UNIT 1.

The Business Cycle

My major problem with the world is a problem of scarcity in the midst of plenty ... of people starving while there are unused resources ... people having skills which are not being used. Milton Friedman When we talk about the business cycle, also called the trade cycle, we refer first of all to its phases and then to the fluctuation of the main indicators during each phase. The main indicators would be: GDP, consumption, investment, interest rate, change in inventories, government consumption, net exports, personal savings rate, employment-payroll jobs, unemployment rate, real earnings, employment cost index (ECI), producer price index (PPI), retail sales, industrial production, consumer price index (CPI), international trade (exports, imports, trade balance). N. B. It is the fluctuations in real GDP that cause changes in employment, unemployment, interest rates, inflation etc.
Main phases of GDP fluctuation

Expansion or recovery

Peak

Boom

Trough

Recession or contraction

Depression

1. After reading the short text about the main phases of the business cycle, match the phases with the ups and downs in the graph; then state what happens to each indicator afore-mentioned during each change that occurs in the trade cycle.

Boom

Peak

Expansion

Recession

Depression

Trough

The phases of the business cycle: Recession is triggered by a decline in the GDP that occurs for at least two quarters. During a recession, business people spend less than they once did. Because sales are falling, businesses do what they can to reduce their spending. They lay off workers, buy less merchandise and postpone plans to expand. As workers earn less, they spend less, thus affecting business profits. Depression. A long and lasting recession is called depression. It is characterized by large unemployment rates, a decline in annual income and overproduction. This moment the real GDP may stop its decline; the cycle may remain at this low point for weeks or even months. The worst depression was the one which started in America in the 1930s, being caused by a crisis of overproduction (according to one of the multiple theories related to this topic) and it lasted for several years, affecting also Europe. Expansion. A period in which the real GDP grows; it means the recovery from a recession or depression. Firms start hiring more workers and increase their orders of materials from their suppliers. Increased orders lead other firms to increase production and employ workers. More employment leads to more consumer spending and still more jobs.

Peak. The point at which the real GDP stops increasing and begins its decline; the highest point of the business cycle when expansion ends its upward trend. Employment, consumer spending and production reach their highest levels. A peak can last for a short or long period. When the peak lasts for a long time, we are in a period of prosperity. Because during periods of prosperity people tend to spend more, demand increases and prices rise; the inflation, if not controlled, may bring forth recession. Trough is the lowest point of the business cycle; all the indicators are at their worst value. Boom. This phase is considered to be unpredictable; even if sometimes the best one of the business cycle, when investments are fully growing because interest rates charged by banks are lowering; production increases, people tend to spend more thus triggering inflation if the situation is not properly controlled.

2. Read the text and answer the following questions: Which type of the business cycle is the most known nowadays? What are the two theories of the business cycle? How can economists prevent different phases of the business cycle? 3. Think at the Romanian economic situation during the last fifteen years. Design a graph to show the ups and downs in the political economy by placing the approximate years beneath the phases. Types of business cycles The main types have been identified according to the names of their inventors: the Kitchen cycle (3-5 years) - after Joseph Kitchen; it is determined by changes in inventory theJuglar cycle (7-11 years) - after Clement Juglar; it is triggered by fluctuations of fixed investments. This is the cycle called business cycle. the Kuznets cycle (15-25 years) - after Simon Kuznets, determined by infrastructural investments theKondratiev cycle(45-60 years) - after Nikolai Kondratiev; This cycle is more visible in international production than in individual national economies and concerns output rather than prices.

4. During the end of the Second World War II and the beginning of the 1970s, cycles in Western European countries were more determined by decisions affecting the fiscal policy, the monetary policy, government budget formation by strict intervention on the market. It followed a deregulation of the financial markets with less intervention. After

the 1990s, the tendency is towards government adjustments again. Think at the Romanian situation in the last fifteen years: Establish, out of three cycles, the one you think was the most widely used. According to your opinion, were the Romanians economic decisions more market-centered or government-centered? Establish a certain economic policy made within the period.

The two theories of the business cycle: The internal theory of the business cycle is determined by people being optimistic or pessimistic. If people are optimistic they tend to consume more, save less, run up debts; production increases, the money supply also goes up and the inflation menaces to show up. Then interest rates charged by banks shoot up so as to control the volume of investments; people when pessimistic save more and consume less. Millions of decisions made by consumers and industrialists affect the way the economy expands or contracts itself. The external theory of the business cycle suggests that cycles result from the successive elections of administrations with different policy regimes. Expansionary policies result in growth and inflation; contraction policies reduce inflation and growth and it is chosen when unemployment is too high. The external theory depends also on technological inventions, demographic changes, natural disasters etc., external causes of the business cycle. N. B. Both theories are valid and credible enough; usually the internal theory is active during short cycles, while the external one is more valid on long-terms. How to prevent Business Cycles One way would be the proper government intervention to limit the fluctuations, even if, sometimes, the interventions are believed to deepen the crisis. 5. Enumerate all possible interventions a government can use to control different phases of the business cycle; state also the main financial instruments used to reach the target. The crises can also be timed; it may show up in the form of severe inflation or government deficit. Good forecasts are critical to improve policy decisions. 6. Suggest some real-time indicators to control the fluctuations.

7. Some people argue that the business cycle is caused by intervention in the money supply. The interest rate is considered to guide the investment decisions of borrowers and lenders. Choose the best option out of the two written in bold: Government control/lack of control of the money supply disturbs the equilibrium between lenders and borrowers such that the interest rate no longer reflects the real supply of and demand for investment capital. If the interest rate is kept artificially low/high, then the demand for loans will be higher than the actual supply of lenders. The Austrian theory also predicts that the burden of artificially low/high interest rates, and the resulting increase in the supply of fiat credit, generates inflation, which obliges the central bank to decrease/increase the supply of credit yet further to maintain the artificially low/high interest rate.

UNIT 2. DID AMERICA CHOOSE THE RECESSION?

The late Rudi Dornbusch, an economist at the Massachusetts Institute of Technology, once remarked: None of the post-war expansions died of old age. They were all murdered by the Fed. Every recession since 1945, with the exception of the one in 2001, was preceded by a sharp rise in inflation that forced the central bank to raise interest rates. But today's Federal Reserve is no serial killer. It seems keener on blood transfusions than on bloodletting. When the Fed cut its discount rate on August 17th, it admitted for the first time that the credit crunch could hurt the economy. The markets are betting it will soon cut its main federal funds rate. Economists are arguing vigorously about how much damage falling house prices and the subprime mortgage crisis will do. But there is one question that is rarely asked: even if a downturn is in the offing, should the Fed try to prevent it? Most people think the question smacks of madness. According to received wisdom, the Fed should not cut interest rates to bail out lenders and investors, because this creates moral hazard and encourages greater risk-taking; but if financial troubles harm spending and jobs the Fed should immediately ease policy so long as inflation remains modest. Central bankers should be guided by the Taylor ruleand set interest rates in response to deviations in both output and inflation from desired levels. But should a central bank always try to avoid recessions? Some economists argue that this could create a much wider form of moral hazard. If long periods of uninterrupted expansions lead people to believe that the Fed can prevent any future recession, consumers, firms, investors and borrowers will be encouraged to take bigger risks, borrowing more and saving less. During the past quarter century the American economy has been in recession for only 5% of the time, compared with 22% of the previous 25 years. Partly this is due to welcome structural changes that have made the economy more stable. But what if it is due to repeated injections of adrenaline every time the economy slows?

