Encounter problems

1. _______ is the measurement of aggregate economic activity, particularly national income and its components.

2. _______ is total population: average GNP.

3. When we focus on domestic market activity we _______ in calculating GNP.

4. _______ are goods or services purchased for use as input in the production of final goods or services.

5. _______ is the value of final output produced in a given period, measured in the prices of that period.

6. _______ is an increase in the average level of prices of goods and services.

7. _______ is the consumption of capital in the production process.

8. _______ are goods and services purchased from foreign countries.

IV. Read and translate the text:

National-income accounting is the measurement of aggregate economic activity, particularly national income and its components. The measurement of aggregate economic activity by national-income accounting serves two basic functions. First, it enables us to identify economic problems. The second function of national-income accounting is to provide an objective basis for evaluating policy.

National-income accounts help us not only to measure the economy but also to understand how it functions.

Gross national product (GNP) is the total market value of all final goods and services produced in a given time period.

GNP per capita is total population: average GNP. GNP per capita relates the total value of annual output to the number of people who share that output; it refers to the average GNP per person.

Even when we focus on domestic market activity we encounter problems in calculating GNP. A very basic problem arises from the fact the production of output typically involves a series of distinct stages. Consider the production of bread, for example. For bread to reach the supermarket, the farmer must grow some wheat, the miller must convert it to flour, and the baker must make bread with it.

We must focus on the value of final goods and services and exclude intermediate goods from our calculation.

Intermediate goods are goods or services purchased for use as input in the production of final goods or services.

Nominal GNP is the value of final output produced in a given period, measured in the prices of that period (current prices).

To distinguish increases in the quantity of goods and services from increases in their prices, we must construct a measure of GNP that takes into account price level changes. We do so by distinguishing between real GNP and nominal GNP. Nominal GNP is the value of final output measured in that year's prices, whereas calculating real GNP, we value goods and services at constant prices.

Inflation is an increase in the average level of prices of goods and services.

Production possibilities are the alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology.

Depreciation is the consumption of capital in the production process; the wearing out of plant and equipment. This calculation leaves us with yet another measure of output; net national product (NNP). This is the amount of output we could consume without reducing our stock of capital.

The distinction between GNP and NNP is thus mirrored in a distinction between gross investment and net investment. Gross investment is positive as long as some new plants and equipment are being produced. But our stock of capital – our total collection of plant and equipment – will not grow unless gross investment exceeds depreciation. That is, the flow of new capital must exceed depreciation, or our stock of capital will decline. Whenever gross investment exceeds depreciation, net investment is positive.

- Exports are goods and services sold to foreign buyers.

- Imports are goods and services purchased from foreign countries.

- International trade is not a one-way street.

While we export some of our own output, we also import goods and services from other countries. Whatever their use, imports represent purchases of goods and services that were not produced in their country.

The GNP accounts subtract imports from exports. The difference represents net exports.

V. Answer the following questions:

1. What are the two basic functions of national-income accounting?

2. How can we determine last year's GNP?

3. What is GNP per capita used for?

4. What is the easiest way to calculate GNP?

5. What is the difference between nominal GNP and real GNP?

6. What is inflation?

7. What do our production possibilities depend on?

8. Where is the distinction between GNP and NNP mirrored?

9. What represents net exports?

VI. Define the terms:

national-income accounting

nominal GNP

inflation

net national product (NNP)

real GNP

gross national product (GNP)

GNP per capital

depreciation

VII. Translate into English:

1. Облік національного доходу допомагає нам не тільки оцінити економіку, а й зрозуміти, як вона функціонує. 2. Додана вартість – це збільшення ринкової вартості продукції, яке відбувається на кожній стадії виробничого процесу. 3. Як зміни цін впливатимуть цього року на валовий національний продукт? 4. Для того щоб обчислити реальний валовий національний продукт, необхідно оцінити товари та послуги за постійними цінами. 5. Для того щоб підтримати наші виробничі можливості, ми повинні повернути капітал, який ми витрачаємо. 6. Щоразу, коли валові капіталовкладення перевищують амортизацію, чисті інвестиції є позитивними. 7. Виробничі можливості залежать від кількості землі, праці, капіталу та наших знань, як використати нову технологію. 8. Кількість імпортних товарів на українському ринку впродовж кількох останніх років зросла.

VIII. Read and dramatize the following dialogue:

S.: As a future economist you ought to know certain things about gross national product.

B.: That's what I want. I hope to make my career in economics.

S.: What do you know about GNP?

B.: GNP is the total market value of all final goods and services produced in a given time period.

S.: It is something. But you should distinguish between nominal GNP and real GNP.

B.: What do you mean by that?

S.: Nominal GNP is the value of final output produced in a given period, measured in the prices of that period, whereas real GNP is the value of output measured in constant prices.

B.: Although prices serve as a convenient measure of market value, they can also distort our perceptions of real output.

S.: You are right. Imagine what would happen to our calculations of GNP if all prices were to double from one year to the next. Suppose, for example, that the price of oranges rose from 20 cents to 40 cents, the price of bicycles to 100 dollars and the price of airplanes to 2 million dollars each.

B.: How would such price changes affect this year's GNP?

S.: Obviously, the price increases would double the value of final output. Measured GNP would rise from 1.400 million dollars to 2.800 million dollars. Such a rise in GNP does not reflect an increase in the quantity of goods and services available to us. We are still producing the same quantities only the prices of those goods have changed.

B.: Now I understand, changes in GNP brought about by changes in the price level can give us a distorted view of economic reality.

S.: Surely we would not want to assert that our standard of living had improved just because price increases raised measured GNP from 1.400 million dollars to 2.800 million dollars.

B.: Thank you very much for your help. It's very useful information.

S.: Not at all. See you later.

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

intermediate goods net investment

to determine production possibilities

gross investment to depend

standards of living to exceed

international trade exports

to be mirrored imports

X. Change the following sentences using the Future Perfect Tense (the Passive Voice):

Model: Gross national product will be calculated next

month.

Gross national product will have been calculated

by the end of the month.

1. Prices on these goods will be set tomorrow. 2. Production of consumer goods of this company will be reduced next month. 3. The calculation of net national product will be done next week. 4. International trade will be rapidly developed in this country next year. 5. New technology will be sold to this company next year.