative items on financial statements, such as creditors, taxa-
tion, and dividends paid, are usually enclosed in brackets.
In accordance with the principle of double-entry bookkeeping (that all trans-
actions are entered as a credit in one account and as a debit in another), the basic
accounting equation is Assets = Liabilities + Owners' (or Shareholders') Equity.
This can be rewritten as Assets - Liabilities = Owners' Equity or Net Assets. This
includes share capital (money received from the issue of shares), share premium
(GB) or paid-in surplus (US) (any money realized by selling shares at above
their nominal value), and the company's reserves, including the year's retained
profits. Shareholders' equity or net assets are generally less than a company’s
market capitalization (the total value of its shares at any given moment, i.e. the
number of shares times their market price), because net assets do not record
items such as goodwill.
The third financial statement has various names, including the source and ap-
plication of funds statement, and the statement of changes in financial-position.
This shows the flow of cash in and out of the business between balance sheet
dates. Sources of funds include trading profits, depreciation provisions, sales of
assets, borrowing, and the issuing of shares.
Applications of funds include purchases of fixed or financial assets, payment
of dividends, repayment of loans, and - in a bad year - trading losses.

245
Ex. 1. Complete the following sentences using the text from the Exercise 1.
1. Companies record their fixed assets at historical cost because ...
2. Historical cost accounting usually underestimates, . . .
3. Countries with a regularly high rate of ...
4. Company profits are usually split, ...
5. Double-entry bookkeeping requires that ...
6. A company's net assets consist of...
7. A company's stock market capitalization ...
8. Flows of cash both in and out of the company ...

Ex. 2. Speak on:


1. The difference between historical cost accounting and current cost accounting.
2. The main business statements.

Text 3
Before reading, take a few minutes to preview the text for a general overview of
its main ideas. After reading the text be ready to speak on:
– two general classifications of accountants;
– ethical behavior of accountants;
– other professions where the same principles are used;
– the functions of accounting;
– the importance of accountants’ work.
The Accounting Profession
Accounting is an old profession. Records of business transactions have been
prepared for centuries. However, only during the last half-century accounting has
been accepted as a profession with the same importance as the medical or legal
profession. Positions in the field of accounting may be divided into several areas.
Two general classifications are public accounting and private accounting. Public
accountants are those who serve the general public and collect professional fees
for their work, much as doctors and lawyers do. Their work includes auditing,
income tax planning and preparation, and management consulting. Public ac-
countants are a small fraction (about 10 percent) of all accountants. Those public
accountants who have met certain professional requirements are designated as
Certified Public Accountants (CPAs).
Private accountants work for a single business, such as a local department
store, the McDonald's restaurant chain, or the Eastman Kodak Company. Chari-
table organizations, educational institutions, and government agencies also em-
ploy private accountants. The chief accounting officer usually has the title of
controller, treasurer, or chief financial officer. Whatever the title, this person
246
usually carries the status of vice-president.
Some public accountants pool their talents and work together within a single
firm. Most public accounting firms are also called CPA firms because most of their
professional employees are CPAs. CPA firms vary greatly in size. Some are small
businesses, and others are medium-sized partnerships. The largest CPA firms are
worldwide partnerships with over 2,000 partners. Such huge firms are necessary
because some of their clients are so large and their operations are so complex.
In contrast to public accountants who provide accounting services for many
clients, management accountants provide accounting services for a single busi-
ness. In a company with many management accountants, the executive officer in
charge of the accounting activity is often called a controller.
The primary function of the Chief Accountant is to ensure that adequate funds
are available for such capital expenditure on new plant and equipment as is required
in the Corporate Plan. Adequate working capital will also be required to meet reve-
nue expenditure such as wages and salaries, purchases of raw materials and the in-
evitable administration expenses. Whenever purchases or sales are made records
will need to be kept. In many ways the accounts are like а storybook telling you
what has happened since the business commenced. On 3rd April we purchased a
new mainframe computer for £750,000. On 11th May we spent £15,000 on a new
motor van, and so on. The data tells management what assets are at their disposal
and what commitments they have to be prepared to meet. By examining the ac-
counts managers can see how much cash is available, how much they owe to their
creditors, and how much they are owed by their debtors. They must always be in a
position to meet their commitments if insolvency is to be avoided. The accounts
make a vital contribution to the decision-making process. Once problems have been
identified, alternative solutions have to be considered and evaluated. The evaluation
will very often be centred on statistical data provided by the accounting depart-
ments. If we chose Option A how much would it cost? What would be the net reve-
nue (after deduction of the expenses)? How much would labour costs amount to?
Would it be cheaper to use more capital, intensive methods of production? It is this
type of question which can be answered by the accountants.
When the decision is implemented there will be a need for feedback. Control
mechanism will be necessary to ensure that any deviations are speedily noticed
so that corrective action can be taken. The continuous flow of accounting infor-
mation will be the means by which the deviations are spotted. The use of com-
puters will make it possible to improve the feedback both in terms of accuracy
and speed.
Several accounting organizations have formulated codes of ethics that govern
the behaviour of their members. “Code of Professional Conduct” adopted by the
American Institute of Certified Public Accountants reads:

247
“Membership in the American Institute of Certified Public Accountants is
voluntary. By accepting membership, a certified public accountant assumes an
obligation of self-discipline above and beyond the requirements of laws and
regulations...”
...In carrying out their responsibilities as professionals, members should exer-
cise sensitive professional and moral judgments in all their activities.
...Members should accept the obligation to act in a way that will serve the
public interest, honour the public trust, and demonstrate commitment to profes-
sionalism.
...A member should observe the profession's technical and ethical standards,
strive continually to improve competence and the quality of services, and dis-
charge professional responsibility to the best of the member's ability.
...To maintain and broaden public confidence, members should perform all
professional responsibilities with the highest sense of integrity.
...A member should maintain objectivity and be free of conflicts of interest in
discharging professional responsibilities. A member in public practice should be
independent in fact and appearance when providing auditing and other attestation
services.
Some business firms have also developed codes of ethics for their employees
to follow. But there is something more than merely making sure you are not vio-
lating a code of ethics. Most of us sense what is right and wrong. An account-
ant's most valuable asset is his or her reputation.

WRITING

Analyze the business documents and do the task that follows:


Business Documents
Accounting data is classified and summarised in the form of statements. The pri-
mary financial statements are the (1) balance sheet (2) income statement, (3) state-
ment of owner's equity, and (4) statement of cash flow.
The Balance Sheet
A balance sheet is a financial statement or business form that lists, as of a cer-
tain date, all assets owned and all claims against these assets. These claims are
held by creditors, to whom money is owed, and the owners themselves, in the
form of their owner’s equity. When arranged in this way, it is easy to see that the
fundamental bookkeeping equation holds true:
A = L + OE
Let us analyze the balance sheet for Thomas Morales’s business on Septem-
ber 30 of the current year.

248
Evergreen Landscaping Service
Balance Sheet
September 30, 2005

Assets Liabilities
Cash 785 000 Gardners Supply Co. 34 500
Truck 1 100 000 Equipment Mlg. Corp. 100 000
Trailer 150 000 Island National Bank 770 000
Accounts Receivable 360 000 Total Liabilities 904 500
Equipment 332 000
Office furniture 75 000 Owner’s Equity Thomas 1 972 000
Morales, Capital
Supplies (paper, pens, 74 500
etc)
Total Assets 2 876 500 Total Liabilities & 2 876 500
Owner’s Equity

This balance sheet shows the financial condition of Morales’s business on the
specified date. When this form is arranged with two sides- - assets on the left,
liabilities and owner’s equity on the right – it is called an account form balance
sheet.
Note the following details carefully:
1. The heading consists of “answers” to the questions who, what, and when.
2. The account form lists assets on the left side, liabilities and owner’s equity on
the right side.
3. The sum of all assets is listed below the last one and identified as “Total Assets.”
4. The sum of all liabilities is listed below the last one and identified as “Total
Liabilities.”
5. The sum of total liabilities and capital is listed on the same line level as the
total assets and identified as “Total Liabilities and Owner’s Equity” or with
acceptable abbreviations.
6. The final total amounts on both sides are double ruled.
7. The dollar symbol, comma, and decimal point are not used in any bookkeep-
ing form or statement.
(Single ruled lines indicate an addition or subtraction. Double ruled lines in-
dicate the end of the work.)
Income Statement – Form and Content
An income statement is prepared first, using the information in the Income
Statement columns of the work sheet. The heading will answer the questions
who, what, and when. All revenue is listed first, and totaled. Expenses are then

249
listed, totaled, and subtracted from total revenue. The difference is the net in-
come (or net loss).
Revenue – Expenses = Net Income or Net Loss
Follow this illustration:
De Van Loc Company
Income Statement
for the Month Ended October 31, 2005
Revenue:
Rent Income 200000
Expenses:
Advertising Expense 15000
Salary Expense 40000
Total Expenses 55000
Net Income 145000

