Образовательное учреждение профсоюзоввысшего образованияАКАДЕМИЯ ТРУДА И СОЦИАЛЬНЫХ ОТНОШЕНИЙКафедра профессиональных иностранных языковРЕФЕРАТпо дисциплине "Иностранный язык"По монографииWilliam A. McEachern,"Economics: A Contemporary Introduction" (Современный Взгляд на Экономику")Выполнила: аспирант кафедры
Экономики и менеджмента
1-го года обучения
Еремина Мария Николаевна
Проверила: к.п.н., профессор,
Матвеева Ирина Владимировна
Москва 2015
Сontents
4
Summary 7
Monography 15
Translation 27
Glossary 43
References 49
Summary
Economics is the study of how people choose to use their scarce resources to produce, exchange, and consumer goods and services in an attempt to satisfy unlimited wants. The economic problem arises from the conflict between scarce resources and unlimited wants. If wants were limited or if resources were not scarce, there would be no need to study economics.
Economists use theories, or models, to help understand the effects of an economic change, such as a change in price or income, on individual choices and how these choices affect particular markets and the economy as a whole.
Demand and supply are the building blocks of a market economy. Although a market usually involves the interaction of many buyers and sellers, few markets are consciously designed. Just as the law of gravity works whether or not we understand Newton’s principles, market forces operate whether or not participants understand demand and supply. These forces arise naturally, much the way car dealers cluster on the outskirts of town to attract more customers. Markets have their critics. Some observers may be troubled, for example, that an NBA star like Kevin Garnett earns a salary that could pay for 500 new schoolteachers, or that corporate executives, such as the head of Goldman Sachs, a financial firm, earns enough to pay for 1,000 new schoolteachers, or that U.S. consumers spend over $40 billion on their pets.
In a market economy, consumers are kings and queens. Consumer sovereignty rules, deciding what gets produced. Those who don’t like the market outcome usually look to government for a solution through price ceilings and price floors, regulations, income redistribution, and public finance more generally.
Market structure describes important features of the economic environment in which firms operate. These features include the number of buyers and sellers in the market, the ease or difficulty of entering and leaving the market, differences in the product across firms, and the forms of competition among firms.
A perfectly competitive market is characterized by (a) a large number of buyers and sellers, each too small to influence the market price; (b) firms in the market supply a commodity, which is a product undifferentiated across producers; (c) buyers and sellers possess full information about the availability and prices of all resources, goods, and technologies; and (d) firms and resources are freely mobile in the long run.
The market price in perfect competition is determined by the intersection of the market demand and market supply curves. Each firm then faces a demand curve that is a horizontal line at the market price. The firm’s demand curve also indicates the average revenue and marginal revenue received at each rate of output. Firms in perfect competition are said to be price takers because no firm can influence the market price. Each firm can vary only the amount it supplies at that price.
Production cannot occur without savings, because both direct production and roundabout production require time - time during which the resources required for production must be paid. Because people value present consumption more than future consumption, they must be rewarded to defer consumption. Interest is the reward to savers for forgoing present consumption and the cost to borrowers for being able to spend now.
Choosing the profit-maximizing level of capital is complicated because capital purchased today yields a stream of benefits for years into the future. The expected rate of return on capital equals the expected annual earnings of that capital divided by that capital’s purchase price. The profit-maximizing firm invests up to the point where the expected rate of return on capital equals the market rate of interest. The market interest rate is the opportunity cost of investing.
The demand and supply of loan able funds determine the market interest rate. At any given time, interest rates may differ because of differences in risk, maturity, administrative costs, and tax treatment.
The current value of future payments is the present value. The process of translating future payments into present value is called discounting. The present value of a given payment is smaller the further into the future that payment is to be received.
A given sum of money received each year for a specified number of years is called an annuity. The present value of receiving a sum each year forever is the amount received each year divided by the market interest rate.
An entrepreneur is a profit-seeker who comes up with an idea, tries to turn that idea into a marketable product, and accepts the risk of success or failure. The entrepreneur need not supply any resource other than entrepreneurial ability, though many manage the firm and provide some start-up funds. By developing new products, improving existing ones, employing better production methods, and finding new ways of doing business, successful entrepreneurs earn a profit and drive the economy forward.