Many of America's current financial troubles can be blamed on the mildness of the 2001 recession after the dotcom bubble burst. After its longest unbroken expansion in history, GDP did not even fall for two consecutive quarters, the traditional definition of a recession. It is popularly argued that the tameness of the downturn was the benign result of the American economy's increased flexibility, better inventory control and the Fed's firmer grip on inflation. But the economy also received the biggest monetary and fiscal boost in its history. By slashing interest rates (by more than the Taylor rule prescribed), the Fed encouraged a house-price boom which offset equity losses and allowed households to take out bigger mortgages to prop up their spending. And by sheer luck, tax cuts, planned when the economy was still strong, inflated demand at exactly the right time. Many hope that the Fed will now repeat the trick. Slashing interest rates would help to prop up house prices and encourage households to keep borrowing and spending. But after such a long binge, might the economy not benefit from a cold shower? Contrary to popular wisdom, it is not a central bank's job to prevent recession at any cost. Its task is to keep inflation down (helping smooth out the economic cycle), to protect the financial system, and to prevent a recession turning into a deep slump. From The Economist, August 23rd 2007

1. After reading the text, try answering to the following questions:

What would be the economic advantage of induced recession? State the connection between the increase of inflation and the central banks need to raise interest rate. How would affect the cut of discount rate both lenders and investors? How can a central bank try to avoid recession? State the connection between recession and moral hazard? When do consumers, firms, investors, borrowers take bigger risks? In recession or expansion? State the connection between interest rates, equity, mortgages, demand. Whose job is to prevent recession? Whose to benefit/whose not from slashing interest rates? Whose to benefit from recession? What about from expansion? State the economic impact of both. Whats the dotcom bubble burst business and how did this affect the American economy? What would an expansion do in the American economy right now? What are the consequences of induced recession?

2. Mark the following statements as true or false; explain your choice:

The economic costs of recession are: unemployment, lower profits, bankruptcy. The consequences of recession are: lower interest rates and lower reserve requirements.
Recession is sometimes a benefit to the economy: only well-run companies are still on the market when the crisis passes on. Zero interest rates assure companies more elasticity in case of a recession. Zero interest rates boost economic growth. A recession forces people to restrict their spending, borrow less, therefore it purges the excess. Recessions always reduce trade gaps.

3. Decide which of the two options is the right one:

A recession is preceded by a rise/fall in inflation. During a recession the National Bank has to increase/decrease interest rates. A very low/high interest rate drags an economy into recession. The subprime mortgage crisis affected only the American economy/the global economy. The reduced/increased interest rate encourages risk-taking and on the long run, it damages the economy. The interest rate should/should not match the level of inflation. People borrow more/less and save less/more if they think that the Central Bank would prevent them from any financial risk. Inflated/light demand generates inflation, if not controlled by the interest rate.
If the Central Bank wants to increase/decrease interest rates, it sells/buys government bonds; then the money supply increases. By increasing/decreasing reserve requirements, the Central Bank gives different banks the opportunity to decrease/increase loans or sell/buy different assets.

4. In groups of two, brainstorm so as to provide answers to the following questions: Provide examples of Romanian recessions. Were the economists using the same instruments as the Americans?

Summarize the American situation in 2001 and compare it with the Romanian in the same year. Is the Taylor rule applicable in Romania? How does affect the cut of discount rate both lenders and investors in Romania?

5. Decide the type of risk of each kind of the following investments has during recession; use L for low, M for medium and H for high to specify the risk involved: Deposits in commercial banks Deposits in insurance companies Deposits in pension funds Investments in real estate Credits in commercial banks Securities on the national market Mutual funds in emerging as well as developing markets Equities in investment funds

6. Analyze the Romanian economic situation in the last twenty years. Enumerate all possible interventions the Romanian National Bank used to control recession and expansions. State also the main financial instruments used to reach the respective target.
Task 1 How do aggregate demand and output fluctuate when a national government chooses to borrow abroad and spend the money on necessities?

Task 2 Can a government choose to start up different public works during recessions?

Task 3

What phase of the business cycle is in your country right now? What is the current fiscal policy? What tax and expenditure policies seem appropriate?

UNIT 3. FINANCIAL CRISIS

When times are hard, many people are tempted to let their credit cards take the strain for a while. And when economies fall into recession, many governments are happy to let their budget deficits widen, to tide the economy over.

Sensible as this may be, deficits in several countries have increased so much and so fast during the economic crisis of the past 18 months or so that it is generally agreed that remedial action will be needed in the medium term. Deficits of 10% or more of GDP cannot be sustained for long, especially when nervous markets drive up the cost of servicing the growing debt. Market pressure explains why deficits have come to the fore in southern Europe. Greece and Portugal, in particular, have seen a sharp rise in their cost of finance and some investors have questioned their ability to roll over their debt. But deficits will also be at the centre of the forthcoming British election campaign, and in America the tea party movement has launched a populist campaign against rising government spending. There is no absolute rule on when deficits or public debts are too high relative to an economys size. Prior to the crisis the general consensus was that rich countries could safely have public debts worth 60% of GDP. Yet although Japans debt has exceeded its GDP for many years, the government has yet to suffer a financing crisis, perhaps because it has a large number of willing domestic buyers of its bonds. But when the markets do lose confidence in a governments fiscal rectitude, a crisis can arise quite quickly, forcing countries into painful political decisions. Plainly, economic growth makes policymakers lives much easier. Growth reduces deficits automatically by increasing tax revenues and cutting spending on unemployment benefits and so forth. As the economy grows, deficits fall, debts become more sustainable, lightening the adjustment burden and reassuring investors. Nations have recovered from huge debt burdens in the past, often in the aftermath of wars, when men and resources were released from conflict and put to more productive work. When politicians turn to todays deficit problems, it is vital that they choose policies that enhance long-term growth prospects. They will not lack opportunities: in several countries, for example, increases in statutory pension ages and other reforms that make labour markets more flexible are anyway overdue. So, short of debt default or implicit default via inflation, that leaves two other ways of closing the deficit. Spending must be cut or taxpayers must pay more. Many political battles of the next few years will be fought on these simple lines, with taxpayers on one side and the beneficiaries of public spending on the other. One imminent battle will be between taxpayers and public-sector workers. In some countries, one party can be seen as representing taxpayers (the Conservatives in Britain and the Republicans in America) and the other the workers (Labour and the Democrats, respectively). Another of these fights will be between generations. In America the biggest medium-term budget busters are pensions and health care for the old. A big deficit may ease the economic pain in the short term but risks saddling the next generation with a growth-sapping burden of higher taxes and interest payments. The battles are also intertwined: taxpayers finance the pensions of public employees which are, by and large, more generous and predictable than in the private sector. The outcome of these battles will vary from country to country. Both sides have potent weapons. Many of the biggest taxpayers are political donors and have access to people in power. If they

are ignored, they may pack up and move to a more friendly jurisdiction. In Europe especially, public employees, together with recipients of public services, probably have numbers on their side. They are certainly better organized, via their trade unions, and they are political donors too. As French workers have often shown, public-sector unions can intimidate governments with strikes and demonstrations. Their Greek brethren have been trying to emulate them. From The Economist, March 4th 2010