If expenses are greater than revenue, the difference (revenue subtracted from
expenses) is identified as a net loss. Note that the first money column is used to
list more than one item; the second money column is for totals (or a single item)
and the results or the business operations for the fiscal period – net income or net
loss. Double lines are ruled through both money columns to show a completed
statement.
Capital Statement
The next financial statement to be prepared is a capital statement. This shows
how owner’s equity has changed during a fiscal period. It starts with the begin-
ning capital account balance. Any changes that occur are then listed. Possible
changes in owner’s equity are:
Increases Decreases
1. additional investments 1. withdrawals
2. net income for period 2. net loss for period
De Van Loc’s capital statement is a simple one; only two items are involved.
De Van Loc Company
Capital Statement
for the Month Ended October 31, 2005
Beginning Balance, Oct. 1, 2005 515 000
Plus: Net Income 145 000
Ending Balance, Oct. 31, 2005 660 000

Following are illustrations of capital statements with more changes (headings are
omitted here):
250
Beginning Balance, Sept. 1, 2005 750000
Plus: Additional Investment 100000
Net Income 250000
350000
Less: Withdrawals 150 000
Net Increase in Capital 200 000
Ending Balance, Sept. 30, 2005 450 000

Another tool for understanding a company's activity is to look at its cash


flow. This measures the actual flow of funds - real money – flowing into and out
of a company during a given period of time. A company's cash flow factors out
all of the accounting tricks and looks at what a company really earned, because it
excludes accounting tools such as depreciation.

Task: Prepare a balance sheet for Maria’s Beauty Salon, use the following data:
Assets: Cash $ 1,750
Furniture and Fixures 8,900
Beauty Supplies 600
Liabilities: Regal Laundry 275
Mavelle Corp. 2,500

TRANSLATION

A. Translate the text into Russian.


Bookkeeping
Bookkeeping is writing down all the transactions arising from business activi-
ties which can be expressed in money. To run your business well you must know
what money you have received, how much money you have spent and, most im-
portant of all, how you spent it. A bookkeeping system can provide you with that
information. The books used for keeping records consist of a ledger and subsidi-
ary books.
The ledger is the general book in which you enter almost all the figures aris-
ing from your business activities. A ledger consists of a number of accounts. A
chart of accounts serves as an index to the ledger, and each account is numbered
to facilitate the frequent references that are made to it. An account is a column in
the ledger that has been given a specific name, e.g. Cash, Bank, Sales and etc.
The invoice book helps you to remember who owes the business money for
goods and services you have sold but have not been paid for. When you have de-
livered a commodity or provided a service you send an invoice to the customer.
You keep a copy of the invoice in the invoice book.

251
The purchase journal is used to write down details of goods and services
bought on credit which are not yet paid for. The invoice you receive from the
supplier is kept in the purchase journal until it is fully paid.
The wages book. In this book you make notes about your employee names,
wages, advance payments and so on.

B. Translate the abstract from Russian into English.


1. В бухгалтерском учете заинтересованы собственники, руководство
предприятия, налоговая служба. 2. Бухгалтерский учет обеспечивает инфор-
мацию о платежах за определенный период. 3. Каждый предприниматель
обязан вести книги и заносить в них торговые операции. 4. Каждая компания
стремиться оставаться платежеспособной. 5. Бухгалтерский учет является
основой для принятия деловых решений. 6. Одной из функций бухучета яв-
ляется выявление размера прибыли. 7. Инвесторы, которые вкладывают
деньги в бизнес, заинтересованы в получении надежной информации.

LISTENING

You will hear Sarah Brandston, an accountant in New York, talking about bookkeep-
ing and tax accounting. Read the following questions, and then listen to the interview.
1. In which fields do most of Sarah Brandston's clients work?
2. Why do they need an accountant?
3. What does Sarah Brandston describe as 'the basic rule for accounting'?
4. An individual can do business as a self-proprietorship. Sarah Brandston men-
tions two other types of business. What are they?
5. Sarah Brandston says 'bookkeeping is really a common sense way of keeping
track of the income and expenses. What does she mean by common sense in
relation to recording expenses?

SPEAKING

A.
You are the Executive Manager. Discuss with your accountant the current state
of your company. You may use the following dialogue as a model.
Rick has good news for his partner, Dan.
Rick: I just looked at the books today and we’re finally in the black! We
should be making money continuously in no time. And you
thought this company was going to bankrupt!
Dan: Well, you have to admit we’ve been spending a lot of money for

252
the past eight months. Even our new computer system cost a for-
tune. I don’t mean to sound like a penny pincher (скряга) but
frankly, I still think we were wasting our money. You can bet your
bottom dollar (all your money) that computer salesman is getting
some kickback (reward) for that sale, too.
Rick: I don’t know why you’re always so worried we’re going to ruin our
business financially. Look, the bottom line is that the company’s
finally turning a profit even though it had a few lean years. I think
we should go celebrate over lunch and since I know you’re short
on cash, I’ll even pick up the check (pay for your meal).
Dan: Well, if you’re going to do it I’m, accepting! Besides, I’m flat
broke (completely without money)today.

B.
Role Play

Conduct this one-to-one negotiation with your partner.


Student A
You are the Purchasing Manager at a pharmaceutical company in Oslo.
You’re negotiating a deal with an engineering company in Budapest. You des-
perately want to buy some equipment from them that will enable you to package
your products. The terms of the negotiation are listed below. Your task is to get
twelve stars or more. You begin the negotiation.
Student B
You are the Marketing Manager at an engineering company in Budapest. You
are negotiating a deal with a pharmaceutical company in Oslo. You have a cash
flow problem and very much need to sell some packaging equipment you have
produced that will enable the pharmaceutical company to package their products.
The terms of the negotiation are listed below. Your task is to get twelve stars or
more.

Student A
PRICE PAYMENT DELIVERY DATE
*** $15,000 or less *** 90-day credit *** at the beginning of next month
** $15,000-$17,500 ** 60-day credit ** by end of next month
* more than $17,500 * 30-day credit * in two months

253
TRAINING DELIVERY COSTS
*** two-day training in Oslo by their staff ** to be paid by them
** one-day training in Oslo by their staff * to be paid by you
* one-day training in Budapest by their staff
MAINTENANCE WARRANTY
*** less than $ 500 *** 36 months
** $500-$1,100 ** 24 months
* $1,100 or more 18 months or less

PROJECT X
Schedule for Phase 1: January 10 – March 31
Projected Situation at March 24
Production/ materials costs $125,000 $130,000 spent, no further
expenses expected
Travel/ accommodation $10,000 no travelling has been neces-
costs sary
Number of man hours re- 300 400, projected costs based on
quired tree people working, fourth
person needed to help with
technical problems
Phase 1 completion deadline March 31 probable completion May 31;
unexpected technical prob-
lems

Student B
PRICE PAYMENT DELIVERY DATE
*** $19,000 or more *** on singing contract *** in the tree months
** $17,000-$19,000 ** 30-day credit ** in two months
* less than $17,000 * 60-day credit * by end of next month
TRAINING DELIVERY COSTS
*** one-day training in Budapest by your staff ** to be paid by them
** one-day training in Oslo by your staff * to be paid by you
* two-day training in Oslo by your staff
MAINTENANCE WARRANTY
*** $2,000 or more *** 12 months
** $1,000-$2,000 ** 18 months
* less than $ 1,000 * 24 months or more

254
C.
Summarize the information of the Unit to be ready to speak on Accounting. Use
the following prompts as a plan:
– definition of accounting;
– types of accounting;
– information accounting provides business entities with;
– the difference between accounting and bookkeeping;
– the accounting system;
– the main functions of accounting;
– means of creating accounting information;
– users of accounting information and their interests in business;
– main business statements;
– the meaning of the fundamental accounting equation;
– groups of accountants.

