И.П. Агабекян, П.И. Коваленко 14 страница

As one would expect, the product’s future revenues and costs may be highly uncertain. As a consequence, management should recognize that the revenue and cost projections come with a significant margin of error attached.

It is natural to investigate the profit effects if Qutcomes differ from the report’s forecasts. What if sales are 12 percent lower than expected? What if projected cost reductions are not realized? What if the price of a competing product is slashed? By answering these «what- if» questions, management can determine the degree to which its profit projections, and therefore its marketing decision, are sensitive to the uncertain outcomes of key economic variables.

Sensitivity analysis is useful in:

(1) providing insight into the key features of the problem that affect the decision;

(2) tracing the effects of changes in variables about which the manager may be uncertain; and

(3) generating solutions in cases of recurring decisions under slightly modified conditions.

After all analysis is done, what is the preferred course of action? For obvious reasons, this step (along with step

4) occupies the lion’s share of the analysis and discussion. Once the decision maker has put the problem in context, formalized the objectives, and identified available alternatives, how does he or she go about finding a preferred course of action?

What features of the problem determine the optimal choice of action? How does the optimal decision change if conditions in the problem are altered? Is the choice sensitive to key economic variables about which the decision maker is uncertain?

Vocabulary

to encounter — встречаться, сталкиваться quantifiable — измеримый analogously — аналогично enumeration — перечисление to settle on smth. — остановиться на чем-либо truly — искренне fortunately — к счастью painstaking — доскональный, кропотливый, скрупулезный optimal decision — оптимальное решение did not come out of thin air — не берутся «с потолка» to tackle — энергично, с усердием браться, приниматься (за что-л.) sensitivity analysis — анализ чувствительности to alter — изменять(ся) extensive report - развернутый доклад estimates — оценки to earn - зарабатывать recognize — распознавать, различать attached - прикрепленный, присоединенный insight — понимание lion’s share — львиная доля

General understanding:

1. Under what circumstances can a private firm compute the profit results?

2. What is, according to the author, impractical for solving complex problems?

3. What are methods of identifying the problems?

4) What is important in understanding and explaining the problem?

5) What is sensitivity analysis?

6) How, according to the author, do the projections of revenue and costs come?

7) When is sensitivity analysis useful?

1. Define the following:

a) net benefits

b) sensitivity analysis

c) basic determinants of profit

2. Translate into Russian:

A. The objectives and outcomes are directly quantifiable

B. A government decision maker may know the computed net benefits (benefits minus costs) of different program options.

C. The decision maker need not rely on the painstaking method of enumeration to solve such problems.

D. Sensitivity analysis considers how an optimal decision ■ would change if key economic facts or conditions were

altered.

E. It is natural to investigate the profit effects if outcomes differ from the report’s forecasts.

Questions for discussion:

1. Do you agree that the method of enumeration is ineffective in solving massive problems?

2. In your opinion, should a decision maker rely on the data provided. What sources of information could be referred to as more reliable and less reliable?

3. Could press publications be used as sources of information for making a decision? Give an example of a) international b) federal c) local press which is

a) completely reliable b) completely unreliable.

UNIT 9

International economy and economic institutions

^Text 1 IMF MEANS INTERNATIONAL MONETARY FUND

The purpose of the International Monetary Fund (IMF) is to promote international monetary cooperation through a permanent institution that provides the machinery for consultation and collaboration on international monetary problems. Specifically, the function of the IMF is to facilitate the expansion and balanced growth of international trade, to promote orderly and stable foreign currency exchange markets, and to contribute to balance of payments adjustment. To further these objectives, the IMF monitors members’ macroeconomic policies, makes financial resources available to them in times of balance of payments difficulties, and provides them with technical assistance in a number of areas.

Much of the IMF’s work is centered on annual consultations with each member country to ensure that its national policies in the area of economic growth, price stability, financial conditions, and exchange rates take into account their consequences for the world economy and avoid unfair exchange policies. To ensure compliance with these basic tenets, the Fund is empowered to exercise firm surveillance over the exchange rate policies of member countries.