Corporations fund new investment from three main sources: new stock issues, retained earnings, and borrowing (either directly from financial institutions or by issuing bonds). Once new stocks and bonds are issued, they can then be bought and sold on securities markets. The value of corporate stocks and bonds tends to vary directly with the firm’s profit prospects. More profitable firms have better access to funds needed for expansion.
The federal budget process suffers from a variety of problems, including overlapping committee jurisdictions, lengthy budget deliberations, budgeting by continuing resolutions, budgeting into much detail, failure to distinguish between operating costs and capital costs, and a lack of control over most of the budget. Suggested improvements include instituting a biennial budget, budgeting in less detail, and distinguishing between an operating budget and a capital budget.
Deficits increase during wars and severe recessions, but deficits remained high during the economic expansions of the 1980s. Those deficits arose from a combination of tax cuts during the early 1980s and growth in federal spending.
To the extent that deficits crowd out private capital formation, this decline in private investment reduces the economy’s ability to grow. This is one cost of deficit spending. Foreign holdings of debt also impose a burden on future generations because debt payments go to foreigners. Thus, the deficits of one generation of Americans can reduce the standard of living of the next.
After peaking at $290 billion in 1992, the federal deficit turned into a surplus by 1998 because of higher tax rates, reduce do utlays especially for defense, declining interest rates, and a strengthening economy fueled by growing labor productivity.
The recession of 2001 and terrorist attacks prompted tax cuts to “get the economy moving again.” The weak recovery plus the tax cuts and federal spending increases all contributed to a growing federal deficit, which topped $400 billion in 2004. But by 2007 a growing economy helped cut the federal deficit by more than 50 percent. The recession of 2007–2009 cut federal revenue and spurred federal spending, both of which increased the deficit to $1.4 trillion in 2009 and $1.5 trillion in 2010. The longer term looks even bleaker as baby boomers begin retiring, prompting more spending for Social Security and Medicare.
Most recently the U.S. federal debt measured relative to GDP was above average for major industrial countries and was relatively high compared to U.S. historical levels stretching back to1940. The recent recession and policy responses to it have rocketed the federal deficit above $1 trillion and sharply increased the national debt. Something has to give.
The value of money depends on what it buys. If money fails to serve as a medium of exchange, traders find other means of exchange, such as barter. If a monetary system breaks down, more time must be devoted to exchange, leaving less time for production, so efficiency suffers. No machine increases an economy's productivity as much as a properly functioning money.
The Federal Reserve System, or the Fed, was established in1913 to regulate the banking system and issue the nation’s currency. After a third of the nation’s banks failed during the Great Depression, the Fed’s powers were increased and centralized. The primary powers of the Fed became to conduct open-market operations (buying and selling U.S. government securities), to set the discount rate (the interest rate the Fed charges borrowing banks), and to establish reserve requirements (the share of deposits banks must hold in reserve).
1. Short-run aggregate supply is based on resource demand and supply decisions that reflect the expected price level. If the price level turns out as expected, the economy produces its potential output. If the price level exceeds expectations, short-run output exceeds the economy’s potential, creating an expansionary gap. If the price level is below expectations, short-run output falls short of the economy’s potential, creating a recessionary gap.
2. Output can exceed the economy’s potential in the short run, but in the long run, higher nominal wages will be negotiated at the earliest opportunity. This increases the cost of production, shifting the short-run aggregate supply curve leftward along the aggregate demand curve until the economy produces its potential output.
3. If output in the short run is less than the economy’s potential, and if wages and prices are flexible enough, lower nominal wages will reduce production costs in the long run. These lower costs shift the short-run aggregate supply curve rightward along the aggregate demand curve until the economy produces its potential output.
4. Evidence suggests that when output exceeds the economy’s potential, nominal wages and the price level increase. But there is less evidence that nominal wages and the price level fall when output is below the economy’s potential. Wages appear to be “sticky” in the downward direction. What usually closes are cessionary gap is an increase in aggregate demand.
5. The long-run aggregate supply curve, or the economy’s potential output, depends on the amount and quality of resources available, the state of technology, and formal and informal institutions, such as patent laws and business practices, that shape production incentives. Increases in resource availability, improvements in technology, or institutional changes that provide more attractive production incentives increase aggregate supply and potential output.