VOCABULARY

account (s) n – счет (а); отчетность


~ payable – счета кредиторов; статья пассивов; кредиторская задолженность
~ receivable – счета дебиторов; дебиторская задолженность; статья активов
profit and loss ~ – счет прибыли и убытков
accountant n – бухгалтер
accountability n – подотчетность
accounting n – бухгалтерский учет
cost ~ – калькуляция затрат (учет издержек экономической деятельности)
managerial ~ – управленческий учет (сбор и обработка информации, по-
лезной для текущего управления фирмой)
tax ~ – налоговый учет
creative ~ – “изобретательный” бухгалтерский учет (с целью уклонения
от контроля над экономической деятельностью)
~ period – отчетный период
audit n – аудит; аудиторская проверка
auditor n – аудитор; ревизор
balance n – баланс, сальдо
~ sheet – балансовый отчет
break-even n – безубыточность
capital n – капитал
~ stock – основной капитал
working ~ – оборотный капитал; текущие активы
venture ~ – венчурный капитал

255
double entry n – бухгалтерский учет методом двойной записи
entity n – экономический субъект
equity n – стоимость капитала за вычетом обязательств; чистые активы
(компании)
goodwill n – “гудвил”; условная стоимость нематериальных активов фирмы
ledger n – главная бухгалтерская книга
liquidity n – ликвидность
solvency n – платежеспособность

GLOSSARY

· Account – a detailed record of all the money that a person receives and
spends.
· Accounts payable is all the money a company owes to other companies for
goods or services received.
· Accounts receivable is all the money a company is owed by other companies
for good or services it had supplied.
· Accountant – a person whose job is to inspect or keep accounts.
· Accounting – the system that measures business activities, processes that in-
formation into reports, and communicates these findings to decision makers.
· Audit – the inspection of an organization's annual accounts.
· Auditor – a person who carries out an audit.
· A balance sheet is a written statement of the amount of money & property
that a company or person has, including amounts of money that are owed or
are owing.
· A company costs are total amount of money involved in operating the busi-
ness.
· An invoice is a document that lists goods that have been supplied or services
that have been done, and says how much money you owe for them.
· A company’s profit and loss accounts is a financial record, published at the
end of each financial year, that shows whether it has made a profit or a loss.
(P&L).
· Break-even – when sales reach a level where revenue match costs, a com-
pany or product breaks even.
· Capital stock (syn. capital; stock) – the total value of the money, equipments
buildings, etc. of a business company.
· Double entry – a method of showing that every business transaction has two
aspects, i. e. materials or goods purchased on credit are a liability on the firm
to pay the supplier later, but at the same time they are an asset, as at some

256
time the materials will be used for manufacture and then sold, or the goods
purchased will be resolved.
· Equity is the money a company gets from selling the shares it owns.
· Goodwill – the good reputation of an established business
· Ledger – the most important accountant book
· Principal – an amount of money lent or invested on which interest is paid.
· Revenue is money that a company, organization or government receives from
people.

257
6.4. MARKETING

DISCOVERING CONNECTIONS

1. What is marketing?
2. What does marketing include?
3. Can you tell the difference between marketing and promotion?
4. Is marketing a theoretical or an applied discipline?
5. What is your opinion: are high marketing costs worth the efforts and expendi-
tures?

READING

Text 1
Scan the text for subheadings. What do they tell you about the topic of the text?
What do you want to learn about the topic?
Concept of Marketing
What does the term of “marketing” mean? Many people think of marketing as
selling and promotion. In fact selling is only the tip of the marketing iceberg. It
is but one of several marketing functions – and often not the most important one.
If the marketer does a good job of identifying consumer needs, developing good
products, and pricing, distributing, and promoting them effectively, these goods
will sell easily.
Most businesses now are dominated by an orientation toward marketing, not
toward production. Marketing has become a key factor in business success. To-
day’s companies face increasingly stiff competition, and the rewards will go to
those who can best identify customer needs and deliver the greatest value to their
target customer. Marketing activities are an expensive undertaking, and their
costs are built into the prices of products. It is estimated that at least half of the
cost consumer pays for a product is accounted for by marketing expenditures.
Since no organization can satisfy all consumer needs, it must concentrate its
efforts on certain needs of a specific group of potential customers. This is the
target market. One of the advantages of target marketing is the possibility of be-
coming the leader in a specific market segment. Market segmentation involves
aggregating prospective buyers into groups that 1) have common needs and 2)
will respond similarly to a marketing action.
Modern marketing is most simply defined as the process of directing the
flow of goods from producers to customers. It encompasses a broad range of ac-
tivities including product planning, new-product development, organizing the

258
channels by which the product reaches the customer, the actual distribution of
products, wholesaling, price setting, advertising and promotion, public relations,
retailing, product warranties, financing, and more.
Market research estimates the demand for specific products and services, de-
scribes the characteristics of probable customers, and measures potential sales.
Marketing research studies people as buyers and sellers, examining their habits,
attitudes, preferences, dislikes, and purchasing power and almost every aspect of
the seller-buyer relationship. It also investigates distribution systems, pricing,
promotion, product design, packaging, brand names, etc.
A marketing strategy is a means by which a marketing goal is to be
achieved, characterized by 1) a specific target market and 2) a marketing pro-
gram to reach it. A marketing program is a plan that integrates the marketing mix
to provide a good, or service to prospective customers. The elements of the mar-
keting mix, usually called the 4 Ps, are as follows:
– Product: a good, a service, or an idea to satisfy the consumer’s needs;
– Price: what is exchanged for the product;
– Promotion: a means of communication between the seller and buyer;
– Place : a means of getting the product into the consumer’s hands.
To implement a marketing program successfully, hundreds of detailed deci-
sions are often required, such as writing an advertising copy or selecting the
amount for temporary price reductions. These decisions, called marketing tac-
tics, are detailed day-to-day operational decisions that must be taken right away.
Within the field of economics, two types of marketing are defined: micro-
marketing and macromarketing. The former describes the activities of individ-
ual firms, beginning with originating and producing products and ending when
the products reach the final user, the customer. Macromarketing, by contrast, de-
scribes how the whole system of production and distribution works in a society.
Marketing is not confined to profit-making companies that manufacture prod-
ucts. Doctors, lawyers, hospitals, colleges, museums, and other service enter-
prises also engage in marketing.

Vocabulary Focus

Ex. 1. Fill in the gaps using the words given below. Some words are to be used
twice:
1. Marketing is concerned with getting the right … to the right … at the right …
2. Marketing is about meeting customer … at a … .
3. Marketing makes it easier for … to do business with you.

Words for reference: customers; needs; place; price; product; profit.

259
Ex. 2.

A. Study the meaning of the following words:


1. appraise (v) – fix a price for sth, say what sth is worth;
2. appreciate (v) – judge rightly the value of sth; put a high value of sth;
3. calculate (v) – find out by working with numbers;
4. estimate (v) – form a judgement about, calculate;
5. evaluate (v) – find out, decide, the amount or value of sth.

B. Choose the right word in italics:


1. Astronomers can calculate / estimate when there will be eclipses of the sun
and moon.
2. I really appreciate/estimate your efforts.
3. He was evaluated / appraised as unfit for military service.
4. The clerk appraises / calculates property for taxation.
5. I estimate / evaluate his income at $300.
6. You can’t appreciate / evaluate English poetry unless you understand its rhythm.

Ex. 3. Match the following collocations in column A with their English equiva-
lents in column B:
A B
1) маркетинг потребительских товаров c) mass marketing
2) маркетинг средств производства d) target marketing
3) маркетинг услуг e) consumer-goods marketing
4) массовый маркетинг f) means-of-production marketing
5) пробный маркетинг g) test marketing
6) целевой маркетинг h) service marketing

Ex. 4. Express in one word:


– someone whose job is to persuade customers to buy a certain product or service;
– the breakdown of a market into separate and identifiable elements;
– the ultimate user of a product;
– a means of communication between the seller and buyer;
– the art of making people do what you want them to do.

Words for reference: consumer, salesperson, segmentation, promotion, persua-


sion.

260
Ex. 5. Match the words in column A with their synonyms in column B:
A B
1) identify a) commodity
2) item b) producer
3) product c) buyer/client
4) manufacturer d) estimate
5) customer e) article

Ex. 6. Fill in the gaps using the words given below. Some words are to be used
twice:
1. Marketing has become a … factor in business success.
2. One of the advantages of … marketing is the possibility of becoming the
leader in a specific market … .
3. Modern marketing is most simply defined as the process of … the flow
of … from … to … .
4. Today’s companies … increasingly stiff … , and the rewards will go to
those who can best … customer.

Words for reference: segment, customer, competition, key, identify, producer,


face, directing, goods, needs, target.

Comprehension

Ex. 1. Complete the sentences using information from the text:


1. A market is the place where the seller meets buyer to exchange … … … .
2. Market research estimates …… , describes ………., and measures …….
3. Marketing encompasses a broad range of activities including………
4. One of the advantages of target marketing is the possibility of ….

Ex. 2. Find information in the text to answer the following questions.


1. What factors are required for marketing to occur?
2. What kind of decisions is required to implement a marketing strategy?
3. What is the “marketing mix”?
4. Why are firms becoming more custom-oriented?
5. What does a firm usually carry out before it introduces a product onto the market?
6. What kind of relationship does a marketing research study?
7. What is the difference between macro- and micromarketing?

