TEXT 1C. ECONOMIC INDICATORS THAT AFFECT THE U.S. STOCK MARKET



TEXT 1 A.  COMMUNICATION IN PUBLIC NETWORK SITUATION IN BUSINESS

I. Read and translate text 1A, paying attention to the italicized words and word combinations

This text analyzes an allocation problemassociated to maintaining a communication network between various economic agents. Communication links are widely observed in reality and our framework applies to many such situations like telecommunication, utilities, computer networks and information technology.

The latter application is particularly interesting as firms increasingly invest in information technology equipment to improve firm-wide availability of divisional-specific (or lower-level) information. In principle the model  assumes that all links within the underlying communication network are publicly available

apart from possible exogenously determined restrictions.

The use of a link however is assumed to be costly: a fixed cost is imposed on each link independent that exactly is using this particular link to establish communication. Next to these communication costs there are also revenues from communication. These revenues are assumed to be bilateral, i.e., the actual revenues of a group of agents is determined as the sum of the revenues of the pairs of those agents within this group who can directly or indirectly communicate via a sequence of communication links whose costs are accounted for by the group as a whole. If a group of agents chooses a particular sub-network to be operative by paying the corresponding communication costs, this implicitly determines the total benefits from communication within this group. So the problem the agents face is to find an optimal operative network, i.e., an operative network with highest possible net benefits. Moreover, next to this optimization problem the agents also face an allocation problem: how to divide the net benefits of an optimal operative network among the agents?

Our setting constitutes a typical example in which the fundamental economic issueof cost and revenue allocation resulting from a cooperative endeavor takes place in the context of discrete optimization on networks. The analysis will incorporate and intermingle techniques from optimization and cooperative game theory. Related literature with respect to restricted cooperation possibilities based on exogenous communication graphs we refer to is Slikker and van den Nouweland (2001). Closely related within this stream of research is a research (Slikker and van den Nouweland, 2000) on network formation with costs for establishing links. There, however, the costs per link are assumed to be identical and the focus is not on a bilaterally based revenue structure. In our framework this means that the optimization problem with respect to finding the optimal operative communication network is relatively easy to solve. In the same spirit as this paper on determining optimal operative networks and allocating the corresponding net benefits are on minimum cost spanning tree problems and games. In our setting, however, the focus is not solely on costs but to find in some sense an optimal compromise between maximizing joint revenues and minimizing joint costs.

The research paper incorporates two main results. The first result is that the core of a network game, i.e. a cooperative game in coalitional form in which the value of a coalition equals the maximal net benefits of communication, is non-empty. This implies that a core allocation exists and that such an allocation induces stable cooperation in the sense that no subgroup can improve their individual payoffs by establishing a communication network on their own.

The proof of this result nicely combines the OR-techniques of relaxation and duality with a game theoretic technique of constructing core elements within the context of linear production situations with committee control.

The second result provides sufficient conditions on the network situation such that the corresponding network game is convex. The proof involves relations between optimal networks of various coalitions. The interest in convexity is motivated by the nice properties these games possess. For example, for convex games the core is equal to the convex hull of all marginal vectors, and, value is the centre of the core. Moreover, the bargaining set and the core coincide, and the kernel coincides with the nucleolus. The proof is obtained by establishing relation between optimal networks of various coalitions.

References

1. Slikker, M. and A. v.d. Nouweland. (2001). Social and Economic Networks in Cooperative Game Theory. Boston: Kluwer Academic Publishers.

2. Slikker,M. and A. v.d. Nouweland. (2000). “Network Formation with Costs for Establishing Links.” Review of Economic Design 5, 333–362.