1. After reading the text, try answering to the following questions: Why, during financial crisis, people are against rising government spending? What is the pressure markets exercise over budget deficits? May an economic crisis be determined by a political one? Before the crisis, rich countries could have a public debt higher than their GDP. What does it mean a public debt and how could they manage this situation? If the public debt is owed by international buyers, could this situation save a country from a financial crisis? What are the measures by which a deficit may be reduced? Does public spending have to be encouraged in order to put an end to a financial crisis? What about social measures? The young generation has to pay higher taxes and higher interests in order to sustain the pension and health care systems. Does this create disputes between generations? In a country there are usually two major parties, one representing the old generation (higher pension funds etc) and the other the young generation (protecting the taxpayers rights). Is there the same picture in Romania? 2. Decide whether the following statements are true or false: Governments should concentrate themselves on tax increases in order to stop recession. Cuts in public investments tend to put an end to recessions. The fall of inflation and of interest rates are slowing down the budget deficits. Cutting spending may encourage the boosting of the capital market. The end of the cold war changed substantially the spending policy in the Western countries. Nowadays, they invest more in the social security system.

Governments depend on supporters, so they vote policies which encourage employment rates. The government should not always act in the interest of the population. There is a difference between the interest of the population and the general interest of the economy. If a country wants to repay its debts, it has to tighten its fiscal policy, thus damaging the interest of the population. A market controlled by domestic investors gets easier out of a financial crisis. By devaluing the national currency, the recession could be easier controlled and surpassed. Big tax increases can damage the economy. Countries are also afraid of increasing taxes, because of tax heavens such as Switzerland etc. Sales or VAT taxes are a solution to decrease the budget deficit, but they are often to be paid by the rich.

3. In each case, which of the two statements is true: a. Tax rises and freezing wages are a way of controlling recession. b. Tax rises and freezing wages are a way of controlling inflation a. Tax evasion seems to be the problem of Eastern European countries. b. All the European countries confront with tax evasion. a. The IMF dictates harsh measures for Eastern European countries, measures which are not applicable by the governments being afraid of strikes and lost of votes. b. The measures imposed by the IMF, in exchange for its loans, are strictly respected by local governments. a. Autocracies are better because they assure a low unemployment rate, subsidies for factories, but limited property rights. b. Democracy is still the most popular system worldwide. a. A good proportion of the European population is in or nearing retirement, so the public pension system has to be supported by more and more taxes paid by the young population. b. A good proportion of the American population is in or nearing retirement, so the public pension system has to be supported by more and more taxes paid by the young population.

a. The population is divided into two classes: taxpayers and people benefiting from public pensions. Government usually supports the latter. b. The population is divided into two classes: the taxpayers and the people benefiting public pensions. Government usually supports the former. from

4. Choose the appropriate words in the following statements: The capital markets are eager to restart their business especially in the Eastern/Western European countries. Greece/Romania recently announced an austerity package. Greeceand/or Romania are considered to be the most corrupted countries in the European Union. Japan/America has high debt levels. The richest countries in the world are the United States, Japanand/orGermany. Who is to support the cost of the current recession? Taxpayers, retired people, future generations/foreign investors. Protectionism/free trade is the solution to solve out the economic crisis. More flexible labor markets may boost/damage to the economy. Spending cuts/tax rises do better to the European economy. Countries are tempted to diminish their debts through higher/lower inflation. Loose/tighten credits gave way to an era of austerity. The 2008 crisis was a banking crisis/pension crisis. Helping people to borrow money is not doing them any good/is making them a service. The American crisis in 2008 was/was not similar to the American crisis in the 1930s. The European continent is more/is less affected by the 2008 crisis than the American one.

UNIT 5. PEOPLE GROW OLD

For as long as people have been growing old, theyve been wishing they didnt have to. The Epic of Gilgamesh, one of the most ancient works of literature, chronicles the eponymous heros quest for eternal life. Most religions offer an attenuated version of immortality in which some fuzzily defined soul endures even after the body has died. Medieval alchemists hunted in vain for the rejuvenating Philosophers Stone; industrial-age quacks got rich off their patent elixirs. Today, cosmetics companies dance around truth-in-advertising laws to imply that their creams and lotions can keep the years at bay.

Yet for all the gloomy fascination that surrounds ageing, precious little research has been done into its causes. The question of why we grow old and die still divides evolutionary biologists. Strictly speaking, ageing does not seem to be inevitable. After all, both cancer cells and some very simple forms of life appear highly resistant to the passage of time. And while we know plenty about the consequences of ageing, we know much less about the exact biological processes involved. The little interest shown was until recently limited to quacks and cranks, leavened with the occasional iconoclastic scientist (such as Peter Medawar, a brilliant British zoologist) with a reputation strong enough to survive developing an interest in a thoroughly disreputable field. In the past couple of decades that has begun to change. Improvements in technology, particularly the ability to sequence DNA quickly, have made the serious study of ageing possible. All this is carefully chronicled in The Youth Pill by David Stipp, a former medical writer for the Wall Street Journal and an able guide to this young science. His book draws readers down the blind alleys and experimental dead ends that are an inevitable part of scientific research, as well as explaining the advances that have been made and the hunches that led to them. Plenty of progress has already been made. Genes have been found that boost the lifespans of laboratory animals by 30% or more, and research into the mechanisms of ageing has fingered some tantalising leads: ageing seems to be associated with a low-level, chronic inflammation of many of the bodys tissues, for instance. Insulin, a hormone that regulates the metabolism of glucose, also crops up. Most intriguing of all is something that scientists have known for decades: feeding nearstarvation diets to laboratory animals such as mice and fruit flies can extend their lifespans by 40% or more, and improve health along the way. If those results translated directly to humans (and there is some preliminary evidence that fasting may confer benefits in people), then the human lifespan could reach 150 years. Many explanations have been offered and discarded to explain the power of dieting: that it reduces production of the harmful chemicals that are a side-effect of respiration, for instance, or that it lowers blood-sugar levels, which seems to have a variety of health benefits. Instead, MrStipp propounds a relatively new theory that low-calorie diets activate genes designed to help animals endure hard times, which boost cellular repair mechanisms. There is evidence that almost all animals, including humans, may have a similar suite of genes. Proponents of this theory are searching for drugs, so-called calorie-restriction mimetics, that can produce these effects without requiring aspiring centenarians to endure 100 years of non-stop dieting. Several firms have been set up to capitalise on the findings, in the hope of developing and selling pills that grant longer, healthier lives. From The Economist, July 22nd 2010

