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

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

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The
gross national product (GNP) is the total value at — current or at constant prices

of all final goods and
services produced by a nation’s economy in a year (or any other standard period of
time). “Gross” means before deduction of
depreciation charges; “final” means
that intermediate inputs are excluded (no
double counting, or duplication).
The GN at current prices is called the “nominal GNP”, the GNP at
constant prices the “real GNP”. The real GNP may be calculated by applying
a GNP deflator to the nominal GNP, the deflator corresponding
to the rate of inflation for all final goods and services.

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


Although
the GNP is a very useful concept, its usefulness as a measure of national welfare
and in international comparisons is increasingly being called into doubt by
economists. The GNP has been criticised because it fails to include the value added
by non-market activities (e.g., the work of housewives) and value of leisure, while,
on the other hand, it does include “regrettable”

i.e., expenditure
intended to remedy some evil which might never have come into existence but for
activities leading to a higher GNP (e.g., treatment
of occupational diseases, anti-pollution expenditure). Furthermore,
the GNP fails to account for the unwanted by-products (“bads”, or
externalities”, in economic jargon) of the economic process, which certainly have
to be taken into account when assessing the net benefit of this process to society
as a whole. The prime example is certainly pollution.

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


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


Vocabulary

the
total value – загальна вартість

deduction
– віднімання, зниження, висновок

to
depreciate – знецінювати

depreciation
charge – плата зниження вартості

intermediate
input – проміжний

to
exclude – виключати, вилучати

duplication
– подвоєння

current
prices – поточні ціни

constant
prices – постійні ціни

deflator
– дефлятор (скорочення, зниження)

leisure
– дозвілля

pollution
– забруднення

regrettables
– прикрощі

to
remedy – відшкодувати, виправляти

externalities
– зовнішні обставини

to
assess – оцінювати майно для оподаткування

net
benefit – чистий прибуток

shortcoming
– вада, дефект

net
national welfare – чистий національний прибуток

indices
– індекси.

І.
Complete the sentences using the text:

1.

The gross national product
is the total … .

2.

The GNP at current prices
is called … .

3.

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

4.

The GNP fails to account
for … .

5.

Another shortcoming is
that … .

6.

To remedy some of these
defects … .

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

1.

What is the definition of
GNP?

2.

What does «Gross» mean?

3.

What does «final»mean?

4.

How is the GNP at current
prices called?

5.

How is the GNP at constant
prices called?

6.

How may the real GNP be
calculated?

7.

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

8.

Why has the GNP been
criticised?

9.

What are the shortcomings
of the GNP?

10.

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

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

1.

The gross national product
is the total value at current or at constant prices

of all final goods and
services produced by a nation’s economy in a year.

2.

The GNP at current prices
is called the «nominal GNP».

3.

The GNP at constant prices
is called the «real GNP».

4.

There are two methods of
calculating the GNP.

5.

The GNP is a very useful
concept.

6.

The GNP has no
shortcomings.

An advanced country like the United States is very complex.
It involves millions of
individual decision-making units – individuals, business and governments make
billions of decisions daily.

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


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


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


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


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



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

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


Vocabulary

an
advanced country – високо розвинута країна

to
involve – залучати, втягувати

decision
— making – прийняття рішень

decision
making units – самостійна господарча одиниця, яка
наділена правом приймати рішення.

aggregate
demand – сукупний попит

household
– домашнє господарство

It
makes no difference – не існує різниці.

І.
Complete the sentences using the text:

1.

Microeconomics is the
branch of … .

2.

Macroeconomics deals with
… .

3.

Macroeconomic is made up
of several different parts called … .

4.

Aggregate demand is … .

5.

One sector of the
macroeconomics is … .

6.

A second sector is … .

7.

A third sector in the
macroeconomics is … .

8.

The fourth sector includes
… .

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

1.

What does microeconomics
deal with?

2.

Macroeconomics deals with
large groups or aggregates, doesn’t it?

3.

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

4.

What is known as Aggregate
Demand?

5.

What do the sectors of the
macroeconomic represent?

6.

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

7.

What is the business or
investment sector made up of?

8.

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

9.

What does the
macroeconomics government or public sector include?

10.


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

11.


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

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

1.

Microeconomics
is the branch of economics that deals with decision-
making making units

individuals, businesses
and governments.

2.

Macroeconomics deals with
large groups or aggregates.

3.

Macroeconomics is made up
of two sectors.

4.

The household is the basic
unit in macroeconomics.

5.

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

6.

Public sector includes the
government.

7.

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

8.

Foreign buyers should be
private investors or private individuals.

Aggregate
demand is the total or aggregate quantity of output that is willingly bought at a
given level of prices, other things held constant. Aggregate demand is the desired
spending in all product sectors: consumption,
private domestic investment, government purchases
of goods and services, and net exports. It has four components:


1.

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

2.

Investment.

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

3.

Government
spending
.

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



4.

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

Vocabulary

aggregate
quantity – сукупна кількість

long-term
trend – довготермінова тенденція

determinant
– вирішальний фактор, показник

accumulation
of inventories – накопичення майна

along
with – разом з

road
— building equipment – обладнання для будівництва
доріг

net
export – чистий експорт

domestic
income – внутрішній доход

ratio
– відношення

the
mirror image – дзеркальне відображення.

І.
Complete the sentences using the text:

1.

Aggregate demand is … .

2.

Aggregate demand has …
components.

3.

Consumption is determined
by … .

4.

Aggregate demand analysis
focuses on … .

5.

Investment spending
includes … .

6.

Government spending is
determined … .

7.

Net export equals … .

8.

Imports are determined by
… .

9.

Exports are determined by
… .




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

1.

What is aggregate demand?

2.

What components has
aggregate demand?

3.

What is consumption
determined by?

4.

What does aggregate demand
analysis focus on?

5.

What purchases does
investment spending include?

6.

What are the major
determinants of investment?

7.

Unlike consumption and
investment, government spending is determined directly by the government’s
spending decisions, isn’t it?

8.

What is net exports?

9.

What are imports
determined by?

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

1.

Aggregate demand is the
desired spending in all product sectors.

2.

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

3.

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

4.

Aggregate demand analysis
focuses on the determinants of real consumption.

5.

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

6.

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

7.

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

8.

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

9.

Exports are the mirror
image of imports.

10.


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




A
major problem with GNP is that it is subject to distortions because of inflation –
a rise in the general price level. With inflation output may appear to grow from one
year to the next without actually doing so.


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

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


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


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


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


The prod

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