2. Grammar Revision. Sentence Structures.

Ex.1. Read the text paying particular attention to the words in italics. Consult a dictionary if necessary.

Government and Economy

People debate the proper role and size of government in a market economy. But government has a potential role to play because market often falls short in the following tasks:

- Establishing and enforcing private property rights and the law.

- Dealing with external costs and benefits.

- Protecting consumers.

- Stabilizing the economy.

- Promoting economic security.

- Providing public goods and services.

Government may step in to overcome these shortcomings. It enforces contracts and property rights. It establishes procedures for dealing with external costs, such as pollution, and external benefits, such as public health. It can try to promote market competition, and it can provide public goods, such as national defense. Finally, government can act to promote the economic security of some citizens, and it can stabilize the economy.

Government decisions that affect the economy are caused primarily by the need to preserve competition, provide goods and services that are not easily produced by the market, and to correct market deficiencies. Market decisions are dictated by the interaction of business and consumers. These different motivations often result in conflict between decision makers in the private and public sector.

Spending by federal, regional, and local governments has grown relative to market economy. The federal government spends money on direct benefits to individuals, national defense, interest, and grants to states and localities. It receives income from personal income taxes, social insurance taxes, corporate income taxes, and miscellaneous taxes like excise (sales) taxes. Regional and local governments also receive and spend money.

Taxes can be enacted according to the benefits-received or the ability-to –pay principles. Taxes can be proportional, progressive, or regressive, depending on whether the rate of tax remains constant, increases, or decreases as income rises. The relative importance of the various federal taxes has changed over the years. While personal income taxes have remained stable as a percent of the federal budget, social insurance taxes - mostly for Social Security and Medical Care - have grown rapidly.

For many years, the U.S. federal budget has experienced deficits. Because of these continual deficits or borrowing, the federal debt increased. The yearly deficits and rising debt worried many people for different reasons, while others offered defenses. Then, in 1999, the federal budget experienced a surplus, and now economists project surpluses for several years to come. How this unexpected surplus should be spent, however, including paying down the debt, remains open to debate.

Ex.2 Agree or disagree to the following:

1. There are not many tasks government can fulfill in the market economy country.

2. In the market economy the spending of the government increases.

3. The system of taxation does not change with years.

4. All tax revenues are directed to individuals.

5. There is no single principle to enact taxes.

6. If the U.S. budget hadn’t experienced deficit the federal debt wouldn’t have increased.

Ex.3. Answer the questions:

1. What are the tasks to be fulfilled by the government?

2. Which external costs and benefits can be promoted by the government?

3. Which measures can help the government stabilize economy?

4. Is there a single taxation principle?

5. What’s the reason of the yearly repeated budget deficit?

Ex.4. Think and answer.

1. Can a country do without a government?

2. Which role would you give to the government of your country?

3. There are too many taxes, aren’t there? Which ones do you think can be taken away?

Ex.4.Using a special dictionary study the following words and the combinations of them. Translate them into Russian.

To tax, taxation, taxability, taxable, taxer, tax-exempt, tax-free, taxless, taxpayer.

Liable to a tax, tax on income, to collect taxes, to impose a tax, to file a tax, accrued taxes, accumulated-earnings taxes, death tax, double tax, payroll tax, excise tax, flat-rate tax, returnable tax, social security tax, value-added tax, implicit taxation, tax-dodger.

Effect, effective, effectiveness, efficient, efficiency, effectual, effectless.

To bring into effect, to come into effect, to effect payment, cumulative effect, marginal effect, seasonal effect, facility effectiveness, operational effectiveness, efficiency of labor, industrial efficiency, production efficiency.

To enter, enterprise, enterprising, entrant, entrance, entity, entrepreneurship, entrepreneur, entry.

To enter into commitments, launch an enterprise, family-owned enterprise, parent company, accounting entity, unprofitable enterprising.

Force, to enforce, enforcement, enforced.

To force down, to force the market, force of agreement, labour force, monetary forces, direct sales forces, force majeure, enforced terms, natural forces.

To establish, established, establishment, establishing.

To establish a branch, to establish banking relations, to establish a joint venture, business establishment, direct selling establishment, military industrial establishment, privately owned establishment, publicly-owned establishment, established regulations.

To provide, provided, providing, provision, provisional.

To provide a bill, to provide with funds, provision for old, provision for tax, accumulated provision for depreciation and amortization, adequate provisions, default provisions, nonrecurring provisions, public provision.

