II. Give English equivalents of the following:

BM3HaMaTM yiHy B HOMyCb OAUHMUn o6HKCneHHB

npuxoBaHe MiHOBe BinHoweHH* BH3HanaTM BiflHocni uJhm

Mam uJHy Ha icHyto^OMy pmhkv 3aranbHWM piBeHb u,ih

HopMani3yBaTW BMTpaTM 3a phhkobhmh uJHaMM

cyKynwiM o6cs»r BMpo6Hwu,TBa iHReKC u,lh JHfleKC u,iH 3pocTae a6o 3hm- wyeTbca (naflae)

III. Fill in the blanks with appropriate words:

are quoted in terms microeconomics measuring economic

activity the relative price

. Money often becomes a convenient

way of ... , When prices ... of the domestic unit

of account it is easy to determine

how many units of one good trade

for another.

aggregate price le­vel

aggregate output

a price index

the Gross National Product

3. The implicit exchange ratio of goods for goods is ... .

4. The study of what determines relative prices and what happens when rela­tive prices change is called ....

5. It is often useful to have a measure of the general or ... in addition to mea­sures of specific relative prices.

6. ... is usually created by pricing a basket of goods at market prices in a base year.

7. ... or national income are ways to measure the dollar value or the total production of goods and services in an economy.

8. A common measure of aggregate output, domestic product, or natio­nal income is ..., which is the dollar value of output in an economy over a one-year period evaluated at cu­rrent dollar prices.

IV. Read and translate the text:

Understanding how an economy works and carefully examining different perspectives on the economy frequently require quantitative measures of economic activity.

Money is important to an economy because it lowers transaction costs, thereby increasing the gains to individuals from exchange and specialization. Once money has developed in an economy, however, it serves other very useful roles. One of the most important of these roles is that money often becomes a convenient way of measuring economic activity. That is, money is frequently used as a unit of account.

When prices are quoted in terms of the domestic unit of account it is easy to determine how many units of one good trade for another. This implicit exchange ratio of goods for goods is the relative price.

The study of what determines relative prices and what happens when relative prices change is called microeconomics (or, sometimes, price theory). While relative prices are of great importance, in an economy that produces tens of thousands of goods, it is useful to have some idea of what is happening to the prices of all goods taken together, particularly when comparing changes in prices through time. That is, it is*

120

121

often useful to have a measure of the general or aggregate price level in addition to measures of specific relative prices.

The price level is measured using a price index. A price index is usually created by pricing a basket of goods at market prices in a base year and normalizing the expenditures on those goods to 100. The same basket of goods is priced at current market prices at subsequent dates. The difference in the expenditures on the basket from those made in the base year indicates the changes that have occurred in the price level. The expenditures at each subsequent date are also normalized, using the base period expenditures so that the price index begins at 100 and then moves upward or downward depending upon whether there is inflation or deflation.

Aggregate output, domestic product, or national income are ways to measure the dollar value of the total production of goods and services in an economy. A common measure of aggregate output, domestic product, or national income is the Gross Nationai Product (GNP), which is the dollar value of output in an economy over a one-year period evaluated at current dollar prices. A price index can be used to create a measure of real aggregate output, rea! GNP, by deflating nominal GNP. If an economy imports goods and services, the individuals within the economy have more goods and services to consume than those produced within the economy, while if an economy exports goods and services, the individuals within the economy have fewer goods and services to consume. Therefore, whether more or fewer goods and services are available than those produced within the economy will depend upon whether exports exceed imports or imports exceed exports (pp, 89—103)*.