1. Try answering to the following questions after reading the text: Enumerate all the works you know where characters are seeking for eternal life and for youth without death. Do you think cosmetics and aesthetic surgery look for an answer to why we grow old and eventually die or they are simply searching for their own profit? Why do people become more and more fascinated with the idea of eternal youth? How much do you think people know about the ageing biological process? What are the main causes of ageing according to specialists? Do you really think that near-starvation feeding can extend life?The less we eat the more we live. How much do you believe in this experiment? Who would profit a lot if scientists invent pills that grant longer and healthier lives? Do you think extending lifespan is something worth aiming for? Imagine you are the only one who knows the secret of eternal youth and life. Would you like living forever knowing that all the people you know will get old and die? Human beings are scheduled to live around 150 years. Why do you think we cannot tap on this limit? Even if non-stop dieting guarantees a longer life, are you ready to pay the price for? Do you agree with aesthetic surgery and diet pills simply because they make you more bearable when you look yourself into the mirror? Are there negative consequences to such artificial trials, such as aesthetic surgery and diet pills? Do you think that immortality can exist, as long as every being, be it animal, insect or plant ends up by dying?

2. You find below couples of sentences. You are supposed to choose one of them and motivate your answer: A. Eternal life would confront us with overpopulation; therefore the same people would live forever, giving birth to new children would be forbidden. I chose to have children and a limited lifespan, so as to give a chance to new generations to live the miracle of life.

B. If available, I shall accept all anti-aging interventions such as gene mutations that extend lifespan, calorie restriction, and drugs. No, thank you, I prefer to stay apart from such artificial anti-aging programs. I refuse to buy time. C. Why should I accept death? Ill be ready to offer myself as a case study to specialists in order to extend my life. No, thank you, I choose a normal life away of experiments and artificial programs.

D. If possible, I choose to live to one hundred years, despite diseases, ugliness, lack of energy. I choose a shorter but self-controlling life.

E. Genetic markers make some people to live longer than others. Also, exercise, moderation and a healthy diet. I do not believe in this theory, I prefer aesthetic interventions, calorie restriction, and drugs.

F. Internal equilibrium and a healthy life could assure me a longer life. I do not care. I prefer a short and intense life, where I could smoke, drink, drug myself, eat a lot etc.

G. When I buy food, I always read the prospectus, so as to choose only healthy food. I do not care, I just but what I find tempting at the moment.

3. Explain the meaning of the following words and phrases and introduce them in your own sentences: quest fuzzily quacks and cranks hunches to tantalize to discard

to get rich off

4. Compound the following words so as to obtain in the end some collocations: high/low anti life non so near, truth-in side calorie blood caloric advertising starvation stop extension effect ageing sugar called restriction

5. Decide whether the following sentences are true or false: The birthrate in Romania is quite significant. The highest birthrate in Europe is to be found in France. Anti-aging drugs are now tested on animals. Lowering the risk of all aging diseases represents the key to extend life. In Romania, the social security system is one among the best in all European countries. The American social security system protects the rich as well as the poor. The American social security system resembles to the European one. People who live longer may pay higher taxes. Anti-aging policies will not be available to everybody because of their high-costs. As medicine progresses, lifespan increases and overpopulation too. People consume more and more natural resources and the planet is highly extenuated. Immortality cannot be guaranteed by an over used planet.

UNIT 6.BRAZIL. HOW IMPORTANT ITS ECONOMY SEEMS TO BE

When, in 2001, Goldman Sachs dreamt up the acronym BRICs for the largest emerging economies, the country that most people said did not belong in the group was Brazil. Today, the leading candidate for exclusion is Russia. But some prominent observers are still skeptical about Brazils prospects. A notable example is Martin Wolf, the chief economics commentator of the Financial Times, who recently (and very reasonably) pointed out that Brazils share of world output has actually fallen over the past 15 years, from 3.1% in 1995 to 2.9% in 2009 at purchasing-power parity. Brazil cannot become as big a player in the world as the two Asian giants, China and India, Mr Wolf concludes. At a recent meeting with a group of investors in Hong Kong, Rubens Ricupero offered an intriguing counterargument. A long-serving and respected Brazilian diplomat, MrRicupero was the secretary-general of the United Nations Conference on Trade and Development from 1995 to 2004. Although he has links to the opposition to Brazils ruling Workers Partyhe previously served as finance minister in the government of a rival partyhis analysis is not party-political. For the first time in its history, he argues, Brazil is enjoying propitious conditions in four areas that used to pose serious limitations to growth. They are: Commodities. Commodity production used to be regarded as either a curse or, at best, something countries ought to diversify away from as quickly as possible (which Brazil itself did in the 1970s). But over the next fifty years, MrRicupero notes, half the expected increase in the world population will come from eight countries, of which only oneAmericais not sucking in commodities at an exponential rate of increase. The others are China, India, Pakistan, Nigeria, Bangladesh, Ethiopia and Congo. China alone will account for 40% of the additional demand for meat worldwide, he points out. This demand will remain strong partly because of rising population and partly because of urbanisation, which increases demand for industrial commodities (like iron ore to make steel) and meat (because urbanisation changes eating habits). Brazil is already a large iron-ore producer, and has transformed itself into an agricultural powerhouse over the past 10 years, becoming the first tropical country to join the ranks of the dominant temperate-climate food exporters such as America and the European Union. It is well-placed to benefit from the emerging markets commodity boom. Petroleum.MrRicupero argues that the success of the Brazilian state oil company, Petrobras, in offshore oil exploration has transformed Brazilian energy. Although no precise and final estimates can

be made yet of the [so-called] pre-salt oil reserves potential of the Santos Basin, he says, all serious indications point to the high likelihood that Brazil is poised to become at least a medium-sized net oilexporting country. New oil and gas deposits far away from the volatile Middle East should increase Brazils strategic importance, as well as improving its balance-of-payments position. Demography.Brazil is reaping a big demographic dividend. In 1964, its fertility rate (the average number of children a woman can expect to have during her lifetime) was 6.2. It fell to 2.5 in 1996, and is now below replacement level, at 1.8, one of the sharpest drops in the world. The result has been a collapse in the dependency ratiothe number of children and old people dependent on each workingage adult. As recently as the 1990s, that ratio was 90 to 100 (ie, there were 90 dependents, mostly children, for each for every 100 Brazilians of working age). It is now 48 to 100. Thanks to this, Brazil no longer has to build schools, hospitals, universities and other social institutions helter-skelter to keep pace with population growth. Eventually, the ratio will creep back up as todays workforce enters retirement, but such problems remain decades ahead. In the meantime, Brazil can pay more attention to the quality rather than the quantity of its social spending, which should, in theory, improve the populations education, health, and work skills. From The Economist, July 26th 2010

1. Try answering to the following questions after reading the text: Have you already visited Brazil? What do you understand by emerging economy? Does Brazil fit into the group nowadays? Do you think that the dominant temperate-climate represents an advantage to Brazil as compared to China orIndia? Even if Brazil has a considerable number of population, the food demand on the national market is not as high as on the Chinese one. What would be the reasons? Which country is more urbanized: China, India or Brazil? Do you think that Brazil really pays attention to the quality of its social spending? What is the main problem Brazil is confronting with as regarding demography? Enumerate some traditional oil-exporting countries besidesBrazil? Who is the current president in Brazil and whose side he takes: the rich or the poors one? What are the real problems Brazil is confronting with? Why did the fertility rate decrease as compared to the year 1964? Give some names of the most known dictators in South-America.

