International Banks and Funds

Moreover, it does appear that Athens had some concern about its home produced products as well, at least in the case of silver. Xenophon, an Athenian writer from the fourth century, noted that Athens could always be assured of traders bringing their goods into Athens, because traders knew they could always get a valuable trade commodity, namely silver in the form of Athenian coinage, in exchange. To ensure the demand for its silver, Athens took great care to maintain the reputation of its coinage for high quality and to associate that reputation with a familiar design that went unchanged for several centuries. Such a policy attests to a state interest in production and exports, at least in this sector of the economy.

Athens was also motivated to encourage trade to obtain revenue from taxes. Both transient and resident foreigner traders had to pay poll taxes in Athens that citizens did not. Athens also had various port, transit, and market taxes that would benefit by increased trade, including a two percent tax on all imports and exports.

Money and Banking

With few exceptions (Sparta being the most famous), the Greeks of the Classical period had a thoroughly monetized economy employing coinage whose value was based on precious metals, principally silver. The value of the coinage was commensurate to the value of the precious metal it contained with a small mark-up, since the value of the metal was guaranteed by its issuing state. The tie of the Greek monetary system to the supply of precious metals limited the ability of governments to influence their economies through the manipulation of their money supplies. However, we do know of cases when states debased their coinages for such purposes.

Ancient Greek coins are similar in appearance to modern ones. But like other manufactured products in ancient Greece, they were made by hand. A blank metal circular “flan” was placed on an obverse die that rested on an anvil and then was struck with a hammer bearing a reverse die. The nature of the process naturally produced coins in which the image was often poorly centered on the flan. Nevertheless, the issuing authority, usually a government, was clear as the designs or “types” of the coins expressed an image symbolic of the issuing authority and were often augmented by a “legend” of letters that spelled out an abbreviation of the issuing authority's name.

Coinage was issued in a variety of denominations and weight standards by various city-states. The chief weight standards of the Classical period were the Attic, Aeginetan, Euboiic, and Corinthian. The basis of the Attic standard was the silver tetradrachm of 17.2 grams, which retained the design of the head of Athena on the obverse and her symbolic owl on the reverse throughout the Classical period. It was the most widely circulated coinage during this time and appears in large numbers of hoards found throughout the Greek world and beyond. This was due not only to the far reach of Athenian trade, but also to Athenian imperialism. Athens used its coinage to pay for its military operations abroad and even issued the “Standards Decree,” which for a few decades of the fifth century required the many cities of the Aegean Sea under its control to discontinue their local types and use only Athenian coinage. The local coinage had to be turned in, melted down, and re-struck as Athenian coinage for a fee. Unlike that of Athens, most city-states' coinages circulated only locally. When such local issues were taken abroad, they were probably treated as bullion, as can be inferred from test-cuts often found on them.

A recent debate among scholars concerns the degree to which coinage was an economic or a political phenomenon in the ancient Greek world. Finley's model, of course, holds that coinage had strictly political functions. Finley believed that coinage was merely a tool designed to reinforce and project a city-state's civic identity. States minted coins not to facilitate economic transactions among their citizens, but merely for state purposes so that, for example, it had a convenient medium through which to collect taxes or make state expenditures. Athens' “Standards Decree” was not undertaken for economic gain, but for political purposes to facilitate tribute payments and to show Athens' subjects who was boss.

But here again Finley goes too far. Although the type of a Greek coin certainly expressed political symbols and could, therefore, serve as a political tool, such symbolism was largely lost on people who used the coins in places like Egypt, the Levant, Asia Minor, and Mesopotamia, where hoards of Greek coins have been found in abundance. The fact that they could use the coins independently of their original political context (and for what else besides economic purposes then?) is a good reason to believe that the Greeks could do so as well. Moreover, as Henry Kim has recently argued, the minting of large quantities of small-denomination coinage from the outset in Greece shows that the state did have a concern for the wide use of coinage at the micro-level by common people in day-to-day economic exchanges, not just for large-scale public and political purposes.