261
Text 2
As you read the text underline the main ideas and supporting information and
explain how to build and achieve a strong brand.
Building a Brand
The term brand derives from the mark made on cattle to signify identification
and ownership. At its simplest, a brand is a proper noun and that noun could re-
late, for example, to a product, service, company, country or other destination,
political party, person or sports team. A more complex view of a brand is that it
consists of a set of values, some functional and emotional benefits and even the
type of customers to whom the brand appeals. Sometimes the essence of the
brand can be captured in a slogan. Examples include BMW’s ‘the ultimate driv-
ing machine’, and the BBC Horizon programme’s, ‘pure science, sheer drama’.
Building strong brands is a key task for marketers. How this is achieved is likely
to vary from case to case but there are some general principles.
The brand name
Firstly and, according to some marketers, most importantly of all, is the brand
name itself. Brand names can sometimes be abstract, like Kodak, or redolent of
the product, such as Swatch, or simply based on the name of the brand owner
e.g. Ford.
Being around for a long time and being first
Being around for a long time and being first often helps. Many of today’s top
brands were introduced a long time ago. Levi’s were first worn in 1872.
The core promise
The core promise could be the quality of the product, or a unique feature. Of-
ten it is a bundle of values and benefits that have become integral to the core
product or service. The highly successful Levi’s 501 jeans were associated with
a mixture of rebelliousness, originality, freedom and American culture – all this
on top of a quality product.
Consistency and contemporaneity
Those brands that have survived a long time have generally kept their core
promise consistent over time but have been able to present it in a way that is in
tune with changing times.
Effective marketing communications
Effective marketing communications are key to building strong brands. Some
brands do this by investing heavily in media advertising campaigns. Others pre-
fer to use different communication channels such as public relations, direct mail
campaigns or text messaging. In a world where consumers are bombarded with
messages, it is difficult for any one brand to break through.

262
Organisational culture
Lastly, but very significantly, increasing attention is being paid to the devel-
opment of an organisational culture and a set of organisational values that sup-
port the brand values. Brand owners should consider the need to build genuine
corporate social responsibility into their organisation’s values.

CASE STUDY

A. Introduction to the problem.


Top-selling Levi’s jeans have remained almost the same since they were cre-
ated over 100 years ago. What makes these jeans so popular all over the world?
Consider fabric, price, style, quality, fit, durability, etc.
What brand of jeans do you prefer to wear? Why?
If you owned such an old company as Levi Strauss & Co., what managerial
decisions would you make to maintain in a stiff competitive market?

B. Scanning for Information


Work in groups of three. Each person should scan one of the three articles on
Levi Strauss & Co. and take notes in the appropriate section of the outline after
the articles. Then, share information so that everyone in your group has the
same data and can fill in the Levi Strauss & Co. Product History outline com-
pletely. Then be ready to answer the questions:
– How did the original Mr. Levi Strauss create jeans?
– What new Levi products have succeeded or failed in recent years?
– Why does Levi Strauss and Co. continue to develop new products?

Text A
The Creation of Levi Jeans
The life of Levi Strauss is a U.S. success story. A German who immigrated
to America in 1847 at age twenty, Levi Strauss began by selling needles, thread,
and buttons in New York. On the invitation of his brother-in-law, he sailed to
San Francisco in 1853.
Gold had been discovered in California a few years before, and the Gold
Rush had begun. The population exploded as more and more people came to try
to get rich overnight. Suddenly, thousands of people started mining for gold.
Strauss noticed that the miners complained that their pants were always tearing
easily and that the pockets ripped apart as soon as one put a few nuggets1 in
them.

263
Strauss saw a business opportunity. He began making pants out of some
heavy brown canvas he had brought to use for tents or wagon covers. These new
pants were stiff, but they sold briskly. When the original fabric was used up,
Strauss sent to Europe for more. What he got was a lighter, more flexible fabric
from Nimes, France, called "serge de Nimes." This cloth, which became known
as denim, proved even more useful for pants, since it was just as strong but much
more comfortable. With indigo, the pants were dyed the familiar blue colour.
Miners still complained of problems with their pockets. On the advice of Ne-
vada tailor Jacob Davis, Strauss went to a blacksmith and had the jeans pockets
reinforced with metal rivets. In 1873 they patented2 the popular innovation. The
rivets, along with the patterned stitching on the hip pockets, became Levi trade-
marks.
Levi Strauss & Co. has continued to flourish. Since those early days, it has
been a leader in the garment industry. Jeans have become desirable and even
fashionable clothing for not only miners, farmers, and cowboys, but also for
movie stars, executives, women, children, and teenagers from all over the world.
The company is still run by descendants of Levi Strauss. Robert Haas, who
heads up the Tailored Classics division, is the great-great-grandnephew of the
founder. The company now markets a wide range of clothing and accessories, all
under the brand name Levi's. Many new Levi products have been launched over
the years. The company is still best known, however, as the maker of Levi jeans,
the pants that are guaranteed to shrink3 wrinkle, and fade4.

Notes:
8. small lumps of rock with gold;
9. legally registered as company property;
10. become smaller after washing;
11. lose colour.

Text B
Other Levi Strauss Products
The original and most famous Levi Strauss product is blue jeans. Throughout
its history, however, the company has researched and developed a number of
other products. Some of these have succeeded beautifully, but others have
flopped completely.
In 1954, flushed with the success of the cotton pants it had introduced a few
years earlier, Levi brought out a line of permanent press (no-iron) trousers
(slacks). Within six months, 5 out of every 100 pairs sold had been returned, and
Levi had to admit it didn't have the right fabric for permanent press. Fifteen
years later, as the company was planning its major expansion, it hit on a couple

264
of equally dramatic flops. First was the denim bathing suit—which, when wet,
weighed the wearer down to the point of imminent drowning. Next was a line of
disposable (throw-away) sheets and towels. These, Levi discovered, were not
high on the consumer's list of priorities. Unable to interest hotels in the product,
the company was saved when the factory that made the sheets burned down.
Levi absorbed the $250,000 loss.
Eventually Levi created six new divisions, ranging from jeans to accessories
and including women's sportswear, Levi's for Girls. The diversification1 worked.
In the mid-1970s Levi's sales hit the billion-dollar mark, having taken 125 years
to reach that milestone. Four years later sales hit $2-billion. In 1979 the company
ranked 167 on Fortune's2 list of the 500 largest industrial corporations, and 20 in
net profits.3 Between 1970 and 1980 Levi had grown an average of 23 percent a
year. In 1979 alone it sold 143 million garments.
In menswear, though, all Levi products had been aimed at the middle of the
market. The company had brought out a line of moderately dressy slacks and
polyester leisure suits—the Action Slack and Action Suit—and was doing a
brisk business with them. But the tempting upper end of the market remained un-
touched.
“If we want to grow we're probably going to have to go to upper moderate
price points,” one Levi official explained, “and somewhat higher taste levels for
our products.” In short, they needed to sell more expensive clothes like the Tai-
lored Classic. If Levi could sell sport coats, dress slacks, and suits, a whole new
market would open up. The Tailored Classic might make money all by itself. But
even more important, it would get Levi into the business of producing fancier
and costlier clothing. The consumer would come to think of it as a manufacturer
of dress and it could spin off4 many more such lines in the future.

Notes:
1. production of very different kinds of products;
2. an important U.S. business magazine;
3. profits after the company pays income taxes;
4. create (other related products).

Text C
Why New Products Are Needed
Why, with such a record of success, would any comрапу be worrying about
making new-products? Part of the answer, obviously, is the sheer riskiness of
depending so heavily on a single-item. The boom in jeans was in many ways a
historical accident, and what history has given it can also take away.

265
Then, too, the demographics of the marketplace were already beginning to
change. Jeans were no longer the exclusive province of youth: baby boomers1
who had grown up on Levi's kept on wearing them. But they would no longer be
wearing them everywhere and all the time, as they did when they were teenagers.
And the next generation of adolescents was not so numerous. The birth rate had
peaked in 1957; by 1964, demographers agreed, the baby boom in the United
States was over. The bulge in the population that the boom had created would
soon be moving into a world of casual slacks, leisure suits, and coats and ties.
From a marketing point of view, that's where the action would be.
Finally, the competition had been gearing up. Levi’s had always shared the
market with Blue Bell's Wranglers and other national brands: Blue, Lee. But now
everyone seemed to be selling jeans. Back in 1970 Levi probably couldn't have
foreseen the popularity of "designer" jeans. But they could certainly anticipate
that cut-rate models will become unpopular. To sell their wares, Levi knew, re-
tailers would have to slash prices. The profit outlook in a competitive market-
place like this was bleak.

Note:
1. U.S. citizens born immediately after World War II (a period of high population growth).