 

II. Find Russian equivalents and complete the table

allocation problem  
economic agents  
restrictions  
are assumed  
sub-network  
endeavor  
intermingle techniques  
stream of literature  
incorporates  
conditions on the network situation  
coincide  

 

III. Find English equivalents and complete the table

сети связи  
оборудование для информационных технологий  
широкая доступность фирмы  
учитываются  
прибыль  
вопрос о распределении расходов и доходов  
поток исследований  
совместные доходы  
подразумевать, значить  
доказательство  
включать в себя  
коалиции  

 

IV. In what connections are mentioned the following terms

allocation problem

divisional specific information

bilateral revenues

optimal operative network

issue of cost and revenue allocation

restricted cooperation

optimization problems

a core of network game

conditions on the network situation

Text 1B. JAPANESE ECONOMY

I. Scan the text (8 minutes) and sum up its content in Russian

Japan's industrialized, free-market economy is the world's third-largest by purchasing power parity (PPP) after the United States and the People's Republic of China, and

second-largest by market exchange rates.

Its economy is highly efficient and competitive in areas linked to international trade, although productivity is lower in areas such as agriculture, distribution, and services.

 Distinguishing characteristics of the Japanese economy include the cooperation of manufacturers, suppliers, distributors, and banks in closely-knit groups called keiretsu; the powerful enterprise unions and shunto; cozy relations with government bureaucrats, and the guarantee of lifetime employment (shushin koyo) in big corporations and highly unionized blue-collar factories. Recently, Japanese companies have begun to abandon some of these norms in an attempt to increase profitability.

For three decades, Japan's overall real economic growth had been spectacular: a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s.  Growth slowed markedly in the 1990s largely due to the after-effects of over-investment

during the late 1980s and domestic policies intended to wring speculative excesses from the stock and real estate markets. Government efforts to revive economic growth have met with little success and were further hampered in 2000 to 2001 by the slowing of the global economy.

 The Tokyo Stock Exchange is the second largest in the world with market capitalization of more than $4 trillion. However, the economy saw signs of strong recovery in 2005. GDP growth for the year was 2.8%, with an annualized fourth quarter expansion of 5.5%, surpassing the growth rate of the US and European Union during the same period. Unlike previous recovery trends, domestic consumption has been the dominant factor in leading the growth. Hence, the Japanese government predicts that recovery will continue in 2006.

 Distinguishing characteristics of the Japanese economy include the cooperation of manufacturers, suppliers, distributors, and banks in closely-knit groups called keiretsu (they being Mitsubishi, Sumitomo, Fuyo, Mitsui, Dai-Ichi Kangyo and Sanwa); the powerful enterprise unions and shunto; cozy relations with government bureaucrats, and the guarantee of lifetime employment (shushin koyo) in big corporations and highly unionized blue-collar factories. Recently, Japanese companies have begun to abandon some of these norms in an attempt to increase profitability.

 Japan is among the world's largest and most technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemical, textiles, and processed foods and is home to some of the largest and most well-known multinational corporations and commercial brands. It's also one of the leading research nations in these sectors. Japan's service sector accounts for about three-fourths of its total economic output. Banking, insurance, real estate, retailing, transportation, and telecommunications are all major industries.

 Japan holds very large market shares in high-technology industries such as electronics, industrial chemicals, machine tools, electronic media and (in recent years) aerospace. Construction has long been one of Japan's largest industries, with the help of multi-billion-dollar government contracts in the civil sector. These industries make Japan a major economic global power. Robotics constitutes a key long-term economic strength. There are very few countries in the world, if any, that can match Japan in the production of high technology electronic products. The automobile, machinery and electronics industries are the largest and a major driving force within Japan's industrial sector.

Industry is concentrated in several regions, in the following order of importance: the Kanto region surrounding Tokyo; the Nagoya metropolitan area; Kinki (the Keihanshin industrial region); the southwestern part of Honshu and northern Shikoku around the Inland Sea; and the northern part of Kyushu (Kitakyushu). In addition, a long narrow belt of industrial centers is found between Tokyo and Hiroshima, established by particular industries that have developed as mill towns. These include Toyota City, near Nagoya, the home of the automobile manufacturer.