Nevertheless, one of the most active areas of research on ancient Greek money and coinage today concerns its representational nature and place within sectors other than the economy, including religion, society, and politics. Both Leslie Kurke and Sitta von Reden have argued that the advent of a monetized economy employing coinage need not have undermined traditional values or led to a disembedding of the economy. Rather, the symbolic aspect of coinage could be manipulated to reinforce traditional social and religious practices that were non-economic in the modern sense. In her analysis of the poetry of Pindar, for example, Kurke argues that the poet re-embedded money within traditional social values, thereby allowing the landed aristocratic elite to embrace money and its potential for de-personalizing social interactions without discarding the old social ties and values that bolstered their privileged place in society. Although von Reden believes that the use of coinage arose within an embedded economic context and, therefore, did not have to be re-embedded, she has argued that coinage and other forms of money did not have an intrinsically economic use or meaning in ancient Greece, but rather multiple meanings that were determined by the context within which they were used, which could be social, religious, or political as well as economic.

Given that the ancient Greeks did have a monetized economy, it is not surprising that they also developed banking and credit institutions. It is generally agreed that at the very least, bankers, who were metics as a rule (note Pasion and Phormion above), performed various functions from money-changing to securing deposits in cash and other assets. The question whether bankers lent out money deposited by others at interest, however, is the subject of some debate. Paul Millett, a student of Finley, not surprisingly argues in his book, Lending and Borrowing in Ancient Athens, that bankers did not loan out other peoples money for interest and he formulates a model in which lending and borrowing were predominantly done for consumptive purposes and, therefore, thoroughly embedded in traditional social relations. In contrast, Edward Cohen's book, Athenian Economy and Society: A Banking Perspective, employs a close philological analysis of the evidence in his assertion that productive lending and borrowing, divorced from concerns for personal relationships, were common in Classical Athens and that bankers did indeed lend out deposited money at interest. Although Millett may be right that much of the lending and borrowing in Athens was for consumptive purposes, particularly those secured by landed property, it is hard to deny that the evidence of productive lending and borrowing from banking practices, numerous maritime loans, and even temple loans in the Classical period constitute something more than just exceptions to the rule.

Economic Changes during the Hellenistic Period

In large part owing to the Near Eastern conquests of Alexander the Great, but also because of social and economic changes that had already been occurring during the Classical period, the economy of the Hellenistic period (323-30 B.C.) grew immensely in scale. The Finley model is probably right in general to hold that the essentially consumptive nature of the economy in the traditional Greek homelands changed little during this time. But it is clear that there were significant innovations in some places and sectors on account of the collision and fusion of Greek notions of the economy with those of the newly won lands of the Near East. Thus, we see greatly increased government control over the economy, as evidenced most strikingly in the surviving papyrus records of the Greek Ptolemaic dynasty that ruled Egypt.

A large percentage of the land and, therefore, agriculture, was controlled by the Greek royal dynasties that ran the Hellenistic kingdoms. Peasants whose status lay somewhere between slave and free not only worked the king's lands, but were also often required to labor on other royal projects. The Ptolemies of Egypt dominated agriculture to such an extent that they instituted an official planting schedule for various crops and even loaned out the tools used by farmers on state-owned lands. Almost all produce from these estates was turned over to the government and redistributed for sale to the population. Some crown lands, however, were assigned to government officials or soldiers and though technically still the property of the state, they often came to be treated as de facto private property.

The Ptolemaic state also involved itself in various manufacturing processes, such as olive oil production. Not only were the olives cultivated on state-controlled lands by peasant labor, but the oil was extracted by contracted labor and sold at the retail level by licensed dealers at fixed prices. However, the state probably had no intention to improve efficiency or to provide better quality olive oil at lower prices to its citizens. The Ptolemies instituted a tax on imported olive oil of 50 percent that was essentially a protective tariff. The goal of the government seems to have been to protect the profits of its state-run business.