Levi Strauss & Co. Product History


1. The Creation of Levi 2. Other Levi Strauss 3. Why New Products
Jeans Products Are Needed
A. Levi Strauss's Early A. Flops A. Single-Item Risk
Years 1. No-iron slacks 1. Jeans
1. New York

2. San Francisco 2. Bathing suits

3. Sheets and towels

B. A Business Opportunity B. Successes B. Demographic Changes


1. Brown canvas 1. Women's sportswear in U.S.
1. Aging baby boomer
generation

2. Blue denim 2. Growth rate 2. Lower birth rate

3. Rivets 3. Men's moderately


dressy slacks and suits

266
C. The Business Grows C. More Product Ideas C. Increased Competition
1. New customers 1. Men's dressy slacks and 1. National brands
suits

2. New products 2. Other dressy apparel 2. Designer brands

3. Cut-rate brands

C. Discussion
Work in small groups. Read the questions below. Discuss your answers with
your group mates. Give your arguments. There is no one right answer.
1. Levi Strauss & Co. should stick to manufacturing menswear products.
2. Levi Strauss & Co. is known as a clothing company, so any new product
should be clothing, too.
3. Levi Strauss & Co. should work on varying its jeans to expand the market.
For example, it should bring out a line of designer jeans with a special fit and
fabric.
4. The Levi Company has been so successful selling jeans that it should just be
content and stop trying to grow.
5. In order to expand, Levi Strauss & Co. should create a new brand name. The
company would manufacture the products, but they would not be called
Levi's.
6. Would you recommend to Levi Strauss & Co. if they decide to enter the mar-
ket in your country?
7. Write a business plan for Levi Strauss & Co.

WRITING

As you read the passage, underline the main ideas and supporting information. Then
write an abstract of it. Dwell on the author’s tone and attitude.
Marketing Information System
In carrying out marketing analysis, planning, implementation, and control,
marketing managers need information at almost every turn. They need informa-
tion about customers, competitors, dealers, and other forces in the marketplace.
While incomes increase and buyers become more selective, sales managers need
better information about how buyers respond to different products and appeals.

267
As a growing business faces more competition and uses more complex market-
ing approaches, they need information on the effectiveness of their marketing
tools. If companies become national or international in scope, they need more
information on larger, more distant markets. Finally, in today’s more rapidly
changing environments, managers need more up-to-date information to take
timely decisions. One marketing executive put it this way: “To manage a busi-
ness well is to manage its future; and to manage the future is to manage informa-
tion.”
The supply of information has also increased greatly. The United States is
said to be undergoing a “megashift” from an industrial to an information-based
economy. Over 65% of the U.S. workforce is now employed in producing or
processing information, compared with only 17% in 1950. Using IT systems,
companies can now provide information in great quantities. In fact, today’s man-
agers sometimes receive too much information. As one theorist pointed out:
“Running out of information is not a problem, but drowning in it is.”

TRANSLATION

A. Translate from English into Russian.


Marketing Research can be defined as the function that links the customer
to the marketer through information – information used to identify and define
marketing opportunities and problems: to generate, refine, and evaluate market-
ing actions; to monitor marketing performance; and to improve understanding of
the marketing process.
The marketing research process involves, usually, the four steps.
Defining the problem and research objectives is often the hardest step in re-
search process. When the problem has been carefully defined, the manager and
researcher must set the research objectives. A marketing research project might
have one of three types of objectives. Sometimes the objective is exploratory –
to gather preliminary information that will help to better define the problem.
Sometimes the objective is descriptive – to describe things such as the market
potential for a product or the demographics and attitudes of customers who buy
the product. Sometimes it is casual – to test hypothesis about cause-and-effect
relationships.
The second step of the marketing research process is developing a plan for
collecting the information needed. To meet the manager’s information needs, the
researcher can gather secondary data, primary data or both. Secondary data con-
sist of information that already exists somewhere, having been collected for an-
other purpose. Primary data consist of information collected for the specific
purpose.

268
The stage of implementing the research plan involves collecting, processing
and analysing the information.
The last phase is interpretation and reporting. The researcher should try not
to overwhelm manager with statistics, but to present the major findings that are
useful in the decisions faced by the management.
Most large companies have their own marketing research departments. A
company with no research department will have to buy the services of research
firms.

B. Translate from Russian into English.


Исследователи рынка определяют потенциальных потребителей товара,
т.е. лиц, которые, как они полагают, будут покупать его. Маркетинговое
исследование проводится с целью определения наиболее подходящего со-
четания элементов маркетинговой программы. После тщательного иссле-
дования каждого из четырёх составляющих маркетинговой программы вы-
рабатывается стратегия маркетинговой деятельности. Если специалистом
по маркетингу проведена хорошая работа по определению потребностей
покупателя, разработке привлекательного продукта, установлению конку-
рентоспособной цены, нахождению удобных каналов распределения и про-
движения товара, то такой продукт будет распродаваться успешно. Марке-
тинг является ключевым фактором в успехе бизнеса в условиях жёсткой
конкуренции.

LISTENING

Listen to Steve Moody, the manager of the Marks & Spencer store in Cambridge,
giving a hypothetical example of a marketing failure – a product that reaches the
shops but fails to sell.
Note down your answers to these questions:
1. What does Steve Moody say is the role of Marks & Spencer’s head office?
2. What is the example of a product that fails to sell?
3. In these circumstances, whose fault would it be that the product failed? What had
not been done properly, before the product was delivered to the stores?
4. Who would be the only people in the company that would be able to find out
what is wrong?
5. What action could Marks & Spencer take?
6. How does Steve Moody describe the relationship between head office and the
individual stores?

269
SPEAKING

A.
You are discussing a new product with your marketing manager. You may use
the dialogue below as a model.
Emily: We need to position (devise a careful marketing strategy) the new
line (product) of our Hair Care for Men very carefully because it
could turn out to be a real cash cow (money-maker), even though
the product is somewhat gender-biased. Since the aims of this
product are primarily yuppies (young urban professionals), we
need to come up with ideas for a new image as well as effective
ways to target this market.
Roger: What if we start by counter-marketing (convincing the public not
to buy) other products like it? After all, it’s supposedly the best on
the market and it uses the best hair care technology. In fact, we
test-marketed the products and everyone in the test group loved
them!
Irene: Once we get a good hook (attractive advertisement), we should
begin a marketing blitz (extremely aggressive marketing cam-
paign) to move the product. I think we should start by contacting a
list broker (someone who can sell us a list of potential customers)
and get names of men who subscribe to fashion magazines. Then
we may call them and offer a rebate (partial refund) if they order
now.
Jack: It may also be a good idea to launch (introduce to the public) the
product in December.

B.
Summarize the information of the Unit to be ready to speak on Marketing. Use
the following prompts as a plan.
– definitions of marketing;
– market segmentation;
– target market;
– marketing mix (the four Ps);
– relations of marketing to other social sciences;
– need in marketing information;
– Marketing Information System (MIS);
– steps in marketing research.

270
VOCABULARY

brand n – фабричная марка, качество


implement v – выполнять, осуществлять, обеспечивать выполнение
~ a contract – выполнить договор
~ a decision – проводить постановление (решение) в жизнь;
implement n – орудие, инструмент, прибор; принадлежность, утварь
~s of production – орудия производства
implementation n – выполнение, осуществление
market research – изучение возможностей рынка, изучение проблем спро-
са, исследование рынка сбыта, исследование товарного рынка
market segmentation – сегментирование рынка
marketing –маркетинг, торговля, сбыт, продажа
~strategy – рыночная стратегия
~tactics – тактика маркетинга
mass ~ – массовый маркетинг
target ~ – целевой маркетинг
consumer-goods ~ – маркетинг потребительских товаров
means-of-production ~ – маркетинг средств производства
test ~ – пробный маркетинг
service ~ − маркетинг услуг

GLOSSARY

· Brand is: 1. trade mark (painted or printed on boxes, tins, packets, etc.);
2. particular kind of goods with such a mark.
· Macromarketing describes how the whole system of production and distri-
bution works in a society.
· Market research estimates the demand for specific products and services,
describes the characteristics of probable customers, and measures potential
sales. Marketing research studies people as buyers and sellers, examining
their habits, attitudes, preferences, dislikes, and purchasing power and almost
every aspect of the seller-buyer relationship. It also investigates distribution
systems, pricing, promotion, product design, packaging, brand names, etc.
· Market segmentation involves aggregating prospective buyers into groups
that 1) have common needs and 2) will respond similarly to a marketing ac-
tion.
· Target market is the market, which concentrates its efforts on certain needs
of a specific group of potential customers.

271
· Marketing encompasses a broad range of activities including product plan-
ning, new-product development, organizing the channels by which the prod-
uct reaches the customer, the actual distribution of products, wholesaling,
price setting, advertising and promotion, public relations, retailing, product
warranties, financing, and more.
· Marketing Mix, usually called the 4 Ps, include:
– Product: a good, a service, or an idea to satisfy the consumer’s needs;
– Price: what is exchanged for the product;
– Promotion: a means of communication between the seller and buyer;
– Place: a means of getting the product into the consumer’s hands.
· Marketing program is a plan that integrates the marketing mix to provide a
good, or service to prospective customers.
· Marketing strategy is a means by which a marketing goal is to be achieved
· Marketing tactics are detailed day-to-day operational decisions that must be
taken right away.
· Micromarketing describes the activities of individual firms, beginning with
originating and producing products and ending when the products reach the
final user, the customer.