2. Decide whether the following sentences are true or false: Many of the worst contemporary problems in Brazil are the lack of educational and health facilities, poor public transportation, marginalization and criminality. Most of the Brazilian population lives in the cities. Chile, for example, a small South-American country has an economic growth which is far more important that the Brazilian one. As different from China, Brazil does not seem to represent a menace to its neighbors. Brazil matters a lot on the international political scene. Two thirds of the Brazilian population, the so-called favela lives with less than one euro a day. The real problem in Brazil is the tremendous inequality between the rich and the poor. A fair distribution of wealth makes a country civilized. The Brazilian upper class admires the safe environment in Western civilization countries, but it refuses to pay higher taxes so as to equilibrate the balance between the very rich and the utmost poor in their own country. 3. Choose one option out of the two/three bolded below: Brazils capital is Rio de Janeiro/ Sao Polo/ Brasilia. The official language is Portuguese/ Spanish / American. Brazil is a communist / capitalist country. The fall / the upsurge of democracy is still a matter to be considered by local corrupted politicians. The low / high income jobs are done by favela. Since the 1980s, Rio / Brasilia became a transit point for cocaine heading to Europe. The favela / the richlives out of drug trade. The Brazilian economy is the worlds eighth largest economy by nominal GDP/GNP. There are guides who may bring tourists to visit the places favela lives / Leblon, the richest place in Rio. Many of favela is killed by the police whenever it revolts, steals, is caught in drug dealing operations / is arrested by the government as political prisoners.

Brazil have become recently a touristic destination as couple of years ago people were terrified by the violence in Brazil / Brazil does not represent a remindful touristic destination.

N.B.: If you still want to visit Brazil, the only destination which deserves your attention is Rio de Janeiro, where even in September (February to them) the temperature is around 25 30 degrees and you can take a profit of the ocean. The only place where you should search for a hotel is Copacabana or Ipanema beaches, places which are guarded by the policy. You should never leave Copacabana or Ipanema unless you are accompanied by a touristic guide or safer by a group. You cannot visit by yourself. It is dangerous. You may be kidnapped or even killed, unless you get away with just a finger cut!! When you leave for Brazil, do not take any jewellery with you and dress yourself as neutral as possible (a jean and a tee-shirt) so as not to represent a pray for the favela. Do not use your credit card and make sure you are back in your hotel before nightfall. Walk yourself without purse or mobile phone, just the hands in your pockets. It is an experience that worth once in a lifetime, but be careful!

4. Fill in the sentences with the missing words cited below: purchasing-power parity, output, offshore, demand The most profitable companies, but also sometimes the most illegal are the .companies. The has decreased lately in Romania because of an unrecorded economic but mostly political crisis in the last twenty years. The Romanian is insignificant as the country imports almost everything. Chinas..accounts for the highest percentage ever recorded by the Chinese people.

Task According to you, in what consists the potential power of:

China India Brazil

UNIT 7. RUSSIA NEEDS MODERNISING

Modernisation was the slogan proposed by Dmitry Medvedev, Russias president, in an article last September called Russia Forward!, published on a liberal website. Should we drag a primitive economy based on raw materials and endemic corruption into the future? Mr Medvedev asked rhetorically. While admitting a vast array of problems, from economic weakness to alcoholism, he painted a picture of a Russia with nuclear-powered spaceships and supercomputers. In short, if Russia managed to modernise, it would once again become a world leader. Although Mr Medvedevs article was dismissed by critics as a mere simulation of action, it inspired lively debate among the elite. Even those who suspected the slogan was fake found they could not disagree with it. Thus discussion focused on different ways to modernise, but did not question the goal itself. The Kremlin had imposed its own agenda. Liberal critics quickly pointed out that modernisation in Russia is impossible without political liberalisation and institutional change. A country with weak property rights and a rentseeking bureaucracy, they argued, can invent new ways of extracting bribes and robbing businesses, but not of creating intellectual wealth. Most recently Mikhail Gorbachev, the last Soviet leader, said modernisation was impossible without democratic reforms. Yet the experience of Mr Gorbachevs perestroikawhich started with talk of technological renewal but ended in the collapse of the Soviet systemhas persuaded the Kremlin to define modernisation strictly within technological boundaries. Hence Mr Medvedevs warning not to rush political reforms. His supporters argue that only authoritarian government is capable of bringing the country into the 21st century. Consolidated state power is the only instrument of modernisation in Russia. And, let me assure you, it is the only one possible, MrSurkov told Vedomosti. In Stalins shadow In Russian history, it is Peter the Great and Stalin who are considered the great modernisers rather than Alexander II, who abolished serfdom, or Mr Gorbachev, who opened up the country. Brutality trumps mild liberalisation. In his article, Mr Medvedev described Stalins bloody policies as unacceptable. Yet the idea that a top-down modernisation is the only option available to Russia still dominates the minds of its rulers. We are lagging behind the leading countries by some 50-100 years. We must cover this distance in ten years[This requires] a party sufficiently consolidated and unified to channel all efforts in one direction, Stalin wrote in 1931. As Andrei Zorin, a historian at Oxford University, explains, the efforts of Stalin and Peter the Great involved the forced creation of an educated class capable of generating, or at least replicating, the best Western innovation. MrSurkovs science town has less in common with Palo Alto than with the closed Soviet research towns that mostly grew out of the gulag system. In the 1930s leading Soviet engineers arrested by Stalin laboured in special prison laboratories within the gulag. After the war, when Stalin required an atomic bomb, a special secret town was established where nuclear physicists lived in relative comfort, but still surrounded by barbed wire. Subsequently hundreds of secret construction bureaus, research institutes and scientific towns were set up across the Soviet Union to serve the military-industrial

