FiF D Vocabulary

Complete each sentence with a word or phrase from the box.

disrupt go on strike gross national product knock-on effect miner sharply stagflation ■ unrest

The total value of a country's goods and services consumed in one year is called the

If something done affects something else, which then again affects something else, we call this a

If people are not happy with their government, there may be political

Being a................... and digging underground

to bring out minerals, must be very dangerous.

Some people.................... as a way of showing

their unhappmess with work conditions or pay.

If we have.................... there is a sharp drop

in production of some goods causing their price to rise.

A fallen tree can................... the electricity

supply to thousands of homes.

Prices have risen................... but unfortunately

A-95 A-92 нет a-76 нет Д T НЕТ

wages haven't.

Economic shocks

Governments try their K-st to control economic growth, but there are some things that nolxjdy can control For example war, political unrest ill another country or simply a change in the weather can all affect an economy in unexpected ways. Sometimes the effect of these events will cause a sudden shift in aggregate demand or aggregate supply. This is an economic к}пн'к.

M a in (I'll I» I. n г и tJml 79

The causes oi demnnd-Hidi s/юе/г.ч may he events in the local economy {dtmiestiv </i tnutul) or events abroad uwtenmi demand). An example of domestic demand was when house prices in the I K dropped smldenl> in the late l'<SOs Because a home is one of the largest assets most people have, homeowners suddenly felt that they were not as wealthy as they had been. As a result, people started to spend less. This had a knock- on effect oil the resi of the economy. Aggregate demand tell sharply and the gross national product fell with it.

Kxternal demand-side slux'ks happen when a country relies heavily on exports or on foreign investment. The (ireat Depression in the 1 Vis is a classic example of this. At the time of the (ireat Depression, many countries exported their goods to the I'SA. and many other countries relied on American money for investments to help their industries grow. When the American economy collapsed, it had disastrous effects for other economies, too.

Su))})ly-si(k' shocks occur when the supply of goods is disrupted. If the commodity is an important raw material for many industries, then the supply from these industries will drop dramatically. When raw materials are in short supply, they become more expensive. This will cause an increase in manufacturers' variable costs Manufacturers will then have to increase their prices

Figure 7: Aggr egate Supply Shock

Ris* in pnevs

Before the sb<K к

Aggregate Demand

Fall in ou.-jut <

Imagine, for example, that miners in the iron industry went on strike. The supply of iroit and steel to manufacturers would be disrupted. This would mean a drop in supply of all sorts of goods, from teaspoons to aeroplanes. As you can see from figure 2 below, the sudden drop in supply will cause a shift in the supply curve. As a result, prices rise even though aggregate demand stays the same. This unfortunate situation is called stagflation

Prk*i

Real National Output

The good news, however, is that sometimes positive supply-side shocks happen. These occur when there is a sudden increase in supply while demand stays the same This ean happen when new technology makes the production of materials or products much easier or more efficient. The result - prices fall and output grows.

Now read the text again and choose the best way to finish each sentence.

An economic shock causes... prices to rise, a demand or supply shift, demand to fall.

Demand-side shocks of a domestic nature... are caused by events in another country, are only caused because of a fall in property prices, are caused by events at home.

The Great Depression is an example of... an external demand-side shock, an external supply-side shock, a domestic demand-side shock.

Supply-side shocks can cause... a fall invariable costs, an increase in variable costs, a fall in fixed costs.

Stagflation is when...

prices fall but output rises, prices rise and output rises, prices rise and output falls.

A positive supply-side shock is when... prices fall but output rises, prices rise and output rises, prices rise and output falls.

Before you listen

В F Listening H)))

Discuss the following with your partner.

An embargo happens when a country stops trading with another. In 1973, there was an embargo on oil. What effects do you think this had on the world's economies?

Now listen and complete the notes.

1 After..................... industrial nations enjoyed

economic growth.

2 They used huge amounts of....................

3 A lot of oil came from countries m the...............

4 The embargo began on the...................... 1973.

5 Prices of oil rose to................... times higher

than before.

6 The New York Stock Exchange lost...................

dollars in a few weeks.

2 The embargo ended in.....................

G Speaking

Discuss the following with your partner.

Look at figure i on page 78 and figure 2 on page 80 again.Take turns explaining to your partner what the diagrams show.

Work in groups of three or four. Discuss the effects that these events might have on the economy in your country. Use phrases to describe economic shocks as seen in text 2. Use the space below to make your notes.

coal miners go on strike

large amounts of oil and gas are discovered in Australia

the government provides a free Internet service to anyone who wants it

the interest rate doubles in just a few weeks

Pronunciation guide

Equilibrium i:kvu ibnam Asset a* set

Homeowner ii.%,n> n Disastrous <J Stagflation st;r< i lie11 n Embargo miKopi.

Write an essay describing how interest rates are set in the money market. First read through text 1 again and make notes.Then use the plan to help you organise your essay.

Essay

INTRODUCTION

What are interest rates and w'ny art? they important for the economy?

PARAGRAPH 1

What does the money supply consist of? What is demand and supply in the money market?

PARAGRAPH 2

How is the interest rate set by the money market?

PARAGRAPH 3

How does the government try to influence the interest rate?

CONCLUSION

Sum up in a couple of sentences what you have said in paragraphs one to three.

Mumillin Guidt to KtOieititt Unit IS 81

Write 200-250 words

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Unit

4SLft?*,' ^

Before you read

Discuss these questions with your partner.

Jbp ^

Inflation is the rising cost in prices over time. -» Does your country suffer from inflation? -> Why do you think this is?

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