Vocabulary notes

medium – средство

store – накопление

to peg – штучно поддерживать цену

to abandon – отказываться

holder – собственник

to lose confidence – терять доверие

commitment – намерение

to satisfy the demand – удовлетворить спрос

to deplete – исчерпать

to follow suit – подражать примеру

to boost output – увеличить производство

to emerge – появляться

to suspend – приостановить

Comprehension and Discussion Questions

1. How did countries purchase goods in ancient times?

2. Was it possible to exchange paper currency?

3. Is hryvnia a convertible currency?

4. What was used as a medium of exchange in foreign trade in ancient time?

5. When was the gold standard adopted?

6. When did it work well?

7. When was the gold standard abandoned?

8. Why did countries suspend gold convertibility?

Text IV. The dollar purchasing power

The purchasing power of the dollar is calculated by the Bureau of Labor Statistics (BLS), the American government agency that collects data on the cost of living. One of the best know of the data compiled by the BLS is the consumer price index or CPI. The CPI compares the average 1 prices of variety of commonly purchased goods and services in one year to the prices of similar goods in base year. Every month, the BLS records the prices of approximately 1,000 items. These are the goods and services normally consumed by urban families. The prices are collected in 85 areas across the country from over 57, 000 households and 19,000 business firms.

An index number is a number that shows percentage change from some base, which is usually made equal to 100. Thus, a CPI number of 167 would indicate that consumer prices had increased by 67 percent since 1982-84 (the base years). Similarly, a CPI number of 82 would indicate a decrease of 18 percent. In calculating the index, each item 13 is assigned a weight to account for 14 its relative importance in consumers’ budgets. For example, if in a given month, the price of milk is US$1 per quart, and the average household consumes 15 quarts of milk per month, then the cost of milk for month would be carried as US$15. Similarly, if the price of men’s shoes averaged US$78 that month, and the average household purchased two pairs of men’s shoes per year, then the cost of shoes would be entered as US$13.

Purchasing power is calculated by dividing 100 by the index number for the particular year. For example, if the CPI in a given year was 85, the purchasing power of the American dollar would be expressed as US$1.18. In practical terms, the CPI shows how much money you need today to buy the goods and services you could get for US$100 during the base year.

A price index can be constructed for a variety of purposes, such as for consumer prices, producer prices, stock prices, etc. Using the following formula

Price Index = Price in the given year/ Price in a base year * 100, you can calculate any product price.

Vocabulary notes

average price – средняя цена

urban families – семья, которая проживает в городе

item – название товара

to account for – чтобы определить

stock price – цены на бирже

percentage – средний

purchasing power – покупательская способность

Comprehension and Discussion Questions

1. Who calculates the purchasing power of the dollar?

2. How is purchasing power of the dollar calculated?

3. Are consumers’ budgets important to know for calculating price index?

4. Why do they construct a price index?

Unit VII

Text I. Money and Its Function

All values in the economic system are measured in terms of money. Our goods and services are sold for money, and that money is in turn exchanged for other goods and services. Coins are adequate for small transactions, while paper notes are used for general business. There is additionally a wider sense of the “money”, covering anything which is used as a means of exchange, whatever form it may take. Originally, a valuable metal (gold, silver or copper) served as a constant store of value, and even today the American dollar is technically “backed” by the store of gold which the US government maintains. Because gold has been universally regarded as a very valuable metal, national currencies were for many years judged in terms of so-called “gold standard”.

Nowadays however valuable metal has generally been replaced by paper notes. National currencies are considered to be as strong as the national economies which support them. Paper notes are issued by governments and authorized banks, and are known as “legal tender”. Other arrangements such as cheques and money orders are not legal tender. They perform the function of substitute money and are known as “instruments of credit”. Credit is offered only when creditors believe that they have a good chance of obtaining legal tender when they present such instruments at a bank or authorized institution. If a man’s assets are known to be considerable, then his credit will be good. If his assets are in doubt, then it may be difficult for him to obtain large sums of credit or even to pay for goods with a cheque.

The value of money is basically its value as a medium of exchange, or, as economists put it, its “purchasing power”. This purchasing power is dependent on supply and demand. The demand for money is reckonable as the quantity needed to effect business transactions. An increase in business requires an increase in the amount of money coming into general circulation. But the demand for money is related not only to the quantity of business, but also to the rapidity with which the business is done. The supply of money, on the other hand, is the actual amount in notes and coins available for business purposes. If too much money is available, its value decreases, and it does not buy as much as it did, say, five years earlier. This condition is known as “inflation”.