Measuring economic activity
There are a large number of statistics produced regularly on the operation of the world's major economies. The UK's economy is no exception in this respect. You will probably have noticed that often the headlines in newspapers or important items on television news programmes relate to economic data and the implications for individuals and businesses. A prime example of this occurs when interest rates are increased: the media responds by highlighting the adverse effects on businesses with debts and householders with mortgages.
Data is provided on a wide range of aspects of the economy's operation. Statistics are available to show.
* the level of unemployment
* the level of inflation
* a country's trade balance with the rest of the world
* production volumes in key industries and the economy as a whole
* the level of wages
* raw material prices, and so forth.
The main statistics illustrating the economy's behaviour relate to the level of activity in the economy. That is, they tell us whether the economy is working at fall capacity using all or nearly all, available resources of labour, machinery and other factors of production or whether these resources are being under-utilized.
The unemployment figures for the economy give an indicator of the level of activity. As the economy moves towards a recession and a lower level of prosperity it is likely that unemployment figures will rise. An alternative measure of the level of activity is national income statistics, which show the value of a nation's output during a year. Economists use the term Gross National Product to describe this data. Changes in the level or trends of such key data have great significance for businesses, as we shall see later.
There are numerous sources of data on the economy of which we can make use. The government publishes much through the Treasury, Department of Trade and Industry, the Bank of England and the Department of Employment. The Central Statistical Office, which was established during the Second World War, publishes about half of the government's economic data.
Much of this is contained in its annual publication, "The Annual Abstract of Statistics". It also publishes the equally valuable "Social Trends" annually. Additionally, private organizations, such as the banks, building societies and universities, publish figures on various aspects of the economy's performance.
Economic statistics are presented in many forms, the most common being graphs and tables. Although these statistics can be valuable in assisting managers, they should be treated with some caution when predicting the future trend of the economy and thus helping the business to take effective decisions.
Three economic issues
Economics is the study of how people choose to allocate scarce resources to satisfy their unlimited wants. The main problem in economics is the question of allocating scarce resources between competing uses. In this section three economic issues are discussed to show how society allocates its scarce resources between competing uses. In this connection the questionwhat, how and for whom to produce is of great significance.
The oil price shocks
Oil is an important commodity in modem economies. Oil and its derivatives provide fuel for heating, transport, and machinery, and arc basic inputs for the manufacture of industrial petrochemicals and many household products ranging from plastic utensils to polyester clothing. From the beginning of this century until 1973 the use of oil Increased steadily. Over much of this period the price of oil fell in comparison -with the prices of other products. Economic activity was organized on the assumption of cheap and abundant oil.
In 1973 – 74 there was an abrupt change. The main oil-producing nations, mostly located in the Middle East but including also Venezuela and Nigeria, belong to OPEC — the Organisation of Petroleum Exporting Countries. Recognizing that together they produced most of the world's oil, OPEC decided in 1973 to raise the price at which this oil was sold. Although higher prices encourage consumers of oil to try to economize on its use, OPEC countries correctly forecast that cutbacks in the quantity demanded would be small since most other nations were very dependent on oil and had few commodities available as potential substitutes for oil. Thus OPEC countries correctly anticipated that a substantial price increase would lead to only a small reduction in sales. It would be very profitable for OPEC members.
Oil prices are traditionally quoted in US dollars per barrel. Fig. 1 shows the price of oil from 1970 to 1986. Between 1973 and 1974 the price of oil tripled, from $2,90 to $9 per barrel. After a more gradual rise between 1974 and 1978 there was another sharp increase between 1978 and 1980, from $12 to $30 per barrel. The dramatic price increases of 1973 – 79 and 1980 – 82 have become known as the OPEC oil price shocks, not only because they took the rest of the world by surprise but also because of the upheaval they inflicted on the world economy, which had previously been organized on the assumption of cheap oil prices.
People usually respond to prices in this or that way. When the price of some commodity increases, consumers will try to use less of it but producers will want to sell more of it. These responses, guided by prices, are part of the process by which most Western societies determine what, how and for whom to produce.Consider firsthow the economy produces goods and services. When, as in the 1970s, the price of oil increases six-fold, every firm will try to reduce its use of oil-based products. Chemical firms will develop artificial substitutes for petroleum inputs to their production processes; airlines will look for more fuel-efficient aircraft; electricity will be produced from more coal-fired generators. In general, higher oil prices make the economy produce in a way that uses less oil.