Yet for all its interference in the economy, the Ptolemaic government did not assemble a state merchant fleet and instead contracted with private traders to transport grain to and from public granaries. It also left it up to private traders to import the few goods that Egypt needed from abroad, including various metals, timber, horses, and elephants, all of which were essential for the Ptolemies' standing mercenary army and fleet. But although the Ptolemies also exported wheat and papyrus, for the most part, the economy of Egypt was a closed one. Unlike the other Hellenistic kingdoms, Egypt minted coins on a lighter standard than the Attic one universalized by Alexander the Great. Moreover, in 285, the Ptolemies barred the use of foreign coins in Egypt and required them to be turned in to government officials, melted down, and re-minted as Egyptian coinage for a fee. Although Egypt controlled gold mines in Nubia, it did not produce silver and had chronic shortages of silver coins for daily transactions. Thus, many exchanges were performed in kind rather than in cash, even though value was always expressed in cash equivalents.

Despite its chronic shortages of silver coins and its closed coinage system, Egypt still had a coin-based economy largely because of Alexander the Great, who flooded the economies of the eastern Mediterranean with coins and monetized some places in the Near East for the first time. Along with coinage, Greek banking practices also made their way into these areas. Thus, the general scale of economic activities increased as large kingdoms of the Near East and the Greek mainland and islands became more interconnected. Although this was offset to some degree by political instability and warfare during the Hellenistic period, in general we do see economic activity on a larger scale and increased specialization as some places, such as Tyre and Sidon in Phoenicia, became renowned for particular products, in this case purple dye and glassware respectively. Moreover, thousands of amphorae whose handles were stamped with names of issuing magistrates have been found that, if nothing else, reveal a very high volume of pottery production and may also allow scholars some day to reconstruct in more detail other aspects of the economy, such as agricultural production, land tenure, and trade patterns.

The Hellenistic period is known for its technological innovation and some new technologies did have an impact on the economy. Archimedes' screw-like pump was used to remove water from mines and to improve irrigation for agriculture. In addition, new varieties of wheat and the increased use of iron ploughs improved yield while better grape and olive presses facilitated wine and oil production. Unfortunately, some of the most impressive technological innovations of the Hellenistic period, such as Heron's steam engine, were never applied in any significant way. Thus, most production continued to be low tech and labor intensive.

All in all, then, although the scale of the economy increased during the Hellenistic period, consumption still seems to have been the primary goal. Technology was not applied as much as it might have been to increase production. States were much more involved in economic affairs, both in controlling production and in collecting taxes on countless items and activities, but mostly just to extract as much revenue from them as possible. The revenue was spent in turn in royal benefactions (euergetism), but mostly only for ostentatious display that threw money into non-productive sink holes.

Conclusion The foregoing survey shows that the Finley model provides a reasonable, if simplified, general picture of the ancient Greek economy. Overall, the ancient Greek economy was very different from our own. It was much smaller in scale and differed in quality as well, since it generally lacked the productive growth mentality and the interconnected markets that are so characteristic of most of the world economy today. With regard to the details, however, recent studies are showing that the Finley model does at least need to be revised. As more research is done, it may even be necessary to replace the Finley model altogether in favor of one that fits the evidence better. In the meantime, though, we can still use Finley's model as a basic description while being careful to acknowledge the contradictory evidence provided by recent studies and continuing to investigate the various sectors of the ancient Greek economy at various times and places.

You and Your Relationship with Money

What if you were in a relationship with someone on whom you depended for safety and security, but who caused you a lot of worry? Someone who came and went unpredictably. Someone you couldn't live with, but couldn't live without? How long would you want to stay in that relationship without having a clear, direct talk about the ground rules? Would you continue to put up with all that uncertainty, or would you want to resolve things so that you no longer got upset and anxious?

Like it or not, you have a relationship with money. It's an intimate liaison that bears witness to hopes and dreams, insecurities and disappointments. We each have a unique bond with it, based on our past experiences. We bring these experiences with us whenever we deal with any aspect of our finances or money management.

A new year is always a good time to assess where we are with relationships. Where have we been conscious, loving, and nurturing? Where have we been unconscious, impulsive, inconsiderate or self-absorbed? Where is there incomplete business that needs to be cleared up in order for us to experience more ease and empowerment with that friend or loved one? Have we missed any signals that all is not well?

