Text 2: INFLATION

Inflation is generally defined as a persistent rise in the general price level with no corresponding rise in output, which leads to a corresponding fall in the purchasing power of money.

In this section we shall look briefly at the problems that inflation causes for business and consider whether there are any potential benefits for an enterprise from an inflationary period.

Inflation variesconsiderably in its extent and severity. Hence, the consequences for the business community differ according to circumstances. Mild inflation of a few per cent each year may pose few difficulties for business.

However, hyperinflation, which entails enormously high rates of inflation, can create almost insurmountable problems for the government, business, consumers and workers. In post-war Hungary, the cost of living was published each day and workers were paid daily so as to avoid the value of their earnings falling.

Businesses would have experienced great difficulty in costing and pricing their production while the incentive for people to save would have been removed.

Economists argue at length about the causes of, and «cures» for, inflation. They would, however, recognize that two general types of inflation exist:

* Demand-pull inflation

* Cost-push inflation

Demand-pull Inflation

Demand-pull inflation occurs when demand for anation's goods and services outstrips that nation's ability to supply these goods and services. This causes prices to rise generally as a means of limiting demand to the available supply.

An alternative way that we can look at this type of inflation is to say that it occurs when injections exceed withdrawals and the economy is already stretched (i.e. little available labour or factory space) and there is little scope to increase further its level of activity.

Cost-push Inflation

Alternatively, inflation can be of the cost-push variety. This takes place when firms face increasing costs. This could be caused by an increase in wages, the rising costs of imported raw materials and components or companies pushing up prices in order to improve their profit margins.

Vocabulary:

a persistent rise - неуклонный, постоянный подъем

with no corresponding rise in output – не сопровождающийся подъемом производства

briefly – коротко, кратко

potential benefits – потенциальные выгоды

varies considerably in its extent and severity – бывает разной по длительности и остроте

hence – следовательно

mild inflation – мягкая, низкая инфляция

may pose few difficulties – особых проблем не представляет

entails enormously high rates of inflation – влечет за собой громадный рост инфляции

insurmountable – неисчислимые, колоссальные

at length – и сейчас

to pull – тянуть

demand-pull inflation – инфляция спроса, вызванная превышением спроса над предложением

cost-push inflation – инфляция издержек, вызванная ростом издержек производства

to occur – происходить

to outstrip – обгонять, опережать, превосходить

to stretch – натягивать, напрягать

little available labour – мело рабочей силы

there is little scope – мало возможностей

in order to improve their profit margins – чтобы увеличить прибыль (размеры прибыли)

Exercise 4: Give Russian equivalents for the following:

1 inflation varies considerably in its extent and severity;

2 mild inflation of a few %;

3 rate of inflation;

4 insurmountable problems;

5 demand-pull (cost-push) inflation;

6 the economy is already stretched.

Exercise 5: Find the synonyms to the words in italics:

a persistent rise;

may pose few difficulties;

which entails enormously high rates;

at length, inflation occurs when;

little scope to increase its level of activity;

firms face increasing costs.

Exercise 6: Find in the text English equivalents for the following:

1. повышение (падение) спроса (покупательной способности) и т.д.;

2. гиперинфляция;

3. запросы опережают возможности экономики;

4. предложить товары и услуги;

5. уровень прибыли

Exercise 7: Translate into English:

Следует отличать инфляцию спроса от инфляции, обусловленной ростом издержек. Суть инфляции спроса иногда объясняют одной фразой: «Слишком много денег охотятся за слишком малым количеством товаров». Теория инфляции, обусловленной ростом издержек, объясняет рост цен такими факторами, которые приводят к увеличению издержек на единицу продукции.

Exercise 8: Fill in the gaps using the words from the box in the correct form:

temporary, tight, to account for, to mean, inflation rate, to adjust (2), adjustment, to anticipate, indexation, to speed up, hyperinflation, though, to cope with, to argue, money supply

1. The incomes policy is known to be a... means of … … the... of wages to growing money supply.

2. … regulation of the Central Bank, it is argued, will prevent (предотвращать) sudden increases in … ….

3. The situation is referred to as..., provided the … … per month is about 50 percent for several months in succession (подряд).

4 Before 1971 banks rarely... interest rates on deposits. This... that a rise in inflation reduced the real interest rate on all deposits with fixed interest rate.