Promotion, to promote, promoted, promoting, promotional.

Company promotion, promotion of goods, demand promotion, effective sales promotion, foreign trade promotion, weekly promotion, promotional rate of exchange.

Deficit, deficient, deficiency.

To cover deficit, deficit of balance of trade, budget deficit, outstanding deficit, payments deficit, operation deficiency, regulatory deficiency, to make up deficiency, deficient data.

Ex.5 Match each term in column A with its definition in column B

A B

1.ability-to-pay principle a. Tax on retail purchases.

2.benefits-received principle b. Tax applied at each stage of production

and distribution.

3. corporate income tax c. Tax that affects low-income groups more

than high –income groups.

4. excise tax d. Concept that taxes should be based on

services received.

5. personal income tax e. Tax on profits earned by corporations

6. progressive tax f. requires each person to pay the same

percentage of income in taxes.

7. regressive tax g. Theory that those with higher incomes

should pay more in taxes than those with

lower incomes.

8. proportional tax h. Tax on a specific goo or service.

9. sales tax i. An income tax on individuals.

10.value-added tax (VAT) j. Tax that takes a larger percentage from a

high-income taxpayer than from a low-

-income taxpayer.

Ex.6. Arrange the letters in brackets into definitions of given statements.

1.A financial plan that summarizes expected income and expenses for the coming year (tegbdu). 2. The cumulative sum of all borrowing that is necessary to finance annual deficits (tebd). 3. The principal source of income to state and local governments (xtase). 4.The costs or benefits which fall beyond the decision-maker (terlanxe). 5. For budgeting or accounting purposes this year can be different from the calendar year (sclaif). 6. Reduced taxes for a period of years, training for employees, or subsidizing the cost to build infrastructure –roads, highways, etc - or production facilities (vesnestnii). 7. Taxes which are levied on the manufacture or the sale of specific purposes (seexci).

Ex.7. Insert the words from the ones given below.

The benefits-received principle of taxation states that the government should tax people in proportion to the … they receive from a government service. Bridge tolls and fees for public golf courses are examples. Why? Because the people who use a … or a service should be the ones to pay for it.

The ability-to-pay principle states that the government should tax people in proportion to their … to pay. For example, someone … $ 100,000 a year is better able to pay taxes than someone earning $25,000 a year. But how much greater is the person’s ability to pay? Not surprisingly people … different conclusions about the tax … that best reflect their ability to pay. Some people argue that tax rates should be … for people of all incomes, while others argue they should be higher for wealthier individuals. The disagreement centers on the difference between a proportional and a progressive tax.

(ability, the same, earning, facility, benefits, rates, reach)

Ex. 8 Read and translate the sentences paying particular attention to the underlined structures.

1.A tax rate is known to result in a reduction in the taxes raised. 2. Real wages are said to have increased between five and fifteen times over the last 100 years. 3. Tax revenue was expected to be much higher than that raised previously. 4. The government is believed to fulfill different functions to protect the working people. 5. The reforms conducted by the government are considered to have brought a lot of changes in the life of the country. 6.Payments from social security funds have been recorded to make a great contribution to household incomes. 7. The private sector is considered to have used resources more effectively than the government. 8. Public expenditure is known to be financed mostly through taxation and government borrowing. 9.Lower incentives to work are believed to result from social security payment and unemployed benefits. 10. The most widely used progressive tax is said to be the one in which the average tax rate rises with a person’s income level.

Ex. 9 Make up the sentences translating the words in brackets into English using the model: They are supposed to be…

1. (Считается) the budget is balanced when anticipated income equals anticipated expenses. 2. (Говорят) сorporation income taxes are hard to classify because economists aren’t sure of the tax incidence; that, who actually pays the taxes. 3. (Известно) Friedman prefers giving low-income families additional income and allowing them to use the funds to solve their problems without governmental interference. 4. (Полагают) the benefit- received principle of taxation states that government should tax people in proportion to the benefits they receive from a government service. 5. (Сообщили) government is developing various programmes to ensure that every citizen is guaranteed a minimum standard living by providing income supplements, subsidies for food and housing, and access to medical care. 6. (Считают) in a society with no rules, there would be less incentive to care for or to invest in resources. 7. (Говорят) the government deals with external costs by setting and enforcing the standards.

Ex.10. Put the verb in the proper form.