What if you used these same questions to assess how you are doing with money? Powerful relationships are based on clarity, integrity, trust and the desire to be present. What if you dedicated yourself to demonstrating those qualities in your relationship with money?

Alice is a woman I'd been coaching to develop goals that had real meaning and resonance for her. Her primary reason for not achieving goals was that she didn't have enough money. Rather than approaching this as a financial problem, we started looking at her situation as a relationship issue. When she “woke up” to how she was misusing money, everything started to turn around.

Alice: “I finally saw that I was treating money carelessly. At the same time, I'd wake up at night in a panic that I wouldn't have it around much longer. Considering it from the viewpoint of a relationship put things into perspective for me. For example, I looked at where I had been frivolous and disrespectful with money. I tracked every penny I spent for thirty days, just to see where I was using money consciously or unconsciously. I saw that I was spending $7 a day on cappuccino and croissants before I went to work -- and that $7 a day times 220 work days was more than $1500 in after-tax income! “I'd been moaning about not having enough money to go on a vacation, and hadn't taken a trip in five years. I thought money had been deserting me, but I was wrong. I'd been deserting money. I'd been eating away my vacations at $7 a pop. Well, I decided to buy treats on Mondays and Thursdays only, and put the other $7 a day into a vacation savings account. It's one year later now, and I'm on my way to Club Med for my first vacation in six years. Me and money? We're very happy together now.”

Alice is only one example of how people have turned around their relationship with money. The first step is to look at where you've not been awake to the possibility of having a vibrant, alive, and even fun relationship with this powerful form of energy. You are asleep when you have unfinished business with money -- large or small things that we know you should do, but that you haven't yet completed.

Try these quick tips to getting your relationship with money back on track:

Give your money the respect it's due by knowing how much of it you have. Balance your checkbook!

Look at where you have neglected money. Even if you feel anxious about doing this, remember that when you wake up and clear away unworkable money situations, you are much happier with your money. So…look at your credit card balances and see if it's time to put those cards away and give your money the rest it deserves.

Find a good financial planner who, like a good relationship counselor, helps you look at how you want to experience money and then supports you in clearing away any blocks to having the relationship with it that you truly want.

Look at a goal that you want money to help you attain. This will be something that you and your money can do together. For example, do you have a dream of buying your own home? Taking voice or scuba lessons? Going on a writer's retreat? Hiking the Sierras? We often become unconscious about money when we're not using it for something that has real meaning for us.

Finally, become grateful about money. Gratitude is a potent antidote to fear. Keep track of three things about money for which you're grateful each day, and write them in a notebook that you keep by your bed. List these three “gratitudes” for thirty nights. Then go back and read what you wrote. What are you discovering about the possibilities for a powerful partnership between you and money?

You were meant to have what you want in life with clarity, focus, ease, and grace. Money is meant to support you on this journey. It's not something that is here to bring you grief or fear. It's here to be your friend. Are you up to having a powerful relationship with money? If you start with these suggestions, you'll be well on your way.

Trade

Trade is buying and selling goods and services. Trade occurs because people need and want things that others produce or services others perform. People must have such necessities as food, clothing, and shelter. They also want many other things that make life convenient and pleasant. They want such goods as cars, books, and television sets.

They want such services as haircuts, motion pictures, and bus rides. As individuals, people cannot produce all the goods and services they want. Instead, they receive money for the goods and services they produce for others. They use the money to buy the things they want but do not produce.

Trade that takes place within a single country is called domestic trade. International trade is the exchange of goods and services between nations. It is also called world trade or foreign trade. For detailed information on international trade. Trade has contributed greatly to the advance of civilization. As merchants traveled from region to region, they helped spread civilized ways of life.

These traders carried the ideas and inventions of various cultures over the routes of commerce. The mixing of civilized cultures was an important development in world history. The development of trade Early trade. For thousands of years, families produced most of the things they needed themselves. They grew or hunted their own food, made their own simple tools and utensils, built their own houses, and made their own clothes. Later, people learned that they could have more and better goods and services by specializing and trading with others. As civilization advanced, exchanges became so common that some individuals did nothing but conduct trade. This class became known as merchants. The most famous early land merchants were the Babylonians and, later, the Arabs.

