■ borrow ■ decreases ■ lend
■ reserve ■ selling ■ shortages (x2) \______ у
The government can create
(1)........................ of money for commercial
banks by (2)........................... securities.
Securities are a way to (3)..............................
money to the government at an agreed rate of interest. This is what is known as open market operations. When people buy securities the money
supply (4)............................ This causes
(5)........................ in the commercial banks'
(6)........................ accounts, so they have to
(Z)........................ money from the central
T |
bank.
С Listening
Now you're going to hear someone talking about open market operations. Listen and check your answers.
-> Economists some rimes talk about economic shocks.
-*■ What do you think this might mean?
-* What might cause a shock to the economy?
В D Vocabulary
Complete each sentence with a word or phrase from the box.
■ disrupt ■ go on strike
■ gross national product -» knock-on effect
■ miner к sharply stagflation
■ unrest
1 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
m 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
wages haven't.
ВReading 2
Economic shocks
t 'iciwrnnionts try their best to control economic growth, hut there tire sonic things thai по1кк!у ean control for example war. political unrest in another country 01 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 s/iocfe.
The causes of ilcmand-sidi shock* may he events in the local economy (domestic demand) or events abroad (external demand). An example ol domestic demand was when house prices in the IK dropped suddenly in the late L9808. 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 Of) the rest of the economy. Aggregate demand fell sharply and the gross national product tell with it.
m,. o. iir (,, л * to Economics Uan IS 79
Extertial demand-side shocks happen when a country relies heavily on exports or on foreign investment. The Great Depression in the WAOs is a elassie example of this. At the time of the Great Depression, many countries exported their goixls to the 1'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.
8upply~side 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.
Imagine, for example, that miners in the iron industry went on strike. The supply of iron and steel to manufacturers would Ik- 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 siiiiilhiliim.
Figure 2: Aggregate Supply Shock Mt«tt>» shock
Fall in output
Real National Output
The go<xl news, however, is that sometimes positive supply-siik- shocks happen. These <x-cur when there is a sudden increase in supply while demand stays the same This can happen when new technology makes the production of materials or products much easier or more efficient. The result - prices fall and output grows.
I? E Comprehension
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... A an external demand-side shock.
an external supply-side shock.
a domestic demand-side shock.
Supply-side shocks can cause... A a fall m variable costs.
an increase in variable costs. С a fall in faxed 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 _
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 worlds economies?
В F Listening 4)))
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.....................
80 Micniilm Guide to Economics Unit l J
G Speaking
Discuss the following with your partner.
Look at figure 1 on page 78 and figure 2 on page 80 again.Take turns explaining to your partner what the diagrams show.
Task
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
Pronunciation guide Equilibrium efcw i rbi ram Asset asset Homeowner is i и юэ(г) Disastrous d rosti Stagflation Sts■•il'leijn Embargo mi N |
the interest rate doubles in just a few weeks в* H Writing
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 why are 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 throe.
Before you read____
Discuss these questions with your partner.
Inflation is the rising cost in prices over time. HI Does your country suffer from inflation? ■# Why do you think this is?
I? A Vocabulary
Choose the correct word.
1 When something is in the headlines / articles.it is an important story in the news.
When parents are unemployed it is difficult for a family to make ends touch / meet.
3 The cost / price of living in cities like London and Tokyo is very high.
i People prefer to shop in supermarkets because they find a wide range / amount of goods there.
■i The retail / shopping industry includes shops, supermarkets and department stores.
In statistics, when a number is valued / weighted it is multiplied by another number to show its importance.
7 The victim / culprit is the person or thing that is responsible for doing something bad.
8 It is difficult for old people to manage / cope with Irving on a small pension.
9 In maths, a/an equation / formula is a sum which is equal on both sides.
10 The speed that something travels at is called
velocity / capacity.
