5. A) Fill each gap with a suitable word from the box.

b) Sum up the text in 5-7 sentences and present your summary in class.

c) Explain the differences between macroeconomics and microeconomics.

operation microeconomics familiar

businesses policy demand

notions says affects

whole lead success

operate

Contemporary financial managers should be familiar with two areas of economics – macroeconomics and _________.

Macroeconomics is concerned with the over-all institutional environment in which the firm _______. It looks, in other words, at the economy as a__________. Macroeconomics is concerned with the institutional structure of the banking system, money and capital markets, financial intermediaries, monetary, credit and fiscal _________and economic policies dealing with and controlling the level of activity within an economy. Since business firms operate in the macroeconomic environment, it is important for financial managers to understand the broad economic ____________. Specifically, they should recognize and understand how monetary policy ___________ and how it affects the economy; be aware of the various financial institutions and their modes of operations to evaluate the potential investment/financing outlets; and understand the consequences of various levels of economic activity and changes in economic policy for their decision environment and so on.

Microeconomics deals with the economic decisions of _________ and organizations. It concerns itself with the determination of optimal operating strategies. In other words, the theories of microeconomics provide for effective _________ of business firms. They are concerned with defining actions that will permit the firms to achieve __________. The concepts and theories of microeconomics relevant to financial management are, for instance, those involving supply and _________ relationship and profit maximization strategies, issues related to the mix of productive factors, “optimal” sales level and product pricing strategies, risk and the determination of value and the rationale for depreciating assets. In addition, the primary principle that applies in financial management is marginal analysis which ________that financial decisions should be made on the basis of comparison of marginal revenue and marginal cost. Such decisions will ________ to an increase in profits of the firm. Thus, financial managers must be ________ with the basic microeconomics.

Words you may need:

to be versed(in) – розбиратися (в чому-небудь)

outlets – можливості

rationale – основна причина, логічне обгрунтування

marginal analysis – аналіз по певним показникам

marginal revenue – граничний дохід

marginal costs – граничні витрати

 Tests