History

The IMF’s charter, embodied in the Articles of Agreement, was agreed upon at the International Monetary and Financial Conference held at Bretton Woods, New Hampshire, in July 1944. In December 1945 the required number of countries had ratified the agreements, and in March 1946 the first meeting of the Board of Governors was held. The IMF commenced operations on March 1, 1947, at its headquarters in Washington, D.C. Other milestones in the history of the IMF include:

— May 1948. first drawing of foreign exchange by a member country;

— January 1962, adoption of the general agreements to borrow (GAB), which constituted an important supplement to the IMF’s financial resources;

— February 1963, establishment of the compensatory financing facility, designed to assist countries that experience a temporary shortfall in export earnings;

— June 1969, inception of the buffer stock financing facility, which can be used to finance commodity stockpiles;

— July 1969, adoption of the first amendment to the Articles of Agreement, providing for the allocation of special drawing rights (SDRs) to member countries, with the first allocation of SDRs made on January 1, 1970;

— September 1974, implementation of the extended fund facility, which provides medium-term assistance to member countries seeking to overcome structural balance of payments problems

— April 1975, establishment of an oil facility to help oil-importing countries finance the increase in petroleum prices;

— February 1976, establishment of the Trust Fund, funded by revenues from gold sales, to aid developing countries with low-interest assistance;

— August 1977, establishment of the supplementary financing facility to make additional resources available to member countries requiring balance of payments financing in larger amounts and for longer periods;

— April 1978, adoption of the second amendment to the articles providing for liberalized exchange arrangements, the legalization of floating exchange rates, steps designed to eliminate the role of gold in the international monetary system, and enunciation of the goal to make the SDR the central international monetary reserve asset;

— March 1980, establishment of a structural adjustment facility to provide balance of payments assistance to qualifying members in support of macroeconomic and structural adjustment programs;

— December 1987, the establishment of the Enhanced Structural Adjustment Trust to provide loans on concessional terms to eligible members to support programs to strengthen substantially and in a sustainable manner their balance of payment position;

— August 1988. expansion of the compensatory financing facility to include a contingency financing element under which additional financing may be provided to support adjustment programs that might be thrown off track by adverse exogenous developments.

Vocabulary

permanent — постоянный annual - ежегодный

machinery — оборудование, to avoid — избегать, остере- механизм гаться

collaboration — сотрудниче- tenet — основополагающий ство принцип

to facilitate — способствовать embodied — воплощенный, to monitor - наблюдать, содержащийся в чем- контролировать либо

surveillance — патрулирование to ratify — ратифицировать to commence — приступать, начинаться milestones — вехи shortfall — недостаток inception — открытие, основание stockpiles — запасы amendment — поправка to seek — искать supplementary — дополнительный enunciation — изложение contingency — возможность exogenous - экзогенный

General understanding:

1. What is the function of International Monetary Fund?

2. What do IMF monitor’s members do?

3. What are the daily affairs if IMF?

4. When was IMF established?

5. What are the most important milestones in the history of IMF?

1. Translate into Russian:

A. The IMF’s charter was agreed upon at the International Monetary and Financial Conference.

B. Inception of the buffer stock financing facility, which can be used to finance commodity stockpiles

C. Adoption of the first amendment to the Articles of Agreement, providing for the allocation of special drawing rights (SDRs) to member countries

D. Establishment of the supplementary financing facility to make additional resources available to member countries

E. Expansion of the compensatory financing facility to include a contingency financing element under which additional financing may be provided to support adjustment programs

2. Make some research to make the modern (80s- 90s) history of IMF complete (Use Internet as a source of information):

DATE	ACTIVITY	IMPACT ON THE WORLD ECONOMY

3. Complete the table revealing the impact of IMF on Russia.

DATE	DECISION	IMPACT ON THE ECONOMY OF RUSSIA

Questions for discussion:

1. What events in World history took place when IMF had been founded?

2. What events in the latest history of IMF had the greatest impact on Russia’s modern history?

<^Text 2 IMF'S ANATOMY

As of December 1991 the IMF was composed of 156 member countries; in addition, a number of republics of the former U.S.S.R. were in the process of joining the organization. Each member is represented by a governor on the IMF’s Board of Governors, most of whom are ministers of finance, presidents of the country’s central bank, or persons of similar rank. Virtually all day-to-day policy decisions are delegated to the Executive Board, which is made up of 22 representatives of the member countries. The Executive Board is presided over by the managing director, elected for a 5-year term, who is also chief of staff of the IMF.