272
6.5. ADVERTISING

DISCOVERING CONNECTIONS

1. What do you know about advertising?


2. Who usually uses advertising?
3. What media are used in advertising?
4. How is advertising spread in your country?
5. Does advertising help you to make your purchases?
6. Don’t you think that there is too much advertising on TV?
7. Do you find advertising useful and necessary?

READING

Text 1
While reading the text focus on different types of advertising and mass media
used.
Advertising
In the eyes of the business world and of many economists, advertising serves an
indispensable function. It helps consumers to choose among competing products.
Also, by spurring demand for products, it extends the possibilities of mass produc-
tion and thus leads to economies of scale and to lower consumer costs. Indeed, ad-
vertising is sometimes depicted as “the engine of prosperity”.
Advertising informs consumers about the existence and benefits of prod-
ucts and services, and attempts to persuade them to buy them. The best form
of advertising is probably word-of-mouth advertising, which occurs when
people tell their friends about the benefits of products or services that they
have purchased. Yet virtually no providers of goods or services rely on this
alone, but use paid advertising instead. Indeed, many organizations also use
institutional or prestige advertising, which is designed to build up their repu-
tation rather than to sell particular products.
Advertising may be described under three headings:
1. descriptive;
2. persuasive;
3. both descriptive and persuasive together.
Descriptive advertising gives the most important facts about the product. It
is the cheapest form of advertising and is used a lot by the small traders selling
through the local paper. It will usually say:
1. what the product is;

273
2. how much it will cost;
3. where it may be obtained.
Persuasive advertising tries to persuade people that the product which is
being advertised has a special quality or usefulness which makes it much bet-
ter than other similar products. It is used a lot in television advertising where
consumers are persuaded to think that if they buy that product they will be-
come very popular or very happy.
This is the area in which advertising is often criticised. Advertising is
sometimes misleading. Although it is illegal for advertisers to make untrue
statements about their goods, services or prices, they still make their wares
seem unduly attractive. They pander to our egos and our vanities. They create
a demand which would not otherwise exist.
It is easy to say, “I'm not influenced by the adverts!” Everyone is influ-
enced to a certain extent. There was recently some research on subliminal ad-
vertising. The word 'coffee' flashed on the television screen. It happened so
quickly that no-one was aware it had happened. For just a fraction of a second
it registered on the viewers' subconscious. The result? A surprising number of
people chose to make coffee at that precise moment. Of course, it could have
been a coincidence but it was highly unlikely.
Any paid form of non-personal communication through the mass media about
the product by an identified sponsor is advertising.
Sponsors are people or firms that pay for radio or TV programmes in return for
advertising. Sponsors may be a nonprofit organization, a political candidate, a
company or an individual. Advertising is used when sponsors want to communi-
cate with a number of people who cannot be reached economically and effectively
through personal means.
Mass media used include magazines, direct mail, radio, television, billboards or
hoardings, newspapers where advertisements are placed. Adversisement is an an-
nouncement in a newspaper, on television, or on a poster about something such as
a product, event, or job. The forms advert and ad are also used. Advertisements on
the radio and TV are called commercials. Classifieds, flyers, handbills, junk mail
and spam are also forms of advertising. Classified advertisements (also classifieds
or want ads) are small adverts placed in a newspaper by people wishing to buy or
sell something, to find a job, etc. Handbills is the type of advertisements used by
local traders. They are expensive in labour costs and not very effective. Junk mail
is advertisements that you receive through the post, which you have not asked for
and which you do not want. Spam is unwanted e-mail advertisements sent to a
large number of people.

274
The British Code of Advertising Practice exists to protect the consumer
from being deceived and misinformed by advertisements. Their slogan is: “All
advertisements should be legal, decent, honest and truthful”.

Vocabulary Focus

Ex. 1. Choose the right words from your active vocabulary.


1. The best form of advertising is probably … advertising.
2. Many organizations also use … or … advertising, which is designed to
build up their reputation rather than to sell particular products.
3. … advertising gives the most important facts about the product.
4. … advertising tries to persuade people that the product which is being ad-
vertised has a special quality or usefulness which makes it much better than
other similar products.
5. It is … for advertisers to make untrue statements about their goods, services
or prices.
6. Advertising which invisibly registers information on the viewers' subcon-
scious is called … .
7. Advertisements on the radio and TV are called ….
8. … are small adverts placed in a newspaper by people wishing to buy or sell
something, to find a job, etc.

Ex. 2. Complete the following table by using the missing forms.


Verbs Adjectives Nouns
1. informative
2. sponsor
3. credibility
4. descriptive
5. deceive
6. persuasive
7. advertise
8. decent
9. perform

Ex. 3. Match the words in column A with their definitions in column B.


A B
1) advertising a) a nonprofit organization, a political party of a candi-
date, a company etc.
2) sponsors b) any paid form of non personal communication
through the mass media.

275
3) radio c) the most expensive kind of advertising.
4) television d) the most popular kind of advertising in the United States.
5) hoarding e) the cheapest type of advertising that gives the most
important information about the product.
6) mass media f) direct mail, radio, television, billboards, newspapers etc.
7) descriptive ad- g) advertisements usually put up in eye-catching posi-
vertising tion at the side of the road.
8) handbills h) the type of advertisements used by local traders, which
are expensive in labour costs and not very effective.

Ex. 4. Put these four media types into the corrct place in the table.
a. junk mail b. TV c. newspapers d. billboards e. spam
Media type Advantages Disadvantages
very good for short sharp
1. ________ can be affected by the weather
messages
2. ________ can be targeted may be totally ignored by recipient
a company’s advertisement may be
can provide a lot of de-
3. ________ ‘lost’ amongst many others, possi-
tail/information
bly those of its rivals
can demonstrate the product
4. ________ consumers may not pay attention
in use
can reach a lot of people can be deleted before it reaches
5. ________
very quickly customer

Comprehension

Ex. 1. Decide which of the following statements are correct.


1. It is legal to make untrue statements about goods.
2. Adverts influence all people.
3. Advertising creates an extra demand.
4. The manufacturers want their revenue to exceed their costs.
5. The mass media used in advertising include only radio and television.
6. A sponsor may be anyone who has money.
7. Advertising is generally accepted as a short-run investment.
8. There are two main types of advertising.
9. The British Code of Advertising Practice exists to protect the consumer
from being deceived by ads.

276
Ex. 2. Answer the following questions.
1. What is advertising?
2. What kinds of mass media are used in advertising?
3. In what way does advertising differ from news and publicity?
4. Why might it be fairer to compare advertising with the purchase of capital
equipment?
5. What does the evaluation of advertising still rely on?
6. What is the difference between the descriptive advertising and the persuasive one?
7. What is meant by informative advertising?
8. What is persuasive advertising criticized for?

Ex. 3. Logically organize the following sentences to summarize the text. The
first sentence is given to you.
1. Any paid form of non-personal communication through the mass media
about the product by an identified sponsor is advertising.
2. There are two main types of advertising: descriptive and persuasive
3. That’s why the essence of advertising is persuasion.
4. The types of mass media used in advertising are different.
5. Advertising is accepted as a long-term investment but setting its budgets
remains an art.
6. Advertising should be legal, decent, honest and true being to protect the
consumer from being deceived and misled by ads.
7. Advertising is used when sponsors can’t reach people they want to com-
municate with.

Text 2
As you read the text, pay attention to different ways of advertising.
How Companies Advertise
Large companies could easily set up their own advertising departments,
write their own advertisements, and buy media space themselves, but they
tend to use the services of large advertising agencies. These are likely to
have more resources, and more knowledge about all aspects of advertising
and advertising media than a single company. The most talented advertising
people generally prefer to work for agencies rather then individual compa-
nies as this gives them the chance to work on a variety of advertising ac-
counts (contracts to advertise products or services). It is also easier for a dis-
satisfied company to give its account to another agency than it would be to
fire its own advertising staff.