complex. They also spawned a technical intelligentsia. In the 1980s it was this class of educated peoplepermitted more freedom and better food than the rest of the country, but still poorly paid and not allowed to go abroadthat became the support base of perestroika. But it was also this class that was hit by the market reforms of the 1990s. They supported us in 1991 and most of them got nothing out of our reforms, admits Anatoly Chubais, who, as Boris Yeltsins chief man in charge of privatisation, devised and implemented them. These days MrChubais heads a state corporation charged with incubating nanotechnologies, a project central to the Kremlins modernisation effort, and is going to be in charge of building the Kremlins Silicon Valley. He argues that the time has come to empower the technical intelligentsia again, recreating a social class that will in time demand liberalisation and become, as it did in the 1980s, a catalyst of change. The moment they become part of the Russian economy, they will become part of Russian political life, MrChubais says. MrZorin says this kind of social engineering is the key to understanding todays problem. An authoritarian regime creates an educated class which becomes emancipated from the state because of its intellectual superiority; it then undermines the state, and often gets buried in its wreckage. The problem, says MrZorin, is that this class cannot live on its own. It can be in conflict with the state, but it cannot exist without it. The second problem is that the modernisations of both Stalin and Peter the Great were driven by clear military goals. It is much harder, in an innovative economy today, to tell scientists what they should be inventing. From The Economist, March 11th 2010 1. After reading the text, try answering to the following questions: Do you think Russia needs modernizing? Modernization is impossible without adopting political and economic liberalism, a mature democracy, so as to limit briberies, corruption. Are there similarities between the Romanian and the Russian system? Medvedevs supporters argue that, on the contrary, the country needs an authoritarian government to step into the 21st century. Do you agree? State similarities with the Romanian environment. Peter the Great and Stalin are considered by the Russians to be the great modernizers of their country. Stalin suggested in 1931 that the 100 years which separated Russia from the Western civilization have to be recovered as soon as possible and by aggressive means. What are the similarities with the Romanian history in the same period? The recent economic crisis proved the limits of neoliberalism. What is your opinion concerning this topic?

1. Decide whether the following statements are true or false: Russia lacks strong property rights, competition and the ability to fight corruption.

Totalitarian regimes like the ones in Singapore, South Korea or China, have progressed without a full experience of liberalism. The sort of capitalism experienced in Romania or Russia means the personal enrichment of some individuals, which consider owing the state mechanism. Russias ruling elite consists of a corrupt bureaucracy, security services and a few oligarchs. Romania and Russia make efforts to hinder the cult of the state. Education, health care and social protection are the three sectors Russia and Romania are putting their efforts into. The economic crisis proved that the state is more needed that never in Russia. Russian capitalism is based on a savage consumption. Russia needs not only economic, but also political competition. Russia has to learn how to live as a post-imperial state, using only its natural resources and economic means.

2. Find a title for the paragraph below and use it as a provider of information to the following questions: What do you understand by perestroika and gulag, two famous words generated by the Russian history? What do you understand by technical intelligentsia? Is there any equivalent in Romania?

In the 1930s leading Soviet engineers arrested by Stalin labored in special prison laboratories within the gulag. After the war, when Stalin required an atomic bomb, a special secret town was established where nuclear physicists lived in relative comfort, but still surrounded by barbed wire. Subsequently hundreds of secret construction bureaus, research institutes and scientific towns were set up across the Soviet Union to serve the military-industrial complex. They also spawned a technical intelligentsia. In the 1980s it was this class of educated peoplepermitted more freedom and better food than the rest of the country, but still poorly paid and not allowed to go abroadthat became the support base of perestroika. But it was also this class that was hit by the market reforms of the 1990s. From The Economist, March 11th 2010

3. Decide which of the two statements are true: Dmitry Medvedev was chairman of Gazprom, the state-controlled gas giant. Vladimir Putin was chairman of Gazprom, the state-controlled gas giant. Russias prosperity could continue for years: it has the world's seventh-biggest oil reserves, at 80 billion barrels, according to BP, a British oil firm. Russias reserves of oil are quite reduced. Asia is the main oil provider. Russia has regulated the industry so poorly that production is falling despite the rising oil price. The oil price is completely deregulated in Russia. Russia refuses to international investors to explore its natural resources. In order to obtain important productions of oil and a good price, Russia needs recent technology, meaning deregulating the market and allowing international investors to achieve the best out of the Russian natural resources. Lukoil is investing $10 billion a year, but roughly 30% of that goes into gas production, which is now more lucrative than oil, given rising domestic prices for gas and lower taxation. Lukoil uses international money. Russia has high taxes on the oil industry. The Russian state does not make a high profit out of the gas industry. The today Russia is more dependent on oil and gas than it has ever been. Russia has other different resources, besides oil. Oil and gas account for 10% of Russian budget revenues and 20% of its exports Oil and gas account for 50% of Russian budget revenues and 65% of its exports. The share of oil and gas in Russias gross domestic product has more than doubled since 1999 and now stands at above 30%. The share of oil and gas in Russia's gross domestic product diminished since 1999. Over the past seven years, according to Citibank, Russia accounted for 80% of the growth in oil production outside the Organization of the Petroleum Exporting Countries. Over the past seven years, Russia accounted for 40% of the growth in oil production outside the Organization of the Petroleum Exporting Countries. Russia is always in dispute with Ukraine as concerning its oil supply.

Ukraine has its own reserves of oil.

UNIT 8. MARKET STRATEGIES Coca-Cola once famously defined its market as throat share, meaning its stake in the entire liquid intake of all humanity. Not to be outdone, IndraNooyi, the boss of Cokes archrival, PepsiCo, wants her firm to be seen as one of the defining companies of the first half of the 21st century, a model of how to conduct business in the modern world. More specifically, she argues that Pepsi, which makes crisps (potato chips) and other fatty, salty snacks as well as sugary drinks, should be part of the solution, not the cause, of one of the worlds biggest publichealth challenges, a challenge fundamentally linked to our industry: obesity. To that end, on March 22nd she unveiled a series of targets to improve the healthiness of Pepsis wares. By 2015 the firm aims to reduce the salt in some of its biggest brands by 25%; by 2020, it hopes to reduce the amount of added sugar in its drinks by 25% and the amount of saturated fat in certain snacks by 15%. Pepsi also recently announced that it would be removing all its sugary drinks from schools around the world by 2012. Although MsNooyi talks about the need to cherish employees, and once wrote to the parents of her senior managers thanking them for bringing up such wonderful offspring, she rejects the notion that these goals are soft-headed or decorative. She argues that they are necessary to prevent food companies from going the way of tobacco firms, which are perennially held responsible by governments for the health problems associated with their products, and penalised accordingly. As it is, several countries in Europe and various localities in America have banned trans fats, a particularly unhealthy ingredient in much junk food. A bill introduced earlier this month in New Yorks state assembly proposes banning salt in restaurants. Michelle Obama, Americas first lady, has launched a campaign against obesity among children. In the 1990s virtually all of Pepsis products were bad for youor fun for you, as the firm likes to put it. Under MsNooyi, who became boss in 2006, it has stepped up its diversification into products it calls better for you and good for you, including fruit juices, nuts and porridge (oatmeal, to Americans). MsNooyi does not see this as a case of trading profits for virtue. Instead, she insists both are possiblean idea expressed in the firms syrupy motto: Performance with purpose. There is no shortage of sceptics, both about the sincerity of Pepsis social mission and, more recently, its performance, which was decidedly flat in 2009. Indeed, this week, at the firms first meeting with investment analysts since 2006, inNew Yorks Yankee Stadium, MsNooyi admitted to a series of disappointments, before promising that lessons had been learned and that we wont make the same mistakes. As well as being hurt by the economic downturn, Pepsi