Smith (to accept) the idea that there were some things the government should do. A government (to suit) best to build canals or roads. A government may find it necessary to put some restriction on international trade. And he said, the government must not allow individual business to act together to control the production of certain goods, thus (to create) a monopoly. A monopoly, in Smith’s opinion, could be as harmful to the general welfare as government control.

Today the American economic system is far different from that of the 19^th century. Earlier government leaders (to refuse) to do anything to control business. Except for (to grant) financial support to companies (to build) the railroad system in the late 19^th century, the government (to take) little role in business affairs. American citizen, however, demanded action. Workers banded together to organize unions to protect themselves. Working together they could possibly (to force) a company to change unfair policy.

Gradually, the government began to take action. In 1890, the Congress passed a Sherman Anti-Trust Act, a law aimed at (to break) up monopolies. I was a weak law, which later had to be strengthened by others, but it was a beginning. In 1906, laws (to pass) to make sure that food and drugs (to label) correctly and that meat (to inspect) before (to sell). In 1913, the government established a new federal banking system, called the Federal Reserve System, to regulate the nation’s money supply and to place some controls on banking activities.

Ex.11. a) Read and translate the text. Speak on the main idea of it.

The biggest changes came in the 1930s with the “New Deal” programs of President Franklin D. Roosevelt. During that decade the nation endured the worst business crisis and the highest rate of unemployment in its history. To ease the hardship caused by the Depression, President Roosevelt and the Congress passed many new laws regulating sales of stock, recognizing the rights of workers to form unions, and setting rules for wages and hours for various workers. Stricter controls were pit on the manufacturing and sale of goods, drugs and cosmetics.

These laws and regulations, and many other social initiatives approved since the 1930s, have changed American capitalism from a “freely running horse to one that is bridled and saddled”, as one writer described it. There is nothing a person can

buy in the United States today which is not affected by government regulations of some kind. Food manufacturers must tell what exactly is in a can, box or jar. Non-packed food is almost all inspected by government officials at some point. No drug can be sold until it is thoroughly tested and approved by a federal agency. Many types of businesses must be built according to certain safety standards. Prices for goods must be clearly marked, and advertising must be honest. These are just a few of many ways in which the government now protects the health, safety and money of the consumers. Laws also prohibit discrimination in hiring, forbid the hiring of young children, set standards for working conditions, and protect the rights of independent labour unions to organize, bargain and strike peacefully.

People in business believe that there is too much government regulation. They say that some of the rules they must follow are unnecessary and costly. Filling out forms to satisfy government rules costs money, and adds to the price they must charge. On the other hand, other Americans believe that, without some regulations, at least some businesses would cheat or harm workers and consumers in order to increase business profits.

b) Answer the questions:

1. Don’t you think there is too much government regulation in the USA?

2. Can you compare government economic activities in the USA to the activities of the Russian government?

3. Which examples can illustrate the changes in the life of the country undertaking economic reforms?

Ex.12. Read and translate the text. Whose viewpoints do you share? Why?

Classical economists like Adam Smith recognized the need for government to provide goods and services like national defense that would not or could not be provided by the private sector. But they urged that government’s role be kept small.

Samuelson P. (the Massachusetts Institute of Technology) has argued that too many of the problems the classical economists wanted to leave to the market place were external costs and not subject to the laws of supply and demand. He argues it up to the government to establish goals for the economy and use its powers to solve problems related to issues such as public health, education, and pollution.

Friedman M. (the University of Chicago) sees things differently. Like the classical economists, he regards supply and demand as the most powerful and potentially beneficial of economic forces. The best that government can do to help the economy, in Friedman’s view, is to keep its hands off business and allow the market to “do its thing”.

The minimum wage laws are a case in point. Whereas Samuelson endorses minimum wage laws to help low-income workers, Friedman says they harm the very people they were designed to help. He argues that, by increasing labour costs, minimum wage laws make it too expensive for many firms to hire low-wage workers. As a result, those who might otherwise be employed are not hired at all.

Samuelson endorses the concept of government –sponsored programs such as public housing and food stamps to reduce poverty. Friedman though prefers giving low-income families additional income and allowing them to use the funds to solve their problems without government interference. To apply this concept, Friedman suggested the “negative income tax”. The graduated income tax takes an increasing amount in taxes as one’s income rises. The negative income tax would apply a sliding scale of payments to those whose income from work falls below a stated minimum.

Ex.13. a)Read and translate the text. Use a special dictionary if necessary.