6. Supply shocks are unexpected, often temporary changes in aggregate supply. Beneficial supply shocks increase output, sometimes only temporarily. Adverse supply shocks reduce output and increase the price level, a combination called stagflation. Adverse supply shocks may be temporary.
Regulations introduced during the Great Depression turned banking into a closely regulated industry. Reforms in the 1980s gave banks more flexibility to compete for deposits with other kinds of financial intermediaries. Some banks used this flexibility to make risky loans, but these gambles often failed, causing bank failures. By the mid-1990s, U.S. banks were thriving once again. Mergers and holding companies create larger banks that span the nation. But U.S. banks are still not that large by world standards.
A decades-long rise in home prices, the growth of subprime mortgages, and the spread of mortgage-backed securities created the financial crisis of September 2008. Credit dried up. The government first tried to stabilize markets by investing in financial institutions. Later, the Dodd-Frank Act of 2010, the most sweeping reform of financial markets since the Great Depression, authorized regulators to write and interpret hundreds of new financial rules. Banks are back to being more tightly regulated about the kinds of assets they can own and trade.
Banks play a unique role in the economy because they can transform someone’s IOU into a checkable deposit, and a checkable deposit is money. The banking system’s ability to expand the money supply depends on the amount of excess reserves in that system.
Banks are unlike other financial intermediaries because they can turn a borrower’s IOU into money - they can create money. Banks match the different desires of savers and borrowers. Banks also evaluate loan applications and try to diversify portfolios of assets to reduce the risk to any one saver.
In acquiring portfolios of assets, banks try to maximize profit while maintaining enough liquidity to satisfy depositors’ requests for money. Assets that earn the bank more interest are usually less liquid.
Any single bank can expand the money supply by the amount of its excess reserves. For the banking system as a whole, however, the maximum expansion of the money supply equals a multiple of fresh bank reserves. The simple money multiplier is the reciprocal of the reserve ratio, or 1/r. This multiplier is reduced to the extent that (a) banks allow excess reserves to remain idle, (b) borrowers sit on their proceeds, and (c) the public withdraws cash from the banking system and holds it.
Between World War II and October 1979, the Fed tried to maintain stable interest rates as a way of promoting a stable investment environment. During the 1980s and early 1990s, the Fed paid more attention to growth in money aggregates, first M1 and then M2. But the velocity of M1 and M2 became so unstable that the Fed shifted focus back to interest rates, particularly the federal funds rate. To pursue its main goals of price stability and sustainable economic growth, the Fed uses open-market operations to adjust the federal funds rate, raising the rate to prevent higher inflation and lowering the rate to stimulate economic growth.
As a result of the financial crisis of September 2008, the Fed broadened its scope of action to include offering interest on bank reserves at the Fed, bailing out a huge financial institution, lending more than $100 billion in discount loans tobanks, investing more than $1 trillion in mortgage-backed securities to keep mortgage rates low, and helping financial regulators perform stress tests on the nation’s largest banks. The Fed’s actions during the crisis suggest that it would do whatever was required to ensure the survival of the banking system and the economy.
The important question is whether the economy is stable and self-correcting when it gets off tracker unstable and in need of active government intervention. Advocates of active policy believe that the Fed or Congress or both should reduce economic fluctuations by stimulating aggregate demand when output falls below its potential level and by dampening aggregate demand when output exceeds its potential level. Advocates of active policy argue that government attempts to reduce the ups and downs of the business cycle may not be perfect but are still better than nothing. Some activists also believe that high unemployment may be self-reinforcing, because some unemployed workers lose valuable job skills and grow to accept unemployment as a way of life, as may have happened in Europe.
Advocates of passive policy, on the other hand, believe that discretionary policy may worsen cyclical swings in the economy, leading to higher inflation in the long run with no permanent increase in potential output and no permanent reduction in the unemployment rate. This group favors passive rules for monetary policy and automatic stabilizers for fiscal policy.
The active-passive debate in this chapter has focused primarily on monetary policy because discretionary fiscal policy has been hampered by large federal deficits that ballooned the national debt. But the recession of 2007–2009 was so severe that most fiscal policy makers decided to worry later about deficits and debt.
