Supplementary Reading: The Latest Macroeconomic News

Read and translate the following text, consider the vocabulary notes

Russia`s gross domestic product growth has dipped to 1.4 per cent in the first six months of 2013. This is three times less than the figure for June-January 2012 which stood at 4.5 per cent. However, GDP rose by 1.8 percent year-on-year in July, Deputy Economy Minister Andrei Klepach said on Tuesday, up from 1.5 percent in June. The Bank of Russia has published a report about a week ago saying GDP growth will not exceed 2 per cent this year. Natalya Volchkova, Policy Director at the Center for Economic and Financial Research, says the GDP decline is driven by substantial drop in investments. “On one hand, state sector cannot support the previous volume of investments because of cuts in budget spending brought by slow down of oil price increase. On another hand, business climate for private investors is not getting better and for some segments of business, it is worsening,” Volchkova told The BRICS Post. The slowing growth rate has raised concerns about a possible recession in the Russian economy, but officials in Moscow assert the economy is "stagnant", but not in a recession. “There is no recession. And will not be. Stagnation is probably an appropriate term. There are low growth rates, and these are institutional, structural and macroeconomic factors. This is what we will be tackling for a long time,” Alexei Ulyukayev, Russia’s Minister of Economic Development said in an interview with Kommersant daily earlier this month. The minister claims that the state is burdened by massive social spending that is much higher in Russia compared to other middle income countries. “On one hand, we have huge pension system burden. On the other – expenses on tariff policy have significantly increased – gas supply expenses, goods transportation expenses, railroad expenses, network expenses, energy supply expenses. Finally, we have a very bad income to GDP growth ratio,” Ulyukaev said. Despite the dip in the recent figures, many see this indicator as healthy. “But at the same time, this year`s growth, which we expect to hit only 1.7%, can be easily called healthy: it is not supported either by fiscal expansion (growth in federal government spending will likely decline from 18% in 2012 to just 3% this year), nor by monetary easing (money market rates are at the highest level since crisis times while lending growth has peaked in mid of 2012 and since then decelerating),” writes Maxim Oreshkin, Chief Economist for Russia at VTB Capital, adding that when Russia`s Central Bank starts loosening monetary policy, analysts expect a “powerful recovery, as there is clearly a cyclical factor in the recent slowdown.”

Vocabulary Notes

1. gross domestic product growth – рост ВВП

2. cuts in budget spending – сокращение бюджетных расходов

3. a recession/ stagnation – спад, кризис/ застой

4. expenses on tariff policy – расходы на тарифную политику

5. monetary easing – монетарное стимулирование

Over to You

1. Examine the main macroeconomic indicators of Russia and the UK, make a presentation comparing their present day economic situation.

http://www.economy.com/dismal/outlook/country.aspx?geo=IRUS

http://www.economy.com/dismal/outlook/country.aspx?geo=IGBR

2. Play a role of the University professor, prepare for the lecture on

Macroeconomics, try to explain the differences between Microeconomics

and Macroeconomics in the most comprehensive interesting way. Use

additional resources and make a power point presentation.

 

Related References:

1. http://economics.about.com/od/macromicrootherfields/Macroeconomics_Microeconomics_and_Other_Economics_Subfields.htm

2. http://www.investopedia.com/video/play/macro-versus-microeconomics#axzz21qEcQNfE

3. http://www.youtube.com/watch?v=DkgZxoDFZPM

Unit 3. First Insights into Economic Theories

Before You Read

Answer the questions:

1. What is an economic theory? What’s their value?

2. What economic theories do you know?

3. Below there is a list of some of the terms you will come across in the following text. See if you understand them. Consult a dictionary: http//www.multitran.ru to help you, check with the key.

Key Vocabulary

1. economic concept	9. government intervention
2. scientific backing	10.personal property
3.a stated hypothesis	11. command economies
4. government spending	12. redistribution of wealth
5.to make laws	13. targeted government spending
6.tax collections	14. job creation
7. to set a policy	15. to guide a monetary policy
8.to favor a free market system	16. to ensure an equal status

Reading and Comprehension

Read the text, remember the bolded expressions and answer the following questions:

1. What is economic theory?

2. Why do national governments have an interest in economic theory?

3. What are the key points of a classical economic theory?

4. What are the main ideas behind socialism and communism theories?

5. What does Keynesian economic theory dictate?

6. Why is economic methodology important?

7. What does “homo economicus” theory imply?

8. What theory do market economies most often ascribe to?

What is economic theory?

Economic theory is a broad concept for the explanation and understanding of the movement of goods in a market. Theoretical economic concepts typically have scientific backing or studies to prove or disprove a stated hypothesis. National governments also have an interest in economic theory. Politicians rely on studies of government spending, tax collections, money supply, and consumer spending data to make laws or set policy. Different economic theories exist that focus on different aspects of government policy regarding economics.

Classical economic theory tends to favor a free market system. Under this theory, little government intervention is necessary to help support a society. Classical economists believe that individuals allowed to act in their own self-interests will present a strong group of consumers. Terms like capitalism and supply side economics also describe this theory. The protection of personal property through courts of law is often a major component of free market economic theory.

Another classic economic theory is command economies driven by national governments. Terms associated with these economies include socialism and communism. The main ideas behind these theories are that governments control the majority of economic resources. Governments allocate resources, give jobs to certain classes or people, and regulate the economy through heavy taxation. The redistribution of wealth attempts to ensure an equal status for all individuals living under the government’s umbrella.

A more modern economic theory is Keynesian economics. This theory is a slight combination between the two previous theories. Keynesian theory dictates that targeted government spending and intervention into a national economy helps keep goods moving when free markets become inefficient. Government spending controls do not often exist under Keynesian economics as governments may not have spending limits. Another inherent issue is the inability to control employment, as government spending does not always result in job creation.

While other economic theories exist, these are often the main ones a government uses to guide its fiscal and monetary policy. Economists often spend copious time collecting data and reviewing financial information to help provide information for making decisions. These studies and information-gathering sessions represent the science that backs up economic theory. Economic methodology is also important; methodology dictates the best way to collect data and make it useful for economic decision making.

Typically, economic theory uses a model individual to describe actions taken by people in economic environments. The theory — known as homo economicus — describes humans as rational and self-interested people who make judgments about their lives. Through this theory, economists attempt to determine how individuals will react to certain economic situations. Free market economies most often ascribe to this theory.

Written by Osmand Vitez, edited by PJP Schroeder, http://www.wisegeek.com/what-is-economic-theory.htm,

Vocabulary Expansion

1. Complete the chart

Verb	Adjective	Noun 1	Noun 2
	political	politician	policy
collect
		employer
explain
			theory
			intervention
prove

 

2. Add suffixes to make the following words have a negative meaning

Efficient, ability, prove, employment, economical, interesting

3. Complete the following collocations with an appropriate preposition according to the text.

a) movement … goods	f) … this theory
b) to have an interest … economic theory	g) associated … these economies
c) to rely … studies	h) the main idea … the theory
d) to regulate … taxation	i) to make judgments … lives
e) react … situations	j) to ascribe … theory