These traders traveled on foot or rode donkeys or camels. The Phoenicians were the chief sea traders of ancient times. Trade was very important during the hundreds of years the Roman Empire ruled much of the world. Roman ships brought tin from Britain, and slaves, cloth, and gems from the Orient. For more than 500 years after the fall of the Roman Empire in A.D. 476, little international trade took place.

The expansion of trade began in the 1100?s and 1200?s, largely because of increased contacts between people. The crusades encouraged European trade with the Middle East. Marco Polo and other European merchants made the long trip to the Far East to trade for Chinese goods. Italians in Genoa, Pisa, and Venice built great fleets of ships to carry goods from country to country. A great period of overseas exploration began in the 1400?s. Trade routes between Europe and Africa, India, and Southeast Asia were established as a result of the explorations. In the 1500?s and 1600?s, private groups formed companies, usually with governmental approval, to trade in new areas. Trade between Europe and America was carried on by the chartered companies that established the earliest American colonies. The colonists sent sugar, molasses, furs, rice, rum, potatoes, tobacco, timber, and cocoa to Europe. In return, they received manufactured articles, luxuries, and slaves. Trade also pushed American frontiers westward. Trading posts sprang up in the wilderness. Many of these posts later grew into cities.

Trade today affects the lives of most people. Improved transportation permits trade between all parts of the world. Through specialization, more and better goods and services are produced. Increased production has led to higher incomes, enabling people to buy more of these goods and services.

Bank Services

Safeguarding deposits. Deposits in a bank are relatively safe. Banks keep cash and other liquid assets available to meet withdrawals. Liquid assets include securities that can be readily converted to cash. Banks are also insured against losses from robberies. But the most important safeguard is the fact that in most countries, governments have established deposit insurance programs. The insurance protects people from losing their deposits if a bank fails. A bank not only keeps savings safe but also helps them grow. Funds deposited in a savings account earn interest at a specified annual rate. Many banks also offer a special account for which they issue a document called a certificate of deposit (CD). Most CD accounts pay a higher rate of interest than regular savings accounts. However, the money must remain in the account for a certain period, such as one or two years, to earn the higher rate of interest. Banks also offer money market accounts. These accounts pay an interest rate based on the prevailing rates for short-term corporate and government securities.

Providing a means of payment. People who have funds in a bank checking account can pay bills by simply writing a check and mailing it. A check is a safe method of settling debts, and the canceled check provides proof of payment. Customers may also ask a bank to automatically pay recurring bills, such as telephone and mortgage payments, by a process called direct deposit deduction. Many banks allow people to pay bills electronically by telephone or through the Internet computer network. Many banks offer credit cards. People can use the cards to pay for their purchases at stores and other businesses. The bank then pays the businesses directly and sends the customer a monthly bill for the amount charged. The cardholder can usually choose to pay only part of the bill immediately. If so, he or she must pay a finance charge on the unpaid balance. Banks may also issue debit cards, which resemble credit cards. When a cardholder uses a debit card, the amount of the purchase is deducted directly from the cardholder's checking account. Some cards can be used as either credit or debit cards.

Making loans. Banks receive funds from people who do not need them at the moment and lend them to those who do. For example, a couple may want to buy a house but have only part of the purchase price saved. If one or both of them have a good job and seem likely to repay a loan, a bank may lend them the additional money they need. To make the loan, the bank uses funds other people have deposited.

A major obligation of a bank is to permit depositors to withdraw their funds upon demand. But no bank has enough cash readily available to satisfy its depositors if all were to demand their funds at the same time. Banks know from experience, however, that such a demand-called a run-rarely occurs. If people are confident they can withdraw their funds at any time, they will leave them on deposit at the bank until needed. As a result, banks can loan and invest a large percentage of the funds deposited with them. In most countries, the government limits the percentage of a bank's funds that can be used for loans and investment. The government simultaneously sets a minimum percentage that must be kept on reserve for meeting withdrawals.