Each member has a quota which is based on a complex formula that takes account of the country’s size and its general importance in world trade and finance. The quota determines the amount of financial resources the member has to make available to the IMF (subscription) and its access to the Fund’s facilities, its entitlement to SDR allocations, as well as its voting power. Part of each member’s subscription is paid in reserve assets, and the remainder in the member’s own currency.

Operations

IMF member countries may utilize the Fund’s resources if they find themselves in balance of payments difficulties. Drawings normally will be in the context of policy measures — an adjustment program — intended to correct the balance of payments position and are linked to progress under that program. Technically, use of the Fund’s resources takes the form of a member using its own currency to purchase other currencies (or SDRs} held by the IMF. Drawings on the Fund’s resources that do not exceed 25 percent of the member’s quota normally require that the member make a reasonable effort to overcome its balance of payments problem. Purchases beyond that amount — i.e. drawings in the so-called upper credit tranches — usually are made in the context of an adjustment program. Repayments to the IMF are normally to be made within 3 to 5 years, but under the extended facility the country may have up to 10 years to repay the financing provided by the Fund.

Vocabulary

rank — ранг

to preside — председательствовать quota — квота to entitle — давать право кому-нибудь remainder — остаток to correct — корректировать, исправлять to link — соединять reasonable effort — разумное усилие tranche - транш, порция

General understanding:

1. What countries was IMF composed of on December 1991?

2. Who are the governors of IMF’s Board of Governors?

3. Who presides over Executive Board?

4. How is the managing director elected?

5. What importance has «quota» for the members of IMF?

6. What operations could be carried out through IMF?

7. How have the total subscriptions changed over time?

1. Explain the role (meaning) and functions of the following. Write 2 sentences with each one:

a) member countries

b) Board of Governors

c) Executive board

d) managing director

e) quota

2. Which of the following is true:

A. IMF is composed of 22 Governors.

B. Executive board makes all decisions on the Republics of former USSR.

C. The quota determines the amount о financial resources the member has to make available to the IMF.

D. IMF member countries may utilize the Fund’s resources.

e) Borrowing countries have to pav the loans back within 3-5 years.

Questions for discussion:

1. Do you find the structure of IMF reasonable?

2. Do you know how the credits obtained from the IMF are utilized? Is IMF in control of funds utilization?

Text 3 WORLD BANK

The World Bank is the world’s foremost intergovernmental organization concerned with the external financing of the economic growth of developing countries. The official title of the institution is the International Bank for Reconstruction and Development (IBRD).

Before recommending a Bank loan, the staff of the Bank must be reasonably satisfied that the productivity of the borrowing country will be increased and that the prospects for repayment are good. A country must be judged creditworthy. Engineering investigations are frequently carried out to determine the probable relation of a proposed project to benefits and costs. Increasingly, however, the Bank has shifted somewhat away from project lending (e.g., for a dam or a highway or a port); it has become concerned with education and other human services, the environment, and, through structural adjustment loans, the modification of governmental policies that are thought to have impeded long-run growth. The Bank has also paid increasing attention to the evaluation of previous lending. Recently, moreover, it has acceded to the requests of the American secretary of the treasury to help to ease the huge, outstanding, largely commercial-bank debt.

Voting power in the Bank (as well as in the Fund) is determined by the size of each member nation’s subscription. Subscriptions, in turn, are based on a formula that takes into account such variables as the value of each nation’s foreign trade and its total output. Ultimate power, through weighted voting, rests with the Board of Governors of the Bank (and the Fund). The governors meet annually in September. The day-to-day affairs of the Bank are determined, however, by executive directors who live permanently in Washington, D.C. They hire a president, who, in turn, hires a staff. By tradition, rather than law, the president of the Bank is an American, usually a banker, proposed by the President of the United States.

Because of the size of their subscriptions, five nations

— the United States, Japan, Germany, the United Kingdom, and France — are entitled to appoint executive directors; the remaining seventeen directors are elected by some combination of the votes of the other nations. There are 156 member nations, but, with the independence of the Baltic states and the devolution of the Soviet Union into separate republics, the membership could increase to over 170, thereby including all the independent nations in the world.

The Soviet Union was one of the forty-four governments whose representatives signed the original Bretton Woods agreements, but along with the other members of the Warsaw Pact, it chose not to join the Bank or the Fund when these organizations were formally incorporated in 1946. (Poland and Czechoslovakia joined the Bank and the Fund initially but withdrew when the cold war began in earnest and a loan to Poland was blocked by the United States.)

