Microeconomics and Macroeconomics

Macroeconomic Models

 

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

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

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

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

Notes:

tool – инструмент

replicate – воссоздавать

distinctive properties – отличительные черты, свойства

forecast – прогноз

think tank – экспертно-аналитический центр

 

Unit 3

Types of Economic Systems

A Consumer Economy

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

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

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

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

Notes:

spender – лицо, осуществляющее расходы

revitalize – восстановить активность

 

Unit 4

Scarcity and Choice

The Web as a Sales Tool

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

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

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

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

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

Notes:

remain – оставаться

transact – вести переговоры

link – канал связи, связующее звено

 

 

Unit 5

Demand and Supply

Import and Export

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

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

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

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

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

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

Notes:

overseas ventures – иностранные компании, предприятия

domestic trade – внутренняя торговля

currency – валюта

better off – обеспеченный, состоятельный

balance of trade – торговый баланс

 

 

Unit 6

Opportunity Cost

A University Education and Opportunity Cost

 

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

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

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

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

Notes:

tuition – обучение

foregone earnings – упущенные заработки

 

Unit 7

Money