suffered from a flawed financial hedging strategy that left it paying too much for commodities. And it has suffered from some recent marketing disasters, including a campaign for Tropicana fruit juice that is widely regarded as one of the worst brand makeovers since Coca-Cola launched New Coke. Yet investors seem to be taking seriously MsNooyis claim that Pepsis future is bright. It helps that the firm has raised its dividend and announced a big share buyback. Investors also seem to be reappraising Pepsis decision last year to acquire the two independent firms that bottle its drinks. The deal had received a tepid reception, not least because Coca-Cola had insisted that keeping syrup-making and bottling separate made sense. Now, however, Coca-Cola has decided to follow Pepsis lead by acquiring its main bottlera move MsNooyi describes as vindication. The hope is that integrating the bottling company into Pepsi will bring greater control over an increasingly diverse drinks portfolio, and promote cross-marketing between the food and drink divisions (not something that Coca-Colas acquisition will help with much, as it does not own a large snack operation). Pepsi, which jointly markets several different brands, dubs the clout this gives it with retailers and customers Power of One. The bottling acquisition should boost this tactic by ending the need to negotiate a division of the spoils on every big deal. When Wal-Mart calls asking for a joint promotion of, say, Pepsi and Doritos, as it did for the Super Bowl in February, Pepsi can respond in 24 hours, instead of six weeks. From The Economist, March 25th 2010 1. After reading the text, try answering to the following questions: Do you drink Coca Cola or Pepsi? Which one do you prefer? What are the VIPs advertising for the two companies along time? Do you think that VIPs advertising for Coca Cola or Pepsi help convincing people to consume their products? Many people suffer from obesity in the USA. That is why, if a company wants to survive on the market, it has to invest in healthy brands. Do you really think that Coca Cola or Pepsi can produce healthy brands? Can you provide examples of other brands of junk food? Who has the largest market share: Coca Cola or Pepsi? Do you buy products because they are advertised? Does product design matter when you buy a product? Would you buy a new product, which was never before advertised? Do you buy products because you need them or because you heard about them (word-of mouth advertising), you saw them on TV etc.?

2. Find market challengers and market followers for the following market leaders: Gucci, Adidas, Hermes, Starbucks Coffee, Disney. Market leader = a brand that has the largest market share. It dominates in image, price, profit, promotional spending. Market challenger = a company holding a major market share and competing vigorously with the market leader for leadership Market follower = a company that maintains its existing market share behind an established market leader

3. Place the word market either before of after each of the following words listed below: .leader. .skimming .stock .share .segment .securities. .research.. .price.. .maker.. ..bear ..free. ..commodity. ..bull. .over-the- counter secondary.

4. Complete the following sentences with the information provided by the text: Pepsi launches a campaign of healthy food consisting in. Junk food is considered to be unhealthy food because.. Pepsis social mission means.

Coca Cola has decided to follow Pepsis lead by Pepsi has suffered from some recent marketing disasters.

5. There is a logical connection among two of the three words below. Which one is the odd one out? Explain your choice. Brand loyalty brand preference brand awareness Advertising campaign advertising agency commercial Advertising commercial publicity Free samples coupons discounts

6. Insert the following words in the text below: Pepsi, breakfast, healthy brand, contemporary look, black-hatted Quaker mascot, product design, Quaker, oatmeal drinks , which makes porridge, cereal, cereal bars and rice crackers, iss leading... Pepsi hopes to use its expertise in and packaging to make these goods more enticing, especially to children at breakfast time. It is already testingand biscuits, as well as new flavours of porridge. Quaker Oats packaging will also get a more, although thewill survive. Our goal, says MsNooyi, in typically forthright style, is to rewrite the rules of. Economist, March 25th 2010 7. Decide whether the following sentences are true or false: Advertising is essential, but only when launching new products. Pepsi invests a lot in promoting a healthy life style. People buy products because the ingredients are healthy, not because of the packaging details. People choose McDonalds and KFC because is cheaper. Famous brands have to change their market strategy so as to orientate themselves to healthy products because of obesity campaigns in the USA, not because they care for peoples life. Drink and food companies have to launch themselves into producing healthier products, unless they want to be penalized by governments. From The

8. Is there any difference between: Trademark brand Lunch launch Market segmentation market niche Market opportunities market research Vending machine automatic teller machine Customer client Line-stretching line-filling Advertisement commercial

9. Before launching a new product, a company needs investing in market research. What market research strategies do you think a company should use when selling one of the following products: A new model of car A new Master program A new brand of chocolate, cereals, biscuits New electronic devices A new newspaper

UNIT 9.MARKET ECONOMY VS. PLANNED ECONOMY

Although markets rallied a bit in early February on better-than-expected economic data, the poor start to the year reflected an inherent contradiction to the rebound of 2009. That rally seemed to be dependent both on extraordinary stimulus measures by governments and central banks, and on a vigorous economic recovery. But both cannot co-exist for long: either the recovery will not last or, if it does, the stimulus will be taken away. In addition, governments ability to provide that stimulus is dependent on the markets own willingness to fund huge deficits at very low yields. But why would investors accept meager yields if they expected a vigorous recovery? In a sense, the market seemed to be hauling itself up by its own bootstraps.

Sure enough, the bullish story has started to unravel, if only at the edges. In the developing world China has attempted to tighten monetary policy. That has caused some alarm because China was acting as the engine of global growth. And in the developed world investors have started to question the ability of governments to keep financing their deficits. The obvious example is in Greece, where ten-year bond yields reached 7% late last month. At that level, which is well above likely Greek GDP growth, the countrys indebtedness would grow very rapidly. However unpopular it may prove to be, an austerity package is needed to prevent Greece from falling into this debt trap. So even in places where governments may wish to maintain fiscal stimulus, the markets may force them into corrective action. Britain, France, Ireland, Spain, Portugal and others have all indicated their determination to keep deficits under control, with varying degrees of conviction. The stimulus may have prevented the global economy from slipping into depression. In the medium term, however, academic studies suggest that higher government spending leads to slower economic growth. A 2008 paper by Antonio Afonso of the European Central Bank and DavideFurceri of the University of Palermo calculates that for every one-percentage-point rise in government spending as a proportion of GDP, the growth rate falls by 0.12-0.13 percentage points. Whats more, the packages have not really dealt with the problem of excessive debt, but merely transferred it from the private to the public sector. This buys time, but is akin to those debtconsolidation plans that are sold to consumers on TV. The pain is spread out over a longer period. But pain there will be, in the form of higher taxes, higher bond yields, slower growth or a combination of all three. The authorities face a dilemma. Reduce the stimulus now and they risk plunging the economy back into recession, as happened in America in 1937 and Japan in 1997. But leave the stimulus in place for too long, and they risk damaging long-term growth prospects. From The Economist, February 4th 2010

4. After reading the text, provide answers to the following questions: What does it mean a budget deficit? In a free-market economy, does the government should intervene in order to save the economy? What are the forms under which it intervenes? Why does a high government spending lead to a slower economic growth?