Oil price ($ per barrel)
Figure 1. The price of oil. 1970 – 86
How does the oil price increase affectwhat is being produced? Finns and households reduce their use of oil-intensive products, which are now more expensive. Households switch to gas-fired central heating and buy smaller cars. Commuters form car-pools or move closer to the city. High prices not only choke off the demand for oil-related commodities; they also encourage consumers to purchase substitute commodities. Higher demand for these commodities bids up their price and encourages their production. Designers produce smaller cars, architects contemplate solar energy, and research laboratories develop alternatives to petroleum in chemical production. Throughout the economy, what is being produced reflects a shift away from expensive oil-using products towards less oil-intensive substitutes. Thefor whom question in this example has a clear answer. OPEC revenues from oil sales increased from $35 billion in 1973 to nearly $300 billion in 1980. Much of this increased revenue was spent on goods produced in the industrialized Western nations. In contrast, oil-importing nations had to give up more of their own production in exchange for the oil imports that they required. In terms of goods as a whole, the rise in oil prices raised the buying power of OPEC and reduced the buying power of oil-importing countries such as Germany and Japan. The world economy was producing more for OPEC and less for Germany and Japan. Although it is the most important single answer to the 'for whom' question, the economy is an intricate, interconnected system and a disturbance anywhere ripples throughout the entire economy,
In answering the 'what' and 'how' questions, we have seen that some activities expanded and others contracted following the oil price shocks. Expanding industries may have to pay higher wages to attract the extra labour that they require. For example, in the British economy coal miners were able to use the renewed demand for coal to secure large wage Increases. The opposite effects may have been expected if the 1986 oil price slump had persisted.
The OPEC oil price shocks example illustrates how society allocates scarce resources between competing uses.
A scarce resource is one for which the demand at a zero price would exceed the available supply. We can think of oil as having become more scarce in economic terms when its price rose.
to comprise –включать в себя, составлять
local authorities – местные органы власти
to take (to make) decisions –принимать решения
to play a prominent part –играть заметную (значительную) роль
to shape the environment –формировать обстановку, среду, окружение
to predict (to forecast) –предсказывать
to be aware –осознавать, знать
to cut back on spending –сокращать расходы
enormous implications –большое значение, смысл, влияние
general prosperity – всеобщее процветание
to enable smb to do smth –делать возможным для кого-то, позволять кому-либо что-либо делать
consumers –потребители
to alter –изменяться
a recession – упадок
total spending –общие, суммарные расходы
to decline –снижаться
income –доход
unemployment –безработица
to purchase (to buy) –покупать
to cut expenditure – сокращать расходы
luxury items –предметы роскоши
to affect ( to influence smb. smth) – влиять
the extent –степень
to some extent –в некоторой степени
the high street banks –центральные банки
to suffer badly –сильно пострадать
profits –прибыль
to incur (to bear, to suffer) losses –нести убытки, потери
to borrow from –занимать, брать взаймы
to deny the opportunity –лишать возможности
to deny –отрицать
to earn interest –получать процентный доход
loans –ссуды, займы
to default on repayment – не выполнять обязательств по выплате (долгов, процентов и т. п.)
a debt –долг
profit margins –размеры прибыли
the outcome of the actions –результат действий
to make up society –составлять общество
to have dealings –иметь торговые (деловые) связи
to measure –измерять, рассчитывать, оценивать
economic activity –экономическая деятельность
is no exception in this respect –в этом отношении не является исключением
important items –важные вопросы, проблемы
to relate to – относиться к чему-либо, иметь отношение; рассказывать
by highlighting the adverse effects on... - в первую очередь освещая неблагоприятное влияние на...
householder –домовладелец, домохозяин
household –домашнее хозяйство
mortgage – закладная
data –данные
on a wide range of aspects –по самым разнообразным аспектам
statistics are available to show – статистика показывает
trade balance – торговый баланс
key industries –основные отрасли промышленности
wages –заработная плата (рабочих)
salary –оклад, жалованье (служащих)
raw material prices –цены на сырье
at full capacity –на полную мощность
available resources –доступные, имеющиеся в наличии ресурсы
labour –труд
machinery –оборудование
factors of production – производственные факторы, факторы производства (труд, земля, природные ресурсы, капитал)
to be under-utilized –не использоваться полностью
unemployment figures – количество безработных
indicator — показатель
national income –национальный доход
the value of a nation's output –оценка объема производства страны
Gross National Product (GNP) –валовой национальный продукт (ВНП)
trend – направление, тенденция, тренд
the Tresuary –Государственное казначейство. Министерство финансов (в Великобритании)
the Department of Employment –Министерство по вопросам занятости (в Великобритании)
the Central Statistical Office – Центральное статистическое управление
to contain – содержать
equally valuable – такой же важный
building societies строительные общества (специализированныесберегательные учреждения)
graphs and tables –графики и таблицы
to assist – помогать, оказывать помощь
to allocate resources – распределять ресурсы
scarce resources – ограниченные, скудные ресурсы
scarcity –дефицит
to satisfy unlimited wants –удовлетворять неограниченные потребности
competing uses –конкурирующие сферы использования
to be of great significance –иметь большое значение
commodity– товар, предмет широкого потребления
modern economy –современная экономика
oil and its derivatives –нефть и нефтепроизводные
to provide fuel for heating and transport –обеспечивать топливом системы теплоснабжения и транспорт
basic inputs –основные составляющие