World Bank Group

In 1954, an International Finance Corporation was established to supplement the World Bank by participating in equity financing in member countries, and in 1960, a third organization, the International Development Association (IDA), was created. These three organizations constitute the World Bank Group. The IDA has the same officers and staff as the World Bank, but its separate charter enables it to offer loans to low-income member countries repayable at 0.75 percent interest over 50 years (including 10 years’ grace).

Soft or concessionary assistance is made possible by contributions to (replenishments of) the IDA by the governments of high-income (industrial) countries. The management of the World Bank Group is thus enabled to offer rates of interest and loan maturities which take into account the nature of the projects financed and the presumed ability of borrowing governments to service their debt. The initial capitalization of IDA for the 5 years 1960 to 1964 was less than $1 billion in hard currencies. By 1992, the ninth replenishment for 3 years will be over $11 billion.

Today, the World Bank Group is a far cry from what it was when the World Bank began in 1946 under President Eugene Meyer- with three floors of rented office space at 1818 H Street NW and a few dozen employees. Even in the final days of the presidency of George Woods, in 1968, the group had fewer than 1500 employees and four buildings. As of August 31, 1991, however, on the eve of the accession to the presidency of Lewis Preston, former chairman of the board of J. P. Morgan & Co., the World Bank Group had 3 senior vice presidents, 14 vice presidents, and 6500 employees scattered through 18 separate buildings in Washington,

D. C.; 2 large offices in Paris and Tokyo; and 50 regional offices.

The World Bank Group has had a significant positive effect on the flow of capital to the poorer countries of the world, both directly and indirectly, and knowledge of Third World problems has increased enormously. Still, the record of growth is spotty. In much of East Asia, per capita income is rising rapidly, but in Africa south of the Sahara, in South Asia, and in much of Latin America, the growth of per capita income has been discouragingly slow.

Vocabulary

foremost intergovernmental — наиболее межправительственный prospects for repayment -

перспективы выплаты долга

to be carried out — производиться, осуществляться dam - дамба, плотина accede — удовлетворять, соглашаться subscription — подписка to take into account - принимать в расчет day-to-day affairs - повседневные дела to hire — нанимать to appoint - назначать to join — присоединять (ся) to supplement - добавка, приложение equity — справедливость to constitute — являться, составлять to grace — удостаивать concessionary — льготный replenishments — пополнения a far cry — разг. абсолютно другая вещь dozen — дюжина eve of the accession — накануне прихода к власти to be scattered — быть разбросанным enormously — чрезвычайно spotty - зд. подпорчен

General understanding:

1. What is World Bank?

2. What is the procedure of getting a loan from the World Bank?

3. What are the latest trends in the policy of the World bank?

4. How is the voting power determined?

5. What are the largest subscribers of the world Bank?

1. Define the following:

a) intergovernmental organization

b) borrowing country

c) prospects for repayment

d) member’s subscription

e) day-to-day affairs

f) concessionary assistance

g) Third World

2. Translate into Russian:

A. The official title of the institution is the International Bank for Reconstruction and Development (IBRD).

B. A country must be judged creditworthy.

C. They hire a president, who, in turn, hires a staff.

D. The Soviet Union was one of the forty-four governments whose representatives signed the original Bretton Woods agreements.

E. The IDA has the same officers and staff as the World Bank.

F. Today, the World Bank Group is a far cry from what it was when the World Bank began in 1946 under President Eugene Meyer—with three floors of rented office space at 1818 H Street NW and a few dozen employees.

3. Complete the table to show the present (last 10 years) record of the World Bank:

DATE	ACTION	IMPORTANCE

4. Explain the abbreviations. Write two sentences with each:

a) IBRD

b) IDA

Questions for discussion:

1. What influence had World Bank on Russian economy?

2. Has the membership of the World Bank increased since the break up of the Soviet Union?

3. Do you think that World Bank is an economic instrument by which it’s major subscribers influence the world economy in a whole and economies of poor countries in particular? Why and why not? Give examples.

PART IV

I Applied Economics

LESSON 1 ^Text 1 WHAT IS ECONOMICS?

One of the things that people discover every day is that you can’t have everything. You are reminded of it every time you shop. Although you may see twenty or thirty items that you would really like to buy, you know that you will have to limit your selection to one or two. Everyone goes through life having to make choices.

