Exercise 1.Label the following statements with the names of the economists whose ideas they describe:
Adam Smith John Maynard Keynes Milton Friedman Robert Lucas
1. The government should intervene in the economy to counter the business cycle.
2. The cause of inflation is unnecessary monetary growth.
3. Planned governmental intervention is not effective as the market will anticipate it.
4. Prices and incomes will find their natural level in an economy which is powered by free enterprise and individualism.
Exercise 2. Match the following word partnerships, all of which occurred in the text.
| 1. perfect 2. general 3. allocative 4. full 5. governmental 6. rational 7. money 8. demand 9. fiscal 10. business | a. employment b. management c. cycle d. equilibrium e. policy f. competition g. efficiency h. expectations i. intervention j. supply |
Exercise 3. Here is the summary of the text. Use the following to fill in spaces:
| anticipate counter | market flexible | consume inflationary | classical stabilize | taxation aggregate |
1. The (1) … economists argued that individual self-interest and competition naturally determine prices and incomes. In a perfectly competitive market, wages and prices would be perfectly (2) … , leading to a general equilibrium. Yet the Depression of the 1930’s demonstrated that the (3) … system does not automatically lead to full employment, because if people are worried about the future, they save more and (4) … less, which leads to fall in production and employment. Keynes recommended governmental intervention in the economy, to (5) … the business cycle – increase or decrease in (6) … and/or government spending as necessary.
Yet the “stagflation” of the 1970’s demonstrated the limits of Keynesianism. Recent neo-classicists argue that short-term policies to (7) … the economy damage medium or long-term economic growth, and that full employment is necessarily (8) … . Furthermore, Rational Expectations theorists argue that economic agents are able to (9) … and counteract fiscal and monetary policies. Monetarists argue that inflation is caused by excessive monetary growth, so that the role of government is to ensure a fixed growth rate for the money supply. Supply-side theorists believe that economic policy should focus on (10) … supply, e.g, boosting a stagnant economy by lowering taxes on capital and business profits.
Exercise 4. Which ten terms in the box are defined in the sentences below?
| austerity deregulation laissez-faire monetarism recession | capitalism infrastructure market economy planned economy regulation | crowd out interference market failures private sector stagnant | demand management intervention mixed economy public sector supply-side theory |
1. … an economy with both private and public sectors.
2. … a word used to describe economic policies and measures designed to reduce inflation, the quantity of imports, government spending, and so on.
3. … all nationalized industries or services, such as education, health care, justice, public transport.
4. … situations in which free competition and the effects of supply and demand do not operate (e.g. monopolies and oligopolies, and externalities).
5. … the belief that the economy works best when the state does not plan, control, or interfere.
6. … the ending or relaxing of legal regulations or restrictions in a particular industry (e.g. finance, television).
7. … the Keynesian policy of stimulating an economy in a period of recession, and contracting the economy if it overheats.
8. … the neutral term that describes governmental action in the economy.
9. … all the services such as roads, railways, electricity, telephones, etc. that exist in developed countries.
10. … reduce the amount of money available for private investment by increasing government borrowing.
Exercise 5. Read the imaginary dialogue below. It is between two economists: Milton Friedman and J.M.Keynes. They are discussing the impact of the European Airbus project on the world airliner market. Fill in the spaces with appropriate words from the box.
| competition competitor consortium | economies export subsidies free trade | market share monopoly resources | scale subsidies suppliers |
Keynes: The Airbus project has been good for consumers. It has stopped Boeing having a (1) … in the airliner market.
Friedman: In fact, Boeing already had a (2) … in McDonnell Douglas.
Keynes: Yes, it did. But the Airbus did lower prices due to the arrival of more (3) … .
Friedman: But the benefits of Airbus do not match the subsidy which the European taxpayer paid for. (4) … is the best way to run the global economy. It is cheaper than tariff barriers, import quotas and (5) … .
Keynes: I can’t agree. The airliner industry has few companies. They can make (6) … of (7) … . This means low costs and real competition between (8) … . This is what happened between Boeing and Airbus. The Airbus (9) …, with four countries, has built up (10) … . The benefit to the European economy has been more than the cost of the (11) … .
Friedman: I am not sure. I think subsidies are a waste of (12) … .
Keynes: Well, I think I’ll have a cup of tea. Will you join me?
Friedman: Only if it’s free market tea.
Exercise 6. Translate into English.
1. Приватна власність, цінова система, конкуренція – головні «опори» економічної системи. 2. Цінова система відповідає на такі питання: а) які товари та послуги вироблятимуться? б) як їх вироблятимуть? в) хто їх отримуватиме? 3. Економічні стимули впливають на наше рішення, що і де купити. 4. Бізнесмени купують або продають землю чи інші природні ресурси, якщо сподіваються на прибуток від цієї угоди. 5. Валовий національний продукти – це загальна вартість усіх товарів та послуг, вироблених за один рік. 6. Для того, щоб купити щось, треба мати гроші. 7. Споживачі – це люди, які користуються товарами та послугами для задоволення своїх потреб. 8. Рентою називають ціну за користування землею. 9. Економічні системи можуть бути класифіковані як традиційні, загальні та ринкові. 10. Загальна вартість усіх товарів і послуг за один рік називається валовим національним продуктом.
Exercise 7.Comment the following:
1. Nations are usually better off if they specialize in certain products or commercial activities.
2. The best mental effort in the game of business is concentrated on the major problem of securing the consumer’s dollar before the fellow gets it.