Many economists worry about deficits for the following reasons:

• Annual interest payments on the national debt have been a large, growing portion of the federal budget. Just to pay the interest on the national debt in 2000, $236,5 billion (13,4 per cent of the budget) was needed. Unless budget deficits fall, interest payments will continue to rise in the future.

• Large deficits might lead to higher interest rates. To cover its deficits the government can borrow money from the same places that businesses borrow: banks, corporations, and foreign lenders. The cost of loans (interest) is a price like any other prices. If government borrowing adds significantly to the demand of available funds, it might increase interest rates.

• Deficit and private investment. When government borrows money to finance its deficits, it can take funds that businesses could have used to invest in factories and equipment. Less investment in plants and equipment will mean that fewer jobs are created. Less investment will also show the increase of labor productivity, so it holds back the growth of personal income.

• Deficits add inflation. A government may simply print money to finance its deficits or repay its debts. This would increase the amount of money faster than the supplies of goods and services which people spend it on. Inflation would be a result.

• While those who worry about the debt agree that it does not represent as large a percentage of the GDP as it once did, they are concerned about its sharp rise in recent years. Borrowing to finance World War II was justified, they say, but no such crisis exists today. So the government should live within its means.

b) Do you think the government is to blame for the economic problems? Why?

Ex.14. Say if you support the actions of the government. Justify your opinions on the following:

1. Large corporations area about to go out of business, causing severe problems of

unemployment, and the federal government should subsidize them.

2. The federal government provides foreign aid to less-developed countries to

stimulate their economies.

3. The federal government subsidizes research programs in the arts ((literature, history, etc.) and sciences (physics, chemistry, space, etc).

4. The government provides housing for the homeless.

Ex.15. After selecting the role speak as if you were:

1. Mayor

2.Member of the city council who has pledged citizens to raise taxes.

3. Bank president

4. Home builder

5. Representative of the senior council

6.Superintendent of schools

7.An influential environmental labour union official

Ex.16. Questions and assignments for economic reasoning and discussion.

1. Develop a bulletin board display illustrating the services government provides.

3. What would you say of the federal budget being a representative of a specific

interest group?

3. Could you develop a plan for reducing the deficit 20 percent per year?

Ex.17. Choose the letter of the item that best completes the statement or answers the question.

1. A study of the role of government in a market economy shows that

1. The public sector has declined in importance.

2. Government spending at all levels has been increasing.

3. Government spending does not affect the private sector.

4. Government taxing and spending have little impact on the economy.

2. Whenever government performs a service or spends money, it

1. Is deciding how resources will be allocated.

2. Denies private business firms the opportunity to make money.

3. Limits employment opportunities in the economy.

4. Reduces its own role in economic decision making.

3. The government’s budget will have a deficit whenever

1. Taxes are reduced.

2. Taxes are increased.

3. Spending is increased.

4. Spending is greater than revenue.

4. Regional and local governments spend the most money on

1. Roads and highways.

2. Education.

3. Public welfare.

4. Police and fire protection.

5. Sometimes government decreases taxes to encourage consumer spending. What responsibility does this illustrate?

1. The need to balance the budget.

2. The need to protect selected industries.

3. The responsibility for stabilizing the economy.

4. The responsibility for regulating certain industries.

6. Which statement is an opinion, not necessarily a fact?

1. Government spending on all levels has increased.

2. The federal government should balance its budget.

3. Taxes are the most important source of income for the

federal government.

4. Social Security is the largest-single item in the federal budget.

7. Last year John earned $100,000, Mary earned $75,000,and Joe earned $50,000.Each was required to pay a special tax of $500. Which of the following terms best describes this tax?

1. Progressive.

2. Proportional.

3. Regressive.

4. Unfair.

8. The government taxes automobile manufactures about $400 per vehicle. Manufacturers add this to the price they charge for their cars. Who is paying the tax?

1. The automobile industry.

2. The government

3. Taxpayers in general.

4. The auto buyer

9. The economist Paul Samuelson is most likely to favour

1. A laissez-faire policy in which government keeps hands off business.

2. Government goals for the economy and the power to achieve them.

3. A negative income tax in place of specific programs to aid the poor.

4. The elimination of minimum wage legislation.

10. One reason for concern about the persistent deficits in the U.S. national budget is that

1. When compared to the nation’s productive power, deficits have been greater than they were during World War II.

b. Deficits can be used to stimulate the economy.

2. c. Deficits divert savings from investments in capital resources.

3. d. High deficits lead to very low interest rates.

Use your answers as the basic points while speaking about the role of government in the economic life of the country.