7. Costs of economic growth.
You can earn money and spend all of it immediately on everything you want to buy. But if you don’t save part of the money you will not have money for the future. You understand that you should economize. Societies also must save something of what they produce because they must have reserves for the future.
Societies produce more capital goods and consumer goods to meet future economic needs.
Every person contributes to the growth of capital resources because he works. He earns money and the employer pays him part of the money as a salary.
The rest of the money the employer spends to replace old equipment because he wants to get future returns from this equipment to justify the purchase.
But economic growth is a mixed blessing. There are some advantages. People produce more goods and services and the average standard of living goes up. It keeps people employed. People have more leisure time. The government can get more tax revenues and spend more on education programmes, medical care, water and air purification.
But there are some disadvantages. We use natural resources that can’t be replaced, destruct natural environment, we generate waste products.
But to survive we should take care of the nature.
№8. The cost of growth.
Long-range economic growth depends on producing capital goods. Everyone who works contributes to the growth of capital resources. Your labor must be valuable enough to earn more than just the money to cover your wages. In recent years many people have argued that economic growth is a mixed blessing.
One of the advantages of economic growth is the creation of new jobs. Some people have jobs that did not exist 20 years ago. Part of them makes their living operating the computers. Millions of workers have jobs that computers have made easier.
However, the introduction of computers spelled unemployment for many workers, for example for typesetters. It also cut the managers’ stuff, make the management easier. Unemployment is the most undesirable consequence of economic growth.
Unemployment causes social and economic problems. Those who lost their jobs can hardly ever find new full-time job with a good wage. Many of the workers take jobs delivering flowers, polishing glass, stock-clerking, or driving taxes. Others do such odd jobs as painting and home repairs to earn income. Some of them try retraining programs, but find that employers are reluctant to hire older, experienced persons as beginners.
Retraining in new skills is only one solution to the problem, and not a simple one. Retraining is more useful to the young than to the old.
№9. The nation's economy. GNP. Economic indicators.
Economists study different sides of the economy in different ways. Microeconomics is the part of economics that analyses specific data affecting an economy. Macroeconomics is the branch of economics that analyses interrelationships among sectors of the economy.
Macroeconomists measure gross national product, or GNP, which is the value of all goods and services produced for sale during one year. Three factors limit the types of products counted.
First, only goods and services produced during a specific year are counted Second, economists count a product or a service only in its final form. Third, GNP includes only goods sold for the first time. When goods are resold or transferred, no wealth is created.
One way in which economists measure GNP is the flow-of-product approach. Using this method, they count all the money spent on goods and services to determine total value. Each time a new product is sold, GNP increases.
Spending for products falls into four categories. The first, and the largest, consumer spending, includes all expenditures of individuals for final goods and services. Called personal consumption expenditures, this category accounts for about 65 per cent of GNP. The second category includes all spending of businesses for new capital goods. It accounts for about 13 % of GNP. The third category includes spending of all levels of government. Government purchases of goods and services account for about 21 per cent of GNP. The fourth category is net exports of goods and services, about 1% of GNP.
Another way of determining GNP is the earnings-and-cost approach. This method accounts for alt the money received for the production of goods and services, it mea-sures receipts. Figuring gross national product by counting what people receive requires calculating what the entire country earns for the goods it makes and the services it performs. Included in earnings are such things as business profits, wages and salaries, and taxes' the government receives for its services. Also counted are interest on deposits, money received as rent, and any other forms of income.
Business and government planners, investors, and consumers make decisions based on their expectations of future economic performance. To help predict expansion or contraction of the economy, government economists identified a number of indicators. They fall into three categories: leading, coincident, and lagging. Leading economic indicators rise or fall just before a major change in economic activity. Coincident economic indicators change at about the same time that shifts occur in general economic activity. Lagging economic indicators rise or fall after a change in economic activity.
Following and interpreting all economic indicators is time-consuming. The US Commerce Department, therefore, lists a composite index, or single number, for each of the three sets of indicators. These composite indexes are an average of all the indicators in each category.
№10. Money: history, functions and forms.
Today we buy bread, clothes with money in a shop. These are goods: we exchange our money for goods which others sell to us. Today we travel on a train or bus. or maintain a banking account, and we pay the charge or fee. These are services: we exchange our money for the services which others provide for us.
In a primitive community people obtain goods and services by barter. Trade by barter is the earliest form of trade, when people offer goods in exchange for what they want, that is they swap goods for other goods.
As primitive communities develop into more advanced societies people realize they need some commodity they can use in exchange for anything, some commodity that does not decay and remains valuable, some commodity with the help of which people can measure the value of one thing against the value of another thing. Such commodity is money. Thus money is a necessary part of any civilized society, ft serves as:(1) medium of exchange; (2) a store of wealth; (3) a measure of value.
Money means coins, banknotes and cash in the bank account. We use it to make payments. Nowadays we know that the units of money must have certain qualities to be successful. They must be:
1. Standard. They must all be of the same kind.
2. Durable. They must be strong and long-lasting, so that they are a store of value and do not wear out easily.
3. Scarce. They must be difficult to come by to keep their value.
4. Acceptable. They must be accepted as a medium of exchange in a.
5. Portable. They must be easy to carry.
6. Divisible. It must be possible to divide the units of money of large value into smaller values.
In the past many things were used as the medium of exchange — corn, furs, rice, tobacco, salt tea, rum — there is no end to them. In time people realized that metals were superior to the commodities previously mentioned.
The Ancient Britons and Greek used iron, the Romans used copper but gradually silver and gold replaced them.
The advent of coinage is a step forward because coins are free from most of the disadvantages of earlier forms of money. The first coins are credited to China around about 1.000. B.C.