IS Reading 1
Inflation
Inflation is an overall increase in prices over a certain period of time. It s also a worry lor anybody wlii>"s trying to make ends meet, and a headache for many governments. The rate of inllation is often in the headlines. llowe\ei. Inflation isn't really news. In most of Europe, for example, prices have risen year after year for at least the last 5o years. Deflation (o\crall deer* si in prices i Joes happui occasionally, but the trend is mostly for the east of living to increase.
There arc lots ol ways to measure inflation. (>ne of the most popular ways is the i\l<til price index This is calculated by recording increases in price for a range of goiuls ami services. This is sometimes called a 'xisfecf a/goods. Some of the goods are weighted more heavily than others because they are more important, for example, food will be Weighted more than the cost of a cinema ticket, because a 5% increase in food >s more important than a 1096 increase in the cosl •.I seeing a lilrn. Inflation is worked out from an average of all the price increases in the basket.
82 м i' m. а. Guide lo Economrt 11... i to
Inflation can happen for a number of reasons, but economists say there arc two main culprits. i lu si arc demand-pull inflation and COSt-pUSh inflation. Demand pull inflation can happen when the economy is growing last. Aggregate demand begins t<> grow faster than suppliers can cope with. This causes.1 shortage, and prices rise. At first. Customers may be able to pay the higher prices, and demand JrOWB again. This forces prices up even more, and the cycle continues.
< hie of the characteristics of demand-pull inflation is that there is often too much money going round the economy This is explained by the quantity iln-oiy.if naonej This theory uses the following equation-
money supply x velocity = average price I transact!, ins
Velocity is the speed that money is passed on from one person to another. Some economists say that velocity and the iiumlvr of transactions don't really change. The only things that change in this equation are the money supply and average prices. This means that when the money supply increases, prices will increase too. For this reason, printing money is rarely a Solution for economic crises.
i lost push Inflation, on the other hand, occurs when prices rise without an increase in demand This happens when suppliers' variable costs increase sharply. For example, workers may demand higher wages or raw materials ni;i\ become more expensive. Producers then pass these increases on fo consumers by raising prices. So. as usual, we are the ones who pay!
В Comprehension
Now read the text again and match each paragraph with the correct heading.
PARAGRAPH 1...................
PARAGRAPH 2........................................
PARAGRAPH 3...................
PARAGRAPH 4..........................
PARAGRAPH 5...................
A Measuring inflation 1 Too much cash
The effects of aggregate demand on inflation D Production cost changes
Inflation is a fact of life
Before you listen
Discuss the following with your partner.
-» High mflation affects the whole
economy in different ways. How do you think inflation affects the people and organisations listed below? Try to match the people and organisations 1 -4 with the effects A-D.
A lose money on loans
В can't get investment
С are not so competitive
D can't buy as much with their money
Look at the photo and answer these questions:
-» What are these people doing?
-* How do you trunk they leal? Why?
-* Why do you suppose they are in this situation?
D Vocabulary
Complete each sentence with a word or phrase from the box.
■ can't be bothered * contracts
■ freelance * mobility I obsolete
■ region ■ relocates ■ retrain
■ shipyard ■ tastes
1 People's................... ш clothes change with
fashion and with their age.
If you.................. to do something, you just
don't feel like doing it.
i When something..................... it gets smaller.
-1 A................... is an area of a country.
When a company.................... to another part
of the country or abroad, many workers lose their jobs.
6 workers are not employees for a
company, but are self-employed.
If something is..................., it no longer exists
because it isn't needed anymore.
If you lose your)ob due to mechanisation, you
may have to go to college and.................... for
something else.
I A.................... is where ships are built.
10 Your is your ability to move from
one place to another.
ВReading 2
Unemployment
There will always 1ч,- a certain aim null of unemployment in the economy. When economists lalk aboat/uii employment they mean that everyone who can work ami wants to work has got a job Able workers who are not working are simply not happy with the salaries that are offered - or just can't Ik- bothered!