5 Even when inflation is perfectly..., and the economy is fully... to infla­tion, it is impossible to … … all its costs.

6... cannot cope with all the costs of high inflation.

7 After the 1973 shock rise in oil prices firms tried to struggle with their existing factories for a time... they were given a new blow by the second sharp rise in oil prices in 1980-81.

8 The rich industrial countries comprising the United States, Western Europe, Canada, and Japan … … 16 percent of world population.

9 The report... that many of the world's resources were in limited supply and would be used up within 100 years.

Exercise 9: Choose the correct word:

1. In the United Kingdom in the 1970s the Labour government tried to reduce the difference between high-wage jobs and low-wage jobs by (adopting / arguing) an incomes policy that allowed an absolute rather than a percentage increase. £6 a week (causes / means) much more to a worker earning £40 a week than to a worker earning £100 a week.

2. Pensions and other social payments are raised every year by the rate corresponding to the rate of (any / anticipated) inflation.

3. The 1973 rise of oil prices (caused / sped) only a little extra unemploy­ment but a lot of extra inflation, and the 1979-80 price shock (occurred / caused) much more extra unemployment but (whether / rather) low in­crease in inflation.

4 Taxing the rich and transferring the funds to the poor, the government (adjusts / ensures) that the poor get more of what is produced.

5 Without (means / indexation), it is costly (дорого) to live with high in­flation rates.

6 The quantity theory of money (argues / means) that changes in prices (occur / are caused) mainly by equivalent changes in money supply.

7 In practice the distinction between land and capital is (though / rather) uncertain.

8 The output of new ideas depends to a large (extent / number) on the resources allocated for them.

Exercise 10: Fill in the gaps with the words from the box:

therefore, eventually, as a result (2), in particular, on the one hand, on the other hand, as, actually, that is, both... and..., unlike, whereas

Hyperinflation is a situation of high rates of inflation.... creeping (ползучая) inflation, … … small but steady increase in the level of prices, which usually has little bad effect on the economy as a whole, hyperinflation is bad... for economic... social situation...., hyperinflation makes people lose confidence in the value of money to such an extent that they start using bar­ter. … … …, there is a serious danger of economic collapse and,..., of social trouble...., the costs of hyperinflation are said to be very high.

… … … …, hyperinflation does not occur often, but when it does occur, its causes are as much political as economic. It occurs … … … of a great increase in money supply to finance government spending (during wars, … …). … … … …, hyperinflation can result from shortage of goods and services alongside great demand for them,... in periods following the ending of a war.

Exercise 11: Group the following words by synonyms and antonyms:

to sell, by means of, slow, varying, however, to be due to, to cause, aggre­gate, to speed, quite, to accept, rapid, to expect, a little, to happen, a number of, constant, entire, to accelerate, if, though, to purchase, total, to be caused by, to result in, to take place, rather, to some extent, to adopt, through, tem­porary, whether, to buy, to anticipate, several, to occur, steady

Exercise 12: Translate the sentences with conjunction whether into Russian:

1. Profit depends on whether the amount received is greater than the amounts paid.

2 Whether a faster growth rate of production is desirable, depends on whether a society wants to spend more on its needs of today or it is prepared to invest in tomorrow.

3 It makes a lot of difference to the banker whether the loan is in cash or in the form of a deposit.

4 Research workers never know whether or not they will find anything useful.

5 Average costs of production are important to the decision of whether or not to stay in business.

6 As this concept has not yet been tried out in practice, it is hard to say whether it will be more successful than earlier approaches (подход) to incomes policy.

7 It is difficult for people to decide whether a decrease in their real wages was caused by risen prices or by inflation.

8 Whether incomes policy speeds decreasing inflation rate, remains an open question.

9 The costs of inflation depend on whether governments impose any reg­ulations allowing people to adjust fully to inflation.

10 If profits are negative, the firm must see whether losses can be reduced by not producing at all.

Exercise 13: Translate the sentences into Russian paying attention to the meaning of the noun means and the verb to mean:

1 In Marxist theory, proletariat is the social class that consists of workers who, not themselves owning any means of production, must sell their ability to work, receiving a wage in return.