Banks

Bank is a financial firm that accepts people's deposits and uses them to make loans and investments. People keep their savings in banks for several reasons. Funds are generally safer in a bank than elsewhere. A bank checking account provides a convenient way to pay bills. Also, funds deposited in most bank accounts earn interest income for the depositor. People who deposit money in a bank are actually lending it to the bank, which typically pays interest for the use of the funds. Banks help promote economic growth. Nonfinancial firms borrow from banks to buy new equipment and build new factories. People who do not have enough savings to pay immediately the full price of a home, an automobile, or other products also borrow from banks. In these ways, banks help promote the production and sale of goods and services, and so help create jobs. Like all businesses, banks try to earn profits. They have traditionally done so by accepting deposits at one rate of interest and then lending and investing those funds at a higher rate. But large banks also earn fees from other activities, such as brokerage (buying and selling securities for other investors) or selling insurance.

Banking is nearly as old as civilization. The ancient Romans developed a relatively advanced banking system to serve their vast trade network, which extended throughout Europe, Asia, and much of Africa. Modern banking began to develop during the 1200?s in Italy. The word bank comes from the Italian word banco, meaning bench. Early Italian bankers conducted their business on benches in the street. Large banking firms were established in Florence, Rome, Venice, and other Italian cities, and banking activities slowly spread throughout Europe. By the 1600?s, London bankers had developed many of the features of modern banking. They paid interest to attract deposits and loaned out a portion of their deposits to earn interest themselves. By the same date, individuals and businesses in England began to make payments with written drafts on their bank balances, similar to modern checks.

This article discusses banks throughout the world. Because U.S. banks have unique features, however, this article also includes sections on the regulation and the history of banks in the United States. Banks in the United States have been more strictly regulated than banks in many countries as a result of the numerous bank failures that occurred in the United States during the Great Depression of the 1930?s. The United States also has more banks and banking assets than any other country in the world.

Taxation

Taxation is a system of raising money to finance government services and activities. Governments at all levels-local, state, and national-require people and businesses to pay taxes. Governments use the tax revenue to pay the cost of police and fire protection, health programs, schools, roads, national defense, and many other public services.

Taxes are as old as government. The general level of taxes has varied through the years, depending on the role of the government. In modern times, many governments-especially in advanced industrial countries-have rapidly expanded their roles and taken on new responsibilities. As a result, their need for tax revenue has become great. Through the years, people have frequently protested against tax increases. In these situations, taxpayers have favored keeping services at current levels or reducing them. Voters have defeated many proposals for tax increases by state and local governments.

Kinds of taxes

Governments levy many kinds of taxes. The most important kinds include property taxes, income taxes, and taxes on transactions. Property taxes are levied on the value of such property as farms, houses, stores, factories, and business equipment. The property tax first became important in ancient times. Today, it ranks as the chief source of income for local governments in the United States and Canada. Most states of the United States and provinces of Canada also levy property taxes. Property taxes are called direct taxes because they are levied directly on the people expected to pay them. Income taxes are levied on income from such sources as wages and salaries, dividends, interest, rent, and earnings of corporations. There are two main types of income taxes-individual income taxes and corporate income taxes. Individual income taxes, also called personal income taxes, are applied to the income of individuals and families. Corporate income taxes are levied on corporate earnings. Income taxes may also be levied on the earnings of estates and trusts. Income taxes generally are considered to be direct taxes.

Most nations in the world levy income taxes. In the United States, income taxes are levied by the federal government, most state governments, and some local governments. Many people and businesses in the United States also pay special income taxes that help fund Social Security programs. These taxes are known as Social Security contributions or payroll taxes. In Canada, income taxes are levied by the federal government and by the country's 10 provincial governments.

Taxes on transactions are levied on sales of goods and services and on privileges. There are three main types-general sales taxes, excise taxes, and tariffs. General sales taxes apply one rate to the sales of many different items. Such taxes include state sales taxes in the United States and the federal sales tax in Canada. The value-added tax is a general sales tax levied in France, the United Kingdom, and other European countries. It is applied to the increase in value of a product at each stage in its manufacture and distribution.