After coins came notes. The hardest problem for anyone with money then was to find somewhere safe to keep it. Gold and silversmiths had safes, because their trade was traffic in coin and bullion, and they needed somewhere secure to keep their stocks.
So it came about in the seventeenth century that goldsmiths took theses deposits for safe keeping. They issued a receipt. More and more people come to hold these receipts and they began to circulate for value among merchants. They come to be trusted and become usual in payment, as easier, lighter and quicker to handle than a lot of coin.
In the beginning people had to pay a fee for having money kept safe. Then goldsmith understood that some of his receipts were always out, circulating in the hands of the merchants. So the goldsmith always had some cash in hand, and he started to lend this out. This was the beginning of banks.
№11. The supply of money.
Your personal supply of money changes often. Increases and decreases of your supply of money probably affect how much you spend. Similarly, the amount of money in the total economy changes often. These changes are more complex than changes in your personal money supply. These fluctuations influence not only how much spending occurs but also the general level of business activity. The money supply sometimes expands or contracts. The government prints new bills and mints new coins every ear to replace those that are worn. It also changes the money supply to meet people’s needs. Banking laws in the US require a bank to put a certain percentage of its deposits in reserve. A bank’s reserve is the money that bank must set aside and not loan to anyone. None of the bank’s transactions involve currency. All are completed trough checking accounts. The series of deposits caused the total supply of checking account money to expand. But this expansion does not continue forever. Several factors stop the process of expansion or even reverse it.
First, federal law requires the bank to keep a percentage of its demand deposits in reserve. Second, expansion will stop if the bank stops making loans. Also if people stop putting their money into checking accounts, the bank will not be able to make loans. Finally, if many people suddenly withdraw their money all at once, the bank must do more than stop making loans. It will have to start calling for payment of its loans so that it can increase its reserves.
№12.The role of central banks and commercial banks. Types of bank accounts.
It’s obvious that when it comes to dealing with money, the banks are the main institutions which can provide a great variety of services essential to trade and to entire economy of nation. There are two main types of bank:
Central banks control the banking of the whole country and work together with the government to supervise the country’s economy. The central bank of the UK is the Bank of England, in the USA it is the Federal Reserve System, in single-currency Europe it is the European Central Bank, in Russia it is the Central Bank of Russia.
The main functions of central banks are the following:
to issue banknotes and coins
to look after the nations gold reserves
to make sure that the national currency keeps its value
to act as bankers for the national government and the other banks in the country
to keep inflation under control
to supervise the commercial banks
Commercial banks are the public or private banking institutions which people use for their everyday money matters. This type of banks may suggest us three basic types of account:
Current account is the most popular one which is used for handling day-to-day finances. Though this account holder doesn’t usually receive any interest on the money he pays, it still has some advantages. The major plus is the safety and the availability of money.
Deposit account is really designed for saving money and may be used for short-term, small savings. The money paid into this type of account earns a small amount of interest. Although the customer has no ability to use the account as easily as the current account, it has some advantages over the last. Firstly, it’s easier to open the deposit account. Secondly, a deposit account earns for the account holder. But you should remember some rules not to lose your interest.
Investment account may be used for larger, long-term savings. Money paid into this type of account usually earns more interest, but the customer can’t get his money immediately
Institutions that channel funds from people and institutions to lend to those wishing to borrow are called financial intermediaries.
So, now we know a lot about banks and bank services.
№13. Making a personal budget.
When you live in loneliness you understand that something should be done with your unlimited wants and limited resources. You should use your income as effectively as possible. Choices must be made concerning spending and saving. You never know whether you can afford another outing, or a disco, or a concert. Than you come to the conclusion that you must develop a useful personal budget. And if you want to do it you should keep track of your actual income and expenses for a month, and, of course, at first you have to clear out what should be recorded.
Money resources may include allowance, part-time jobs, babysitting, errands, interest on savings. You must list all sources of income. And it means that if somebody presented you with a sum of money on an account with a bank, so you can rely on interest on savings and allowance have to be included.
Than you should record how much you spend for food, entertainment, clothing, college supplies, personal care, transportation, and miscellaneous items. You wonder in which category you spend the most, the least. You think that you should decide what changes to make in the budget if you want to reduce your expenses.
You have to understand that there is some difference between fixed, optional and flexible expenses. Fixed expenses are set in advance and must be paid regularly (e.g. rent payments, tuition, higher purchase installments). Flexible expenses are necessary but change with circumstances (food, clothing, college supplies). Optional expenses vary and are not always necessary (entertainment, personal care).
Thus you can compare your income and expenses. And of course you understand if you want to live expenses should not be higher than income.
№14. The value of college education.
Every year millions of students graduate from high school. The decisions they make will affect the rest of their lives. Some will choose to go to college; some will want to get full-time jobs; others will decide to obtain technical job training. In every case, economic reasoning will help students make better choicesverybody decide to consider the costs and trade-offs connected with a decision to go to college. And the main questions in this situation: Is a college education worth the expense in terms of immediate and future personal growth and economic well-being?
The opportunity costs of going to college involve a loss of income and a loss of practical job experience while attending college. Lets consider two mans: The Education Level of the first one is less than 12 years and his Projected Lifetime Earnings is $850.000; The Education Level of the second one is 5 years college and his Projected Lifetime Earnings is $1.500.000. We see a big difference between them.
The trade-offs involved in going to college include using time and money now to gain greater advantages in the future. But somebody think that if you could invest $ 30.000 now, for instance, forego a college education, and with your investment returns still have the same lifetime earning power as a college. It’s of course can be true bat where do you get $30.000 if you don’t have education. Besides nobody give you a job if you haven’t got education and knowledge. And I am sure that my further education is worth the time and money involved.