277
The client company generally gives the advertising agency an agreed
budget; a statement of the objectives of the advertising campaign, known as a
brief; and an overall advertising strategy concerning the message to be com-
municated to the target customers. The agency creates advertisements (the
word is often abbreviated to adverts or ads), and develops a media plan speci-
fying which media – newspapers, magazines, radio, television, cinema, post-
ers, mail, etc. – will be used and in which proportions. (On television and ra-
dio, ads are often known as commercials.) Agencies often produce alternative
ads or commercials that are pre-tested in newspapers, television stations, etc.
in different parts of a country before a final choice is made prior to a national
campaign.
The agency's media planners have to decide what percentage of the target
market they want to reach (how many people will be exposed to the ads) and
the number of times they are likely to see them. Advertising people talk about
frequency or 'OTS' (opportunities to see) and the threshold effect - the point at
which advertising becomes effective. The choice of advertising media is gen-
erally strongly influenced by the comparative cost of reaching 1,000 members
of the target audience, the cost per thousand (often abbreviated to CPM, using
the Roman numeral for 1,000). The timing of advertising campaigns depends
on factors such as purchasing frequency and buyer turnover (new buyers en-
tering the market).
How much to spend on advertising is always problematic. Some companies
use the comparative-parity method they simply match their competitors'
spending, thereby avoiding advertising wars. Others set their ad budget at a
certain percentage of current sales revenue. But both these methods disregard
the fact that increased ad spending or counter-cyclical advertising can increase
current sales. On the other hand, excessive advertising is counter-productive
because after too many exposures people tend to stop noticing ads, or begin to
find them irritating. And once the most promising prospective customers have
been reached, there are diminishing returns, i.e. an ever-smaller increase in
sales in relation to increased advertising spending.

Ex. 1. Find the terms in the text which mean the following:
1) companies that handle advertising for clients;
2) a contract with a company to produce its advertising;
3) the amount of money a company plans to spend in developing its adver-
tising and buying media time or space;
4) the statement of objectives of an advertising campaign that a client works
out with an advertising agency;
5) the advertising of a particular product or service during a particular pe-

278
riod of time;
6) a defined set of customers whose needs a company plans to satisfy
7) the people who choose where to advertise, in order to reach the right cus-
tomers;
8) the fact that a certain amount of advertising is necessary to attract a pro-
spective customer's attention;
9) choosing to spend the same amount on advertising as one's competitors;
10) advertising during periods or seasons when sales are normally relatively
poor.

Ex. 2. Be ready to discuss the following questions.


1. Why do most companies use advertising agencies?
2. When a company hires an advertising agency, what are the roles of both
parties?
3. What is a media plan?
4. Why does advertising become ineffective after a certain point?

Ex. 3. Use the terms in the box to complete the paragraph.


ad advertising campaign advertising standards advertisement
advertising budget advertising agencies print

Advertising tells people about products through a variety of media types,


e.g. TV, _____, billboards etc. An _____ may use more than one media type,
with TV ads supported by a print advertisement in a magazine, for example.
Most campaigns are designed and managed by _____, or more specifically by
an account executive. The cost of using an advertising agency comes out of
the company’s _____. Agencies are often asked to design a global advertise-
ment that can be used in various countries. They will often tailor advertise-
ments, or adapt them to a market’s particular needs. Agencies need to take
care when designing an _____ that it meets each country’s _____.

CASE STUDY

A. Introduction to the problem.


Frank Perdue entered his father’s business (egg farm) at the age of ten. At
first he did not want to go into family business, but two years after college he
changed his mind. In 1948 when Frank took leadership of the company,
Perdue Farms had forty employees and was one of the largest chicken growers
in the state of Maryland (USA). As a result of special research and breeding

279
program Perdue developed high-quality bird. Large meat and poultry compa-
nies bought Perdue chickens and sold them under their own brand names.
Some years later Perdue decided he could market chicken under Perdue Farms
label.

Task: What kind of promotion of the product would you do for the Perdue
Farms?

B. Scanning for information


Read the article to gather information on the advertising campaign of the
Perdue Farms including information to answer these questions:
– How did the ad agency develop an advertising approach for Perdue Farms
chicken?
– What did the successful TV ads for Perdue chicken look like?

Designing an Advertising Campaign


Putting the Problem in Perspective: Applying Business Concepts
Before Frank Perdue began to advertise, he and his products were un-
known outside of one small area in the United States. Perdue himself decided
to start by running ads about his brand-name chicken in New York, a chal-
lenging designated marketing area (DMA) in which to sell any brand. His
clever ad people decided to feature Frank Perdue as the spokesperson for his
own products. Not only did he look and sound somewhat like a chicken, but
he was able to bolster claims for the quality of his poultry with convincing
personal stories. In a series of commercials, Perdue was seen in such situations
as mixing grain, giving water to the chickens, and personally supervising
workers. Sometimes the camera focused on his face, in close-ups. At other
times it focused on the chickens or equipment, and his voice was heard narrat-
ing in a voiceover. When Perdue uttered his most famous slogan, "It takes a
tough man to make a tender chicken," he conveyed a strong message about
quality and personal dedication to the consumer. The ad campaign gave the
company a face and a personality, and profits skyrocketed.
So successful was the Perdue campaign that it transformed the poultry in-
dustry. The thirty-second spots inspired a great deal of brand-name loyalty
among chicken consumers. People who used to think of fresh chicken as being
all the same began to ask for chicken by name. This brand-name awareness
forced Perdue competitors to advertise their poultry products to consumers.
Perdue Farms made advertising history. In the first sixteen years with the
agency, its advertising budget for radio and television increased from

280
$250,000 to $18 million. Perdue himself became a national celebrity. It was a
surprise to the agency when Frank Perdue refused to become the spokesperson
for Perdue Chicken Franks. Nevertheless, the ad people found a way to keep
him as the keystone of the campaign without having him appear on TV. Once
again, the company's investment in advertising paid off handsomely in in-
creased sales.

C. Interpreting information
Answer the questions based on what you have learned. Use the italicized ex-
pressions in your answers.
a. Why is New York an efficient designated marketing area (DMA) for
Perdue Farms? What is the most efficient DMA in your area?
b. Test your brand-name awareness: Can you name two leading brands of
coffee, tea, or juice? Do you have brand-name loyalty for any of these, or
do you buy for other reasons?
c. Some chief executive officers (CEOs) have tried to imitate the Perdue ad-
vertising campaign by becoming spokespersons for their products, but the
strategy to feature the CEO does not often work. Why not? Do you know
of any senior executives who have appeared as spokespeople for their
products? Was the strategy successful?
c. Think about a TV advertising campaign that is running now. What is the
main message of the campaign? What slogan is used to advertise the prod-
uct? What is the keystone, or central feature, of the campaign? Do the spots
use voiceovers, close-ups, or other special techniques? How effective is the
ad campaign?

D. Discussion
1. Comment on the quality of the business decisions.
2. Advertising can be an enormously powerful business tool. It is also very
costly. In the case of Perdue Farms, advertising was used not only to create
a company image but also to transform an industry.
3. The investment in advertising paid for itself many times over.

E. Fieldwork
Report to the class on advertising strategies used in newspapers and maga-
zines in your area.
– Find several examples of ads for food or other products.
– Discuss the ads in terms of achievement, affiliation, power, fear, sex, and

281
any other strategies used.
– Compare the cultural values expressed in these ads to those expressed in
the Perdue Farms chicken TV ads described in the unit.

WRITING

Part I
Below you’ll read about some techniques used in adverstising. Decide which
appeal to you and which don’t.
1. Repetition. The simplest kind of advertising. A slogan is repeated so of-
ten that we begin to associate a brand name with a particular product or
service.
2. Endorsement. A popular personality is used in the advertisement.
3. Economical appeal. Advertising often appeals to basics such as mother-
love, sex, manliness, femininity.
4. Scientific authority. Sometimes the adverts show a person in a white coat
i.e. a scientist telling us about a product. More often it mentions “miracle
ingredients” or “scientific testing” to persuade us.
5. “Keeping up with the Jones’s.” An appeal to pure snob value. You want
to appear to be richer or more successful than yor neighbors.
6. Comparison. The advert lists the qualities of a product in direct compari-
son with rival products.
7. An appeal to fear or anxiety. This type is similar to 3, but works on our fear.
8. Association of ideas. Cigarette advertising, for example, should be attrac-
tive: healthy people smoking in beautiful rural situations (Usually it is ac-
companied by the words “Smoking is harmful for your health”)
9. Information. If a product is new, it may be enough to show it and explain
what it does.
10. Special offers/free gifts. This is a very simple and direct appeal – it’s half
price!
11. Anti-advertising. This is a modern version which appeals to the British
sense of humour. It makes fun of techniques of advertising.

Part II
Make up advertisements of your own. You may use any of the above mentioned
techniques. Remember that you have to persuade and inform, and are not sup-
posed to say anything misleading or untruthful – although of course in this
case you are free to invent the name of the company, the details of its service,
and so on. The advertisement that follows can serve as an example.

282
Every Day UPS Are Trusted
To Reliable Deliver 12 Million Shipments Worldwide
Our aircraft takes over 123.000 vehicles to put our customers’ trust into
operation and a fleet of over five hundred aircraft world wide. But it’s our
staff that make sure every package arrives safely with an attention to detail
that has made UPS the world’s largest package delivery company and a ser-
vice that people trust, especially with our new Worldwide Express guarantee.
This ensures on time delivery from key cities throughout Central and Eastern
Europe. At UPS we don’t just deliver your packages safely, we do it with a
passion and that means all 12 million of them as sure as taking it there your-
self.

