The basic macroeconomics indicators.

GNP. It is generally agreed that the best indicator of economy health is its annual output of goods and services, or so-called aggregate output. This is called GNP and is defined as the total market value of all final goods and services produced in the economy in one year. First, GNP measures the market value of annual output. Second, GNP is a monetary measure. To measure all output accurately we should count all goods and services only once. That is why GNP considers only final goods and services and ignores transactions involving intermediate goods and services.

Price level. The price level is stated as an index number. A price index measures the combined price of particular collections of goods and services, called a "market basket". The Federal government computes price indexes of several different collections (or market baskets) of goods and services. The best known of these indexes is Consumer Price Index (CPI) which measures the prices of a fixed market basket of some 300 consumer goods and services purchased by a typical urban consumer. The GNP price index (or GNP deflator), however, is more useful than the CPI for measuring the overall price level. GNP deflator also estimates the prices of investment goods, goods and services purchased by government, and goods and services which enter world trade.

Interest-rate effect. As the price level rises so will interest rates and rising interest rates will cause reduction in certain kinds of consumption and investment spending. When the price level increases, consumers will need to have more money on hand to make purchases and businesses will similarly require more money to meet the payrolls and purchase other needed inputs. In short, a higher price level will increase the demand for money. Given a fixed supply of money, this increase in demand will drive up the price paid for the use of money. That price, of course, is the Interest Rate. High IRs will curtail certain interest-sensitive expenditures by businesses and households.

Unemployment. It is the state in which a person is without work, available to work, and is currently seeking work. The unemployment rate is used in economic studies and economic indexes. The rate is determined as the percentage of those in the labor force without jobs. There is a variety of different types of unemployment, depending on the cause, and disagreement on which is most severe. Different economic theories suggest various measures to limit it. There is also disagreement on how to measure unemployment. Different countries experience different levels of unemployment; the USA currently experiences lower unemployment levels than the European Union, and it also changes over time (e.g. the Great Depression) throughout economic (business) cycles.

Business cycle.

The economy is complicated and difficult to control and predict, but it is certainly important to all businesses. We should be aware that there are times when businesses and individuals have plenty of funds to spend and there are times when they have to cut back on their spending. This can have enormous implications business as a whole.

Business cycle or trade cycle means fluctuations in the level of economic activity (ACTUAL GROSS NATIONAL PRODUCT) alternating between periods of depression and boom conditions. The business cycle is characterized by four phases: (a) DEPRESSION  a period of rapidly falling aggregate demand accompanied by very low levels of output and heavy unemployment which eventually reaches the bottom of the trough; (b) RECOVERY  an upturn in aggregate demand accompanied by rising output and a reduction in unemployment; (c) BOOM  a period when aggregate demand reaches and then exceeds sustainable output levels (POTENTIAL GROSS NATIONAL PRODUCT) as the peak of the cycle is reached. Full employment is reached and the emergence of excess demand causes the general price level to increase; (d) RECESSION  a period when the boom comes to an end. Aggregate demand falls, bringing with it, initially, modest falls in output and employment, but then as demand continues to contract, the onset of depression.

What causes the economy to fluctuate in this way? Recorded data on business cycles go back to the early 19th century, but economists still cannot agree about what causes contractions and expansions in economic activity.

 Ex. 1. Mark the true (T) and false (F) statements.

1. With the long-run trend toward a more sophisticated, highly integrated economic system, the knowledge of Macroeconomics is becoming more and more critical for an individual decision maker.

2. Macroeconomics and Microeconomics study broad economic events affecting all firms, households, and other institutions in the economy.

3. CPI measures the prices of investment goods as well as the goods and services purchased by government and also those entering into world trade.

4. Unemployment is an economic indicator that is measured differently in different countries.

5. The notion "business cycle" precisely defines the four phases in the economic activity of a country as well as the reasons for the fluctuations.

Language PRACTICE

 Ex. 1. Look at the words in the box. Match the words with the correct definition from the list below.

a recession, an aggregate, GNP, a boom, aggregate demand, Economics, business cycle, GDP, unemployment, CPI

1. The economic indicator which measures the prices of a fixed market basket of some 300 consumer goods and services purchased by a typical urban consumer.

2. Process by which investment, output, and unemployment in an economy tend to fluctuate up and down in a regular pattern causing boom and depression, with recession and recovery as intermediate stages.

3. The value of all output produced by resources owned by the citizens of a country.

4. The study of how people, individually and collectively, allocate their limited resources to try to satisfy their unlimited wants.

5. A collection of the specific economic units which are treated as if they were one unit.

6. A schedule which shows various amounts of goods and services – the amount of real national output  which consumers, businesses and government collectively will desire to purchase at each possible price level.

7. A phase of the business cycle characterized by aggregate demand falling, modest falls in output and employment and further contraction of demand.

8. The total market value of goods and services produced within a country during some period, usually one year.

9. The state in which a person is without work, available to work, and is currently seeking work.

10. A phase in the business cycle when aggregate demand reaches and then exceeds sustainable output levels as the peak of the cycle is reached.

 Ex. 2. Match the nouns in the left hand column with the verbs in the right hand column.

resources	reduce accept preserve
price	cut back on distribute fix
spending	bargain for allocate set

 Ex. 3. Look through this excerpt and then fill the spaces with words from the box. Translate the text into Russian.

When the economy is enjoying a boom, firms experience ____(1)____ and ____(2)____. At such times, ____(3)____ is low and many firms will be investing funds to enable them to produce more. They do this because consumers have plenty of money to spend and firms expect ____(4)____. It naturally follows that the state of the economy is ____(5)____ in the success of firms. However, during periods, when people have less to spend many firms face hard times as their sales ____(6)____.Thus, the economic environment alters as the economy moves into ____(7)____. At that time, ____(8)____ declines as income falls and unemployment rises. Consumers will purchase cheaper items and ____(9)____ on luxury items such as televisions and cars.

total spending, high sales (2), a recession, fall, cut expenditure, the major factor, unemployment, general prosperity