2.Establish whether the following statements are true or false. Motivate then your choice:

Default means failure to make required debt payments on a timely basis Yield is the annual revenue earned from an investment, expressed as a percentage of the money invested. Bull market is a falling market. Depression is just another form of recession. A tax is a fee imposed on a product when it is imported into a country Bond is a promise to pay a certain amount of money on a certain day under the fulfillment of several conditions. GDP shows the goods and services produced within an economy by both residents and nonresidents. Money supply is the total supply of money put in circulation in a given countrys economy by its Central Bank

3. FISCAL POLICY Choose the best option out of two: The fiscal policy is a governments spending policy designed to: Achieve lower/higher unemployment Achieve low/high inflation Achieve/do not achieve economic growth.

In a recession, a country has a deficit/surplus spending; thus a government should stimulate the economy, therefore revenue exceeds expenditure/ expenditure exceeds revenue. During an expansion, the fast growing economy should be controlled by low/high taxes, thus stimulating/calming down investments. In an expansion, revenue exceeds expenditure/ expenditure exceeds revenues.

MONETARY POLICY The monetary policy is a strategy applied by a Central Bank in order to control the money supply. The monetary policy acts by means of three tools:

Buying or selling national debt. In case of a recession, the Central Bank should sell/buy national debt. Changing the interest rate. In case of an expansion the interest rate should be low/high so as to tamper down investments. Changing the reserve requirements. The reserve requirements are dependent/independent on the interest rate used by commercial banks in crediting its clients. Controlling the aggregate demand does/does not determine the rate of inflation.

UNIT 10. WEALTHY PEOPLE ARE ECONOMICAL

Life at the bottom is nasty, brutish and short. For this reason, heartless folk might assume that people in the lower social classes will be more self-interested and less inclined to consider the welfare of others than upper-class individuals, who can afford a certain noblesse oblige. A recent study, however, challenges this idea. Experiments by Paul Piff and his colleagues at the University of California, Berkeley, reported this week in the Journal of Personality and Social Psychology, suggest precisely the opposite. It is the poor, not the rich, who are inclined to charity. In their first experiment, DrPiff and his team recruited 115 people. To start with, these volunteers were asked to engage in a series of bogus activities, in order to create a misleading impression of the purpose of the research. Eventually, each was told he had been paired with an anonymous partner seated in a different room. Participants were given ten credits and advised that their task was to decide how many of these credits they wanted to keep for themselves and how many (if any) they wished to transfer to their partner. They were also told that the credits they had at the end of the game would be worth real money and that their partners would have no ability to interfere with the outcome. A week before the game was run, participants were asked their ethnic backgrounds, sex, age, frequency of attendance at religious services and socioeconomic status. During this part of the study, they were presented with a drawing of a ladder with ten rungs on it. Each rung represented people of different levels of education, income and occupational status. They were asked to place an X on the rung they felt corresponded to where they stood relative to others in their own community. The average number of credits people gave away was 4.1. However, an analysis of the results showed that generosity increased as participants assessment of their own social status fell. Those who rated themselves at the bottom of the ladder gave away 44% more of their credits than those who put their crosses at the top, even when the effects of age, sex, ethnicity and religiousness had been accounted for.

The prince and the pauper In follow-up experiments, the researchers asked participants to imagine and write about a hypothetical interaction with someone who was extremely wealthy or extremely poor. This sort of storytelling is used routinely by psychologists when they wish to induce a temporary change in someones point of view. In this case the change intended was to that of a higher or lower social class than the individual perceived he normally belonged to. The researchers then asked participants to indicate what percentage of a persons income should be spent on charitable donations. They found that both real lower-class participants and those temporarily induced to rank themselves as lower class felt that a greater share of a persons salary should be used to support charity. Upper-class participants said 2.1% of incomes should be donated. Lower-class individuals felt that 5.6% was the appropriate slice. Upper-class participants who were induced to believe they were lower class suggested 3.1%. And lower-class individuals who had been psychologically promoted thought 3.3% was about right.

From The Economist, July 29th 2010

1. Discussion: How do you account for the conclusion It is the poor, not the rich, who are inclined to charity? How early in life did you start having compassion for the others? Is compassion inoculated by parents, school etc. or do you consider it is your own responsibility to develop this feeling towards the others in time? Do you usually interact with rich or poor people? What percentage of their income is spent on charitable donations? Do people become more charitable when they confront themselves with difficult problems or when they become poorer? What does charitable mean to you? Describe some situations when you felt being charitable. Are rich people selfish and indifferent to the others? Motivate your answer in case it is affirmative.

2. a. Do you always place yourself at the centre in relation to the people around? b. How do you connect yourself to the others? By means of:

Interest Respect Need Dependence Friendship

3. Which of the following social groups do you belong to/ you wish to belong to in the future? What attitude could you adopt to make the groups work?
Family School Partnership Neighborhood Nation Professional group Tolerance Criticism Exaggeration Acceptance Supporting and sense of belonging Confidence

4. Work in pairs. Each of you will read the text beneath. Make an oral summary of the text. Use the following tips for a good summary: Read the text carefully. Identify the main idea of each paragraph. Exclude unimportant details. You have already obtained a smaller paragraph than the initial one. Read again the smaller paragraph and underline the words and expressions which you find important. Use these words and expressions to build a unique sentence which represents the main idea of the paragraph. You have three paragraphs. Write the three main sentences on a piece of paper.

A final experiment attempted to test how helpful people of different classes are when actually exposed to a person in need. This time participants were primed with video clips, rather than by storytelling,

into more or less compassionate states. The researchers then measured their reaction to another participant (actually a research associate) who turned up late and thus needed help with the experimental procedure. In this case priming made no difference to the lower classes. They always showed compassion to the latecomer. The upper classes, though, could be influenced. Those shown a compassion-inducing video behaved in a more sympathetic way than those shown emotionally neutral footage. That suggests the rich are capable of compassion, if somebody reminds them, but do not show it spontaneously. One interpretation of all this might be that selfish people find it easier to become rich. Some of the experiments DrPiff conducted, however, sorted people by the income of the family in which the participant grew up. This revealed that whether high status was inherited or earned made no differenceso the idea that it is the self-made who are especially selfish does not work. DrPiff himself suggests that the increased compassion which seems to exist among the poor increases generosity and helpfulness, and promotes a level of trust and co-operation that can prove essential for survival during hard times.

From The Economist, July 29th 2010

5. Find in the text presented above the adjectives and the nouns you may associate with: your understanding and care about someone's problems a feeling of sympathy for people who are suffering caring only about yourself and not about the others

6. Decide to which commandment you submit yourself. Motivate your choice: People really need help, but they may attack you if you help them. People are unreasonable, illogical and selfcentered.

7. Look at the photo below. Can you read in the mans face whether he was rich or poor? Can you guess the experience he accumulated, the kind of life he had? What about the kind of man he was (in terms of intelligence, pitifulness, sympathy etc.)