Vocabulary developing

Exercise 3. Choose the correct alternatives: When I lend my (a) savings/expenditure to a bank, the bank (b) pays/collects interest on what it has (c) lent/borrowed. This makes me an investor in the bank. In times of (d) inflation/deflation I am able to balance the (e) decrease/increase in the purchasing power of my savings by earning (f) a deposit/interest.

 Exercise 4.

Give the words for the definitions below: 1. money that is spent

2. the increase in purchasing power of money

3. money that is left in the bank for safe keeping

Exercise 5.

Match each piece of new information with the definition that helps you understand it:

a. Capital goods		1. they mean the activity which results in the supply of goods and services.
b. A useful function performed for the benefit of someone who is prepared to pay for it		2. is known as consumption.
c. When economists refer to production		3. are items which are manufactured for the purposes of helping man in his productive efforts.
d. The way by which scarce resources are chosen to be used for consumption or production		4. is called a service (e.g. hair dressing, selling food in a restaurant).
e. Investment		5. may be defined as resources used to increase future income and consumption.
f. The use made of services and goods for the satisfaction of wants		6. is called the allocation of resources.

Exercise 6. Choose the appropriate sentence to complete each paragraph below. a. The government may decide to invest public funds in agriculture so that farmers are encouraged to grow more food. Alternatively, . . . 1. a better diet will lead to an improvement in the health of the present generation. 2. it may decide to invest in education. 3. this will encourage farmers to support the government. b. Government aid to schools will encourage the development of an educated workforce. Moreover, . . . 1. if the money is spent on military weapons, the armed forces will be more likely to support the government. 2. an efficient educational system is extremely expensive to run. 3. the government will win political support from parents and teachers.

Exercise 7. a. Which of the alternatives below do you agree with? 1. If the work force is better educated, it will probably be more productive/less productive. 2. A government, like individual consumers/unlike individual consumers has to decide whether to use existing economic resources in present consumption, or whether to invest them in production for future consumption. 3. If the government invests in expanding the educational service, the country will only benefit when the educated generation join the labour force/benefit immediately. 4. If the government invests in subsidies to farmers, who produce more food, the country will only benefit after a long period of time/benefit immediately? b. What is the best order for expressing the ideas above?

READING 2

Individual families, whether rich or poor, must decide how to divide their expenditures out of income in some proportion between present and future consumption. That part of income which is not consumed is called savings. Monetary savings can simply be stored for future use, but in most cases their 'real' value will probably decline due to inflation.

Alternatively, savings can be deposited in a bank to earn interest so that their 'rear' value may increase to the extent that the interest paid by the bank exceeds the rate of inflation.

Like consumers, private producers and governments must face a similar choice in deciding how to allocate existing resources between production for present consumption and production for future consumption. Resources devoted to expanding future income and consumption are known as investments. The allocation of these present 'real' resources (land, labour, capital, materials, management, etc.) to future production and consumption is the essence of the process of investment. Its major characteristic is the dominant role played by time. For example, the decision whether to allocate limited public funds in the form of price support subsidies to farmers to encourage them to expand their production of a staple commodity like corn or to devote these same resources to expanding educational opportunities is essentially a decision about present consumption (food now) as opposed to future consumption (food later as a result of a more educated and possibly therefore a more productive agricultural labour force).

Todaro M.P. Economics for a Developing World Longman 1977

http: //www.ee.ed.ac.uk

COMPREHENSION

Exercise 8.

Give extensive explanation to the following notions from the text:

1. present and future consumption

2. “real” value of monetary savings

3. “rear” value of savings

4. “real” resources

Exercise 9. Write out the following sentences in the order that makes best sense: 1. Monetary savings can simply be stored for future use, but in most cases their 'real' value will probably decline due to inflation. 2. That part of income which is not consumed is called savings. 3. Alternatively, savings can be deposited in a bank to earn interest so that their 'real' value may increase to the extent that the interest paid by the bank exceeds the rate of inflation. 4. Individual families, whether rich or poor, must decide how to divide their expenditures out of income in some proportion between present and future consumption.