Excise taxes are levied on the sales of specific products and on privileges. They include taxes on the sales of such items as gasoline, tobacco, and alcoholic beverages. Other excise taxes are the license tax, the franchise tax, and the severance tax. The license tax is levied on the right to participate in an activity, such as selling liquor, getting married, or going hunting or fishing. The franchise tax is a payment for the right to carry on a certain kind of business, such as operating a bus line or a public utility. The severance tax is levied on the processing of natural resources, such as timber, natural gas, or petroleum.

Tariffs are taxes on imported goods. Countries can use tariffs to protect their own industries from foreign competition. Tariffs provide protection by raising the price of imported goods, making the imported goods more expensive than domestic products.

Gross Domestic Product

Gross domestic product (GDP) is the value of all goods and services produced in a country during a given period. It is one of the most widely used measures of a nation's total economic performance in a single year. Measuring the GDP. One way to determine the GDP is to add up the sum of spending on four kinds of goods and services in any year.

(1) Personal consumption expenditures include private spending on durable goods, such as automobiles and appliances; nondurable goods, such as food and clothing; and services, such as haircuts and motion-picture tickets. In the United States, these expenditures make up about twothirds of the GDP each year.

(2) Private investment expenditures include spending by business companies for new buildings, machinery, and tools. They also include spending for goods to be stored for future sale. These expenditures average about 20 percent of the annual GDP of the United States.

(3) Government purchases of goods and services include spending for new highways, missiles, and the wages of teachers, fire fighters, and government employees. Such spending amounts to about 20 percent of the United States GDP each year.

(4) Net exports represent the value of domestically produced goods and services sold abroad, less the value of goods and services purchased from abroad during the same period. Currently, the value of U.S. exports is exceeded by that of U.S. imports. Net exports thus show a negative percentage in the U.S. GDP. The negative percentage accounts for percentages in the other three major parts of the U.S. GDP totaling more than 100 percent.

Real GDP. A nation may produce the same amount of goods and services this year as it did last year. Yet this year's GDP may be 5 percent higher than last year's. Such a situation would occur if prices of goods and services had risen by an average of 5 percent. To adjust for such price changes, economists measure the GDP in constant dollars. They determine what each year's GDP would be if dollars were worth as much during the current year as in a certain previous year, called the base year. In other words, they calculate the value of each year's production in terms of the base year's prices. When GDP measured in current dollars is divided by GDP in constant dollars, the result is an index of inflation called the GDP deflator.

GDP figures do not tell everything about a nation's economy. For example, they tell little about the well-being of individuals and families. Even the GDP per capita does not tell who uses various goods and services. It cannot show, for example, how much of the GDP goes to the poorest 20 percent of the population and how much goes to the wealthiest 20 percent. Nor does the GDP per capita tell anything about the quality of a country's goods and services.

GDP excludes production by facilities that are owned by a nation's citizens if the facilities are in another country, and it includes production by foreign-owned facilities within the country. Some economists believe another figure, the gross national product (GNP), is a better measure than GDP. GNP includes all production by a nation's firms regardless of the firms' location and does not include production by foreign-owned facilities within the country. For many years, the U.S. Commerce Department used GNP to measure the country's economic performance. It switched to GDP in 1991.

Inflation

Inflation is a continual increase in prices throughout a nation's economy. The rate of inflation is determined by changes in the price level, an average of all prices. If some prices rise and others fall, the price level may not change. Therefore, inflation occurs only if most major prices go up. Inflation reduces the value-also called the purchasing power-of money. During an inflationary period, a certain amount of money buys less than before. For example, a worker may get a salary increase of 10 percent. If prices remain stable, the worker can buy 10 percent more goods and services. But if prices also increase 10 percent, the worker's purchasing power has not changed. If prices rise more than 10 percent, the worker cannot buy as much as he or she previously could. Inflation has many causes. It may result if consumers demand more goods and services than businesses can produce. Inflation may also occur if employers grant wage increases that exceed gains in productivity. The employers pass most or all of the cost of the wage increase along to consumers by charging higher prices. A government can try to control inflation by increasing taxes, raising interest rates, decreasing the money supply, reducing government spending, and setting limits on wages and prices. But the government's task is difficult, chiefly because it may trigger a recession when it attempts to reduce inflation. The opposite of inflation is deflation, a decrease in prices throughout a nation's economy. Deflation tends to occur during periods of economic depression but may also happen at other times. For a discussion of the economic conditions sometimes associated with deflation.