TRANSLATION

A. Translate the following text from Russian into English


Слово реклама происходит от латинского слова reclamo (выкрики-
вать). Реклама – это информация о свойствах потребительских товаров и
различных видах услуг с целью их реализации и создания спроса на них. Со-
временными средствами рекламы служат печать, радио, телевидение, а
также витрины, упаковка, товарные знаки и т.д. Убедить покупателей
выбрать тот или иной товар – это основная задача рекламы. Реклама
должна быть легко различима в средствах массовой информации. B
aнглийском языке реклама обозначается терминами advertising и
publicity. Оценивая и выбирая наилучшие изделия, некоторые люди по-
лагаются на рекламу. Убедить покупателя выбрать тот или иной товар –
это основная задача рекламы. Эмоциональный отклик на рекламу может
быть связан с личными надеждами, страхами и предрассудками челове-
ка. Реклама не должна неправильно информировать или обманывать по-
купателя, а также дискредитировать другие изделия прямо или намеком.
Рекламируя товары или услуги, необходимо соблюдать принципы чест-
ной конкуренции.

B. Translate the following text from English into Russian.


Radio advertisements and their relationships to their surrounding enter-
tainment programs were exactly the opposite of their modern counterparts,
television commercials. In the 30s a company hoping to draw attention to its
product was not simply responsible for creating a fifteen-second commercial;
it had to provide the entertainment as well, usually fifteen, thirty, or sixty
minutes worth of it. About one third of all radio broadcasts were sponsored

283
ones, but they were often more memorable because they were under consider-
able pressure to uniquely stand out and to increase sales of their products.
Today, the most popular television shows, news programs, and, in particu-
lar, sporting events command extraordinary fees for commercial time. Televi-
sion advertisers attach their products to entertainments with wide audiences
and therefore hope to benefit from the large numbers of viewers. Тelevision
and radio have one extremely important characteristic in common: both reach
enormous national audiences that most print mediums cannot even approach.

LISTENING

Listen once to the three radio commercials, which come from music-based ra-
dio stations in London.
What are the products and services being advertised?
Now listen again to each of the commercials in turn, as many times as neces-
sary to answer the questions which follow.
Commercial 1
1. Which three aspects of the service are emphasized?
2. What, according to the ad, will be the effect of the first two of them on the
customer?
3. Why do you think these three aspects were chosen, and why does the ad
use these particular verbs?
4. What is the short, last sentence of the ad?
5. What else does the ad use apart from words?
Commercial 2
1. What is the horror story here, and why?
2. Unusually, the listener is not expected to understand everything that is said
in this ad. Why not?
3. The ad mentions home entertainment systems. What other terms does it use
instead of the more common stereo, radio, television and recorder?
4. Do you find this ad amusing?

Commercial 3
1. How does the ad give an Italian ‘flavour’? Can you think of any other way
in which this could have been done?
2. Which of these three ads do you prefer, and why?

284
SPEAKING

Dwell on the following issues:


1. What is the role of advertising?
2. How do you understand the difference between commercial and image-
advertising?
3. Make comparison between advertising and public relations. Do they have
anything in common? How are they different?
4. What means of mass communication are used for spreading advertising in
society? What is the peculiarity of each of them? When is it better to use
one means and when others? Why?. Which of them do you find the most
effective?

VOCABULARY

advertising agent – агент по рекламе


advertising agency – рекламное агентство
advertising media – средства передачи рекламы
agreed budget/brief – согласованный бюджет
billboard Am. (hoarding Br.) advertising – реклама на стендах
сlassified advertisements – систематическая реклама
depict v – изображать
descriptive advrtising – описательная реклама
display n – показ, объявление в рекламе на транспорте
advertisements ~ ads – изобразительные или макетные рекламные
объявления
flyer (syn. fly sheet) – листовка, рекламный материал невысокого качества
handbill n – рекламный листок
informative advertising – информационная реклама
institutional advertising – рекламирование достоинств организации
junk mail – «макулатурная» почта (реклама)
mass media – средства массовой информации
misleading advertising – реклама, вводящая в заблуждение
persuasion n – убеждение
spam n практически бесполезная информация (обычно - реклама), прину-
дительно рассылаемая большому числу абонентов электронной почты
sponsor n – фирма, заказывающая радио или телепрограмму в рекламных
целях; устроитель, организатор; спонсор
subliminal advertising – реклама, действующая на подсознание

285
GLOSSARY

· Advertising – any paid form of nonpersonal communication through the


mass media about a product by an identified sponsor.
· Word-of-mouth advertising – a form of advertising when people tell their
friends about the benefits of products or services that they have purchased
· Institutional or prestige advertising – a form of advertising which is de-
signed to build up their reputation rather than to sell particular products
· Descriptive advertising – gives the most important facts about the prod-
uct.
· Persuasive advertising – tries to persuade people that the product which is
being advertised has a special quality or usefulness which makes it much
better than other similar products.
· Adversisement /advert/ad – an announcement in a newspaper, on televi-
sion, or on a poster about something such as a product, event, or job.
· Commercials – advertisements on the radio and TV
· Classified advertisements (also classifieds or want ads) – small adverts
placed in a newspaper
· Junk mail is advertisements that you receive through the post, which you
have not asked for and which you do not want.
· Spam is unwanted e-mail advertisements sent to a large number of people.
· Agreed budget/brief – a statement of the objectives of the advertising
campaign
· Media plan specifies which media – newspapers, magazines, radio, televi-
sion, cinema, posters, mail, etc. – will be used and in which proportions

286
СПИСОК ИСПОЛЬЗОВАННОЙ ЛИТЕРАТУРЫ

1. Бедрицкая Л. В. Английский для экономистов. – Мн.: «Книжный


дом», 2004.
2. Князева Н. И. и др. Экономика. Шаг за шагом. 1-3 ч. – Мн., БГУ,
2000.
3. Коваленко П. И. Агабекян И. А. Английский для экономистов. –
Ростов-на-Дону: «Феникс», 1999.
4. Лазаренко А. М. Сосредоточьтесь на экономике. – Мн.: «Лексис»,
2003.
5. 'Advertising' 4th edition, Mandell (Prentice Hall)
6. Carrier Michael. Business Reading Skills. – Thomas Nelson and Sons
LTD. – 1985.
7. Barnard Roger, Cady Jeff. Business Venture. – OUP.
8. Bateman T. S. Management Building. Competive Advantage. – MacGraw
Hill Co. – 1996.
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11. English for Business. A Functional Approach. – DP Publications LTD. –
1995.
12. Ivancevich et al. Management. Quality and Competitivenes. – Irwin. –
1994.
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Hill, Inc. – 1990.
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Press. – 2000.
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lishing. – 2001.

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CONTENTS

ПРЕДИСЛОВИЕ…………………………………………………………………………...3
1. PROFESSION OF AN ECONOMIST ....................................................................... 5
2. ECONOMICS AS A SCIENCE………………………………………………….….25
2.1. ECONOMICS AND ECONOMIC METHODS ....................................................25
2.2. ECONOMIC SYSTEMS.......................................................................................39
3. THE MACROECONOMY ............................................................................................ 49
3.1. GROSS DOMESTIC PRODUCT ..........................................................................49
3.2. INFLATION..........................................................................................................61
3.3. ECONOMIC BUSINESS CYCLES AND UNEMPLOYMENT.................................77
3.4. BANKING.............................................................................................................90
3.5. MONEY AND MONETARY POLICY ...............................................................110
3.6. FISCAL POLICY ................................................................................................132
4. THE MICROECONOMY............................................................................................ 147
4.1. SUPPLY AND DEMAND ...................................................................................147
4.2. MARKET STRUCTURE.....................................................................................161
5. THE GLOBAL ECONOMY ....................................................................................... 176
5.1.INTERNATIONAL TRADE .......................................................................................... 176
5.2.GLOBAL MARKET AND DEVELOPING NATIONS. ............................................... 192
6. BUSINESS ADMINISTRATION.............................................................................. 208
6.1. COMPANY STRUCTURE..................................................................................208
6.2. MANAGEMENT................................................................................................226
6.3. ACCOUNTING ...................................................................................................243
6.4. MARKETING .....................................................................................................260
6.5. ADVERTISING...................................................................................................275

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Учебное издание

ENGLISH for Economists

А в т о р ы – с о с т а в и т е л и:
Тихомирова Л. Б., Князева Н. И., Рунцова Э. В. и др.

Под общей редакцией кандидата филологических наук Н. И. Князевой


и кандидата экономических наук Е.Э. Васильевой

Технический редактор
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Ответственный за выпуск

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Печать офсетная. Усл. печ. л. ___. Тираж 100 экз. Зак.

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289