Expenditures aggregate demand quantity to hire goods services demand sufficiently expenditure income interest rates

1. Aggregate demand is the total _______ of output demanded at alterative price levels in a given time period.

2. Equilibrium is the _______ of price level and real output that is compatible with both _______ and aggregate supply.

3. _______ is the total quantity of output producers are willing and able to supply at alternative price levels in a given time period.

4. Aggregate spending is the rate of total _______ desired at alternative levels of income.

5. The role of business firms in factor markets is _______ available workers and other factors of production to produce _______ and _______.

6. In fact all of the income spent in product markets ends up as income for _______.

7. Firms will _______ more labor only if the demand for the goods and services such labor producer is _______ strong.

8. Consumption decisions are influenced by a variety of forces, including _______, prices, _______ wealth and expectations.

9. Investment is _______ on new plant and equipment in a given time period, plus changes in business inventories.

IV. Read and translate the text:

Producers have some notion of how much output they are willing and able to produce at various price levels. Likewise, consumers, businesses, governments, and the rest of the world have some notion of how much output they are willing and able to buy at different price levels. These forces of aggregate demand and aggregate supply confront each other in the market place. Eventually, buyers and sellers discover that only one «price-output» combination is acceptable to both sides. This is the «price-output» combination we designate as (macro) equilibrium.

At equilibrium, the aggregate quantity of goods demanded exactly equals the aggregate quantity supplied. In the absence of macro disturbances, the economy will gravitate toward equilibrium – and stay there.

Dollar expenditures (total spending) are directly related to the flow of real goods and services; the level of employment depends on the willingness of people to spend their incomes.. Businesses hire workers only if the goods and services such workers produce can be sold in product markets. Firms will demand more labor only if the demand for goods and services such labor produces is sufficiently strong.

In this sense we say that employers have a derived demand for labor, a demand that is derived from demands for final goods and services.

Consumer expenditures account for two-thirds of total spending in the U.S. economy. We need to determine what factors influence the rate of consumption and thus the potential for achieving full employment.

Consumption decisions are influenced by a variety of forces, including income, prices, interest rates, wealth and expectations.

Disposable income (DI) represents the amount of income consumers can actually choose to spend or not spend (save) in a given time period.

Business firms purchase a new plant and equipment for the purpose of expending or improving their output capabilities; such purchases are called fixed investment. Firms also acquire inventories of goods that can be used to satisfy consumer demands; such expenditures are called inventory investment. Both forms of investment represent a demand for output and are therefore counted as part of aggregate spending.

V. Answer the following questions:

1. What forces confront each other in the market place?

2. What is the aggregate spending?

3. How do we call the demand, that is derived from demands

4. for final goods and services?

5. What factors influence the rate of consumption?

6. What does disposable income represent?

7. What do we call saving?

8. What is investment?

VI. Define the terms:

alternative price level

after-tax income

total expenditure

current consumption

real output

equilibrium

final goods

business inventories

VII. Translate into English:

1. Загальний попит і загальна пропозиція протистоять одне одному. 2. Зрештою покупці та продавці з'ясову­ють, що тільки єдина комбінація «ціна – продукція» прийнятна для обох сторін. 3. Збалансування – це комбінація рівня цін і реального випуску продукції, що поєднується з загальним попитом і загальним постачанням. 4. Похідний попит – це потреба в робочій силі та інших чинниках виробництва, що залежать від попиту на кінцеву продукцію і послуги. 5. Споживання – це витрата готових товарів і послуг споживачами. 6. Наявний прибуток становить певну суму прибутку, яку споживачі можуть витрачати або ні за певний період. 7. Накопичення – та частина чистого прибутку, що не витрачається на поточне споживання.

VIII. Read and dramatize the following dialogue:

A.: Tell me please, when were many Americans out of work?

C.: During the Great Depression of the 1930 as many as 13 million Americans were out of work. They were capable people and eager to work. But no one would hire them. As sympathetic as employers might have been, they simply could not use any more workers. Consumers were not buying the goods and services already being produced. Employers were more likely to cut back production and lay off still more workers than to hire any new ones. As a consequence, an «army of the unemployed» was created in 1929 and continued to grow for nearly a decade. It was not until the outbreak of World War II that enough jobs could be found for the unemployed, and most of these «jobs» were in the armed forces.

A.: You see, the Great Depression was known to be the springboard for the Keynesian approach to economic po­licy. John Maynard Keynes concluded that the growing ranks of unemployed persons were caused by problems on the demand side of product markets.

C.: What was the reason?

A.: People simply were not able and willing to buy all the goods and services the economy was capable of producing. As a consequence, producers had no incentive to increase output or to hire more labor. So long as the demand for goods and services was inadequate unemployment was inevitable. What did Keynes seek to explain?

C.: Keynes sought to explain how a deficiency of demand could arise, then to show how and why the government had to intervene. Keynes was convinced that government intervention was necessary to ensure optimal macro out­comes. And what can you say about Keynes's theory of macro instability?

A.: His theory of instability was developed in nominal terms, not the real values used in aggregate supply and demand graphs. Keynes focused on how many dollars we spend, not on the quantity of output we purchase. Keynes asked how many dollars people will spend and how that rate of expenditure is related to (dollar) income. This is Keynesian concept of aggregate spending.

IX. Make up your own dialogue using the following expressions:

to have some notion of derived demand

to be acceptable to in a given time period

to increase output the rate of total expenditure

to result from disposable income

X. Make up one complex sentence according to the model:

Model: A job was found. He lost an incentive to work.

A job had been found before he lost an incentive to work.

1. They were hired by managers. They made up their mind to leave the city. 2. More workers were used by employers. They produced the goods and services. 3. Hired workers were laid off. Employers cut back production. 4. The «army of unemployed» was created. Enough jobs were found. 5. Many dollars were spent. They could produce their services.

XI. Make the following sentences passive:

1. You had laid off more workers by that time. 2. He had developed this theory by the end of the fiscal year. 3. They had spent a half of their saving before they returned to the hotel. 4. People had produced much output at various price levels by the end of the month. 5. He said that a va­riety of forces had influenced consumption decisions by that time.

XII. Translate into English:

1. Певна сума грошей була витрачена перед тим, як вони вирішили її заощадити. 2. Він сказав, що минулого тижня фірмою було багато вироблено товарів і надано послуг. 3. Ми сказали, що достатню кількість робочих місць було знайдено для безробітних. 4. Чи багато продукції було вироблено до того часу? 5. Вони інформували, що не всі товари були експортовані.

XIII. Communicative situations:

1. What factors other than current income might influence consumer spending? How would changes in these factors affect the consumption function? Explain your reasoning.

2. Are current sales really ignored in investment decisions?

3. How might changes in current sales affect expectation or rate of desired investment? Discuss it.