2 Some economists believe incomes policy to be a good temporary means of keeping inflation under control.

3 With loans, indexation means that the amount to be repaid will rise with the price level.

4 Profit maximization is achieved by means of minimization of costs.

5 To stay in business, firms have to reach the profit maximizing level of output by any means they find necessary.

6 Compensation at certain intervals means that real wages are changing during these intervals.

7 Between 1965 and 1995, the increase in interest rates meant that the in­ crease in real money demand was smaller than the increase in a real GNP.

8 Bank accounts are money because people can pay for purchases by means of cheques.

Exercise 14: Translate the sentences into Russian paying attention to the meaning of the word any:

1 Producing output, any firm uses the cheapest available technique (технология).

2 If a company is in trouble, it will be happy to borrow at almost any interest rate the banks charge (назначать).

3 Modern markets are not normally located in any special place.

4 At any particular moment the demand for a company's exports is at a given level, the latter changing when demand conditions change in the rest of the world.

5 Some unemployment is expected to occur at any time, even when the economic growth in the country is steady.

6 There are not any substitutes for everything, so people cannot avoid high-priced goods by means of buying something else.

7 Any person can find himself in one of three situations: employed, un­employed, or out of the labour force.

8 Almost the only products whose prices do not depend on their cost to any considerable degree are those with fixed supply, such as works of art, and those whose supplies are limited by monopolies, such as oil.

Exercise 15: Translate the following sentences with Independent Participle constructions into Russian:

a) 1. An increase in price of one percent resulting in an increase in supply of more than one percent, the supply is called elastic.

2 Ceiling prices being controlled by the government, goods may find their way to the black market.

3 In the next 25 years or so, the average age in the United States in­creasing; problems of the aged rather than young people will be of importance.

4 With a financial panic everyone wanting his money at the same time, the bank is unable to pay.

5 Cheques being accepted in payment of purchases, people feel that a bank account is as good as or even better than money in their pocket.

b) 1. The two principal economic systems were considered to be capitalism and socialism, mixed economies lying in between those.

2 Natural resources are one of the three factors of production, the other two being labour and capital.

3 Auctions make buyers bid against each other, with the seller taking a passive role.

4 The world distribution of income is unjust, with poor countries hav­ing 61 percent of the world's population, but receiving only 6 per­cent of the world income.

Exercise 16: Translate the following sentences into Russian paying attention to the Independent Participle construction:

1. Monetary policy affects prices, the aggregate level of output and em­ployment being independent of it.

2. Interest rate being the opportunity cost of holding money, higher infla­tion reduces the demand for real money.

3. Building societies now issuing cheque books to their depositors, it is difficult to decide which intermediaries (посредник) are banks.

4 The Central Bank acting as banker to commercial banks, the financial system works steadily.

5 Interest rates can affect aggregate demand, equilibrium level of output and employment adjusting correspondingly.

6 The Central Bank having imposed a cash reserve requirement on com­mercial banks, banks do lending business with domestic firms through foreign markets.

Exercise 17: Translate the following sentences into English:

1. Ускорение денежного обращения вызывает более высокие темпы инфляции.

2. В индустриальных странах доля наличных денег составляет до 4% денежной массы в обращении.

3. Политика доходов – это попытка прямо повлиять на заработную плату и другие доходы.

4. Когда повышается темп инфляции, процентные ставки растут, а совокупный спрос падает.

5. Экономисты уже определили, что вызывает инфляцию.

6. Правительство может принять жесткую политику, которая должна обеспечить низкий темп инфляции.

7. Постоянное увеличение денежной массы должно вызвать инфляцию.

Exercise 18: Read the text without a dictionary and entitle it:

In practice, many of the people who have money in banks are the old. Hav­ing built up savings during their working life, they often put their money into bonds to ensure income during old age. These people lose out when there is un­expected inflation and the real value of the bonds falls. They also lose out if they are keeping what they have in non-interest-bearing accounts or under the bed.

The young, and especially those just entering middle age, often take out a large mortgage (ссуда под недвижимость) to move into a large house and bring up a family. Having borrowed a fixed sum to buy a house, they profit when unexpected inflation increases house prices and incomes without a correspond­ing increase in the sum they must repay to the bank or building society.

Unexpected inflation redistributes (перераспределять) from the old to the young. With technical progress and productivity increases, each genera­tion (поколение) is likely to have a higher living standard than the previous generation. Further redistribution from the old to the young increases this inequality between generations.

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