Every business, even sports teams, must pick and choose from among the things they would like to have because they cannot have everything. Governments, too, cannot have everything. Every year the most important political debates concern questions about spending taxpayers’ money.

Neither individuals nor societies can have all the things they would like to have. There simply is not enough of everything. Economists note that there is no limit to the amount or kinds of things that people want. There is, however, a limit to the resources, things used to produce goods and services, available to satisfy those wants. Once that limit is reached, nothing else can be produced. In other words, when nation’s resources (all its workers, factories, farms, etc.) are fully employed, the only way it will be able to increase the production of one thing will be by reducing the production of something else.

To summarize: human wants are unlimited, but the resources necessary to satisfy those wants are limited. Thus, every society is faced with the identical problem, the problem of scarcity.

<^5 Text 2 ECONOMICS: THE STUDY OF SCARCITY AND CHOICE

Since there is not enough of everything, everyone- individuals, business firms, and government— needs to make choices from among the things they want. In the process they will try to economize, to get the most from what they have. With this in mind, we can define economics as the social science that describes and analyzes how society chooses from among scarce resources to satisfy its wants.

The need to choose is imposed on us all by our income, wealth and ability to borrow. Individuals and families are limited by the size of their personal income, savings and ability to borrow. Similarly, business firms are limited by their profits, savings and borrowing power, and governments by their ability to tax and borrow.

Income, savings, profits and taxes enable people, institutions and government to purchase goods, products you can see or touch, and services, work performed for pay that benefits others. The problem that each must face, however, is that once the decision has been made to choose one set of alternatives, one loses the opportunity to choose the other. Economists describe these kinds of trade-offs as opportunity costs. The opportunity cost of something is its cost measured in terms of what you have to give up to get it.

Business is also faced with the problem of choices and opportunity costs.

^Text 3

WHAT DO ECONOMISTS DO?

Economics deals with the problems of scarcity and choice that have faced societies and nations throughout history, but the development of modern economics began in the 17^th century. Since that time economists have developed methods for studying and explaining how individuals, businesses and nations use their available economic resources. Large corporations use economists to study the ways they do business and to suggest methods for making more efficient use of their employees, equipment, factories, and other resources.

Vocabulary

to impose — наложить, накладывать trade-off — зд. замена

opportunity costs — црча альтернативы, альтернативные издержки to give up — отказываться

Задание 1.1. Answer the questions:

1. What is the problem of scarcity?

2. How can we define economics?

3. What is the opportunity cost of something?

4. What problems are dealt with by econon ics?

5. What do economists do?

^Text 4

MICROECONOMICS VS. MACROECONOMICS

Economists have two ways of looking at economics and the economy. One is the macro approach, ai d th^

other is the micro. Macroeconomics is the study of the economy as a whole; microeconomics is the study of individual consumers and the business firm.

Macroeconomics examines questions such as how fast the economy is running; how much overall output is being generated; how much total income. It also seeks solutions to macro-economic problems such as how employment can be increased, and what can be done to increase the output of goods and services. Microeconomics examines cause- and-effect relationships that influence choices of individuals, business firms and society.

It is concerned with things such as scarcity, choice and opportunity costs, and with production and consumption. Principal emphasis is given by microeconomists to the study of prices and their relationship to units in the economy.

Factors Of Production

The resources that go into the creation of goods and services are called the factors of production. The factors of production include natural resources, human resources, capital and entrepreneurship. Each factor of production has a place in economic system, and each has a particular function. People who own or use a factor of production are expecting a «return or reward.» This generates income which, as it is spent, becomes a kind of fuel that drives the economy.

Natural Resources or «Land»

Natural resources are the things provided by nature that go into the creation of goods and services. They include such things as minerals, wildlife and timber resources. Economists also use the term «land» when they speak of natural resources as a factor of production. The price paid for the use of land is called rent. Rent becomes income to the owner of the land.

Human Resources or «Labor»

Economists call the physical and mental effort that people put into the creation of goods and services labor. The price paid for the use of labor is called wages. Wages represent income to workers, who own their labor.

Capital

To the economist, physical capital (or «capital» as it is commonly called) is something created by people to produce other goods and services. A factory, tools and machines are capital resources because they can be used to produce other goods and services. The term capital is often used by business people to refer to money they can use to buy factories, machinery and other similar productive resources. Payment for the use of someone else’s money, or capital, is called interest.

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