Kinds of inflation

Mild inflation occurs when the price level increases from 2 to 4 percent a year. If businesses can pass the increases along to consumers, the economy thrives. Jobs are plentiful, and unemployment falls. If wages rise faster than prices, workers have greater purchasing power. But mild inflation usually lasts only a short time. Employers seek larger profits during periods of economic growth, and unions seek higher wages. As a result, prices rise even further-and inflation increases. Moderate inflation results when the annual rate of inflation ranges from 5 to 9 percent. During a period of moderate inflation, prices increase more quickly than wages, and so purchasing power declines. Most people purchase more at such times because they would rather have goods and services than money that is declining in value. This increased demand for goods and services causes prices to rise even further. Severe inflation occurs when the annual rate of inflation is 10 percent or higher. This type of inflation is also called double-digit inflation. During a period of severe inflation, prices rise much faster than wages, and so purchasing power decreases rapidly. When inflation is severe, debtors benefit at the expense of lenders. If prices increase during the period of a loan, the debtor repays the debt with dollars less valuable than those that were borrowed. In terms of purchasing power, the lender does not get back as much money as was lent.

Work Matters

Debbie Mason, 24, is a stewardess with Virgin Atlantic. She told Sue Wheeler about her life on Richard Branson's airline and what it takes to get on in this high-flying job. Some time ago, I was working in an office when I saw a picture of Richard Branson and read about him starting a new airline, Virgin. I sent him a letter saying I was interested in working for him. After a successful interview, I began their four-week training course. The personnel officers say it's usually obvious at the start whether somebody has the right qualities or not. Personality is very important. You have to be flexible, attractive, and able to smile when duty calls -even if you don't feel like it. Obviously you don't need airline experience, but nursing, or other work with people, is useful. The training course is really common sense although the practical side includes things like life-boat sessions in a swimming pool, fire fighting in a smoke-filled room and learning how to deliver a baby. In reality, though, you end up dealing mainly with travel sickness. The point is you have to be prepared for everything. I work on flights from Gatwick to New York or Miami. Only 10% of my work involves serving people. The emphasis is on safety and that's what we're here for. Before every flight there's a briefing where the crew are asked questions on first-aid and safety. Those who claim that working in such a job makes you look much older than you really are have a point. I also think this job ages you. On flights to New York I'm on board from 2:15 in the afternoon until nearly midnight our time. I have to drink eight pints of water per flight to prevent my body from dehydrating, but it is nearly impossible to consume that much. So my skin is probably suffering. But I think these are minor disadvantages. When we get to New York it's only 6:55 pm American time and we usually go out and have a party! I fly about four or five times in 28 days, which means I work hard for two or three days, then take time off. I get at least eight days off every month, so it doesn't feel like most other fulltime jobs. I get four weeks holiday a year, three of which have to be in the winter. But as one of the advantages of this job is being able to fly with any airline for 10% of the normal cost, I can afford to go to far away places in search of winter sun. It's a sociable job on board and off. There are only 220 crew members in total so there is a close relationship among us. This means things are very friendly and I think it's obvious to the passengers that we're having a good time, which helps them relax. When people leave Virgin to work for other airlines they often miss the intimacy of a small company and come back. But although the social life with Virgin is fabulous, outside it is non-existent. Friends and family know my time off is precious, but even at home I'm sometimes on standby. The job puts a strain on any romance. Happily, my boyfriend works for Virgin too, and we choose to work a `married roster' which means we fly together all the time. It's either this or taking the chance of bumping into each other once in a while.

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