 The fields in which Japan enjoys relatively high technological development include semiconductor manufacturing, optical fibers, optoelectronics, optical media, facsimile and copy machines, industrial robots, and fermentation processes in food and biochemistry. Japan lags slightly in such fields as satellites, rockets, and large aircraft, where advanced engineering capabilities are required but they made headway through their aerospace exploration agency, JAXA with possible manned independent mission to moon, and in such fields as computer-aided design and computer-aided manufacturing (CAD/CAM), and databases, where basic software capabilities are required, and natural resources exploitation, due to the lack of them.

 The Tokyo Stock Exchange is the second largest in the world with market capitalization of more than $4 trillion. Japan's service sector accounts for about three-fourths of its total economic output. Banking, insurance, real estate, retailing, transportation, and telecommunications are all major industries such as Mitsubishi UFJ Financial Group, Inc., Toyota Financial Group, Inc., Nomura Group, Inc., Mizuho Financial Group, Inc., Japan Post, All Nippon Airways Co.,Ltd., Nippon Tel & Tel (NTT DoCoMo) counting as one of the largest companies in the world.

 

II. Read text 1B and find answers to the following questions:

1. How Japanese economy may be characterized?

2. What are distinguishing characteristics of the Japanese economy?

3. How do you understand the terms keiretsu and shunto?

4. Why do you think Japanese companies have recently begun to abandon some of traditional norms of employment?

5. How can you prove that the Tokyo Stock Exchange is the second largest in the world?

6. What are distinguishing characteristics of the Japanese economy?

7. What are the most highly developed industrial regions of Japan?

8. What are the fields in which Japan enjoys relatively high technological development?

9.  Are there any field in which Japan slightly lags?

10. What is market capitalization of the Tokyo Stock Exchange?

TEXT 1C. ECONOMIC INDICATORS THAT AFFECT THE U.S. STOCK MARKET

I. Read text 1 C. Pick up all the information concerning the present state of the U.S.A. GNP,  jobs report, produce price indexes,  and retail sales.Put the data into the table.

For investors, simply investigating a company’s cash flows, sales, debt loads and other vital statistics may not be enough to understand the firm’s outlook and future. Various outside influences have a big effect on your portfolios

returns - even if things are going swimmingly for your stock. Various economic indicators and forces could, and do, impact just how well your portfolio performs.

 While a degree in economics isn’t necessary, understanding how these various economic measurements influence investment returns is a vital lesson for investors. Having knowledge of these basic concepts can mean the difference between big gains or a hefty portfolio loss.

Gross Domestic Product (GDP)

 Commonly used as a general gauge of economic health for a nation, Gross Domestic Product, or GDP, can be a huge influence on your investment returns. Basically, GDP is the total amount of services and goods produced in a given country’s borders. This includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

 As you would expect, this measurement of a nation’s economic health has a huge effect on stock market returns. Any significant change in GDP- up or down- usually has a significant effect on the direction of the stock market. For example, when an economy is healthy and growing, it is expected that businesses will report better earnings and growth. Obviously, these sorts of higher profits please investors of all stripes and will push them into equities. At the same time, lower GDP measurements can have the opposite effect on stock prices as businesses begin to suffer.

 A prime example of this was during the recent Recession. As U.S. GDP fell and contracted, broad stock market indexes - like the SPDR 500 S&P - sank to decade lows.

Unemployment Rate/Jobs Report  Another very strong indicator that affects the stock markets is the unemployment rate. Like GDP, rate of employment illustrates the development and the strength of the economy. The Jobs Report is reported monthly by the U.S. Bureau of Labor

 Statistics and accounts for approximately 80% of the workers who produce the entire gross domestic product of the United States. The statistic is used to assist government policy makers and economists in determining the current state of the economy and in predicting future levels of economic activity.

Investors follow this number closely as well. The Jobs Report and unemployment rates are critical measures of an economy’s overall health. Essentially, more people with jobs equates to higher economic output, retail sales, savings and corporate profits. As such, stocks generally rise or fall with good or bad employment reports, as investors digest the potential changes in these areas.


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