However, economies rarely reach lull employment. There arc a mitnlvr oi ie.i-i.n-. tor this, and a number of different types of unemployment. (>nc of these is cwlieul Unemployment. This type of unemployment varies with the growth and re-cession cycle of the econoim As the economy grows, demand for labour grows and unemployment lalb fa the eoonomj contracts, unemployment grows
A second kind of unemployment is struct in<il unemployment. This occurs when changing public tastes or advances in technology cause a fall in demand for sonu- types of work. Per example, computer technology has revolutionised the priming industry. and many traditional printers' jobs have become obsolete..Sometimes whole regions of,i country suffer from high stna-tural unemployment. The north-east of Knglaiul. for example, was famous for many years for its shipbuilding industry. Competition from abroad
 |
How long structural unemployment lasts will depend on two things. Firstly, how easily the workforce can retrain for new jobs. This may he difficult for older workers who lind it hard to learn new skills. There is also the cptestion of who pays for the training. The second issue is mobility. Workers who are able to relocate easily to another part of the country will lind new jobs more quickly.
There are two other kinds of unemployment which we should mention here. These are less serious, perhaps, but they arc still difficult for governments to get rid of. The first is/net ioiuil unemployment. This is a natural kind of unemployment that occurs when someone leaves a job ami is looking for another one that suits them. Frietional unemployment often happens because people want to leave their job in order to change careers. Few jieople walk straight into another job. However, when the economy is in recession, frietional unemployment will be more common because jobs arc harder to lind.
The second kind is seasonal unemployment Some industries have busy periods and periods where there is no work at all. Some freelance farm workers, for example, get most of their work in the spring and summer. Like structural unemployment, seasonal unemployment can affect whole regions of a country. Areas that rely on summer tourism, for example, suffer serious unemployment during the autumn and winter months.
■ E Comprehension
Now read the text again and choose the best answer or answers for each question.
Which kind of unemployment happens regularly every year? A cyclical unemployment
structural unemployment
frietional unemployment
seasonal unemployment
Which kind of unemployment happens because of advances in technology? A cyclical unemployment
structural unemployment С fricUonal unemployment seasonal unemployment
Which kind of unemployment may happen because someone wants it?
cyclical unemployment
structural unemployment
frietional unemployment
seasonal unemployment
Which kind of unemployment happens because of changes in economic growth?
cyclical unemployment
structural unemployment С frietional unemployment
seasonal unemployment
Which kind of unemployment happens in particular parts of the country? (2 answers)
cyclical unemployment
structural unemployment
frietional unemployment
seasonal unemployment
Before you listen___
Discuss these questions with your partner.
The chart below shows the trends in unemployment in two countries. Look at the chart, and answer these questions.
-» What does the vertical axis show?
•# What does the horizontal axis show?
-* What two countries are shown?
-» How many years are shown?
-> Are there any similarities between the curves for the two countries?
|j? Listening if}}}
Now listen and write the correct percentages on the chart.The first answer has been done for you.
—■—Germany USA
1995 1N7 1999 2001 2003 2905
Macmillan а и I a v га Etooeraitt U» ' l 16 85
вG Speaking
Discuss these questions with your partner.
-» la inflation a problem vn your country? Why Why not?
How does unemployment affect people psychologically?
What kind(s') of unemployment do you think affect the area whom you live?
Can you talk about the history of unemployment in your country since the 70s like the diagram in exercise Г Listening on page 85?
Task
Work in groups of three or four. Imagine you and your friends are running the country.Things are not going well! Here are some of your problems.
imemploymont is high (12%)
- the rate of inflation is also high
workers aro going on strike for higher wages
your large steel industry is losing money because of foreign competition
Talk to each other and decide which of these problems is the most important. Then decide what you can do to make things better. In your discussion think about:
• retraining / relocation of workers
i cost-push inflation
' the money supply
Use the space below to make your notes.
Notes:
в? H Writing
Imagine you are a shipyard worker who has just become unemployed because the government has decided to close down the shipyards.Write a letter to a friend explaining what's happened and how you feel about it.
Informal letter
Use this plan to help you.
Greeting
PARAGRAPH 1
Thank your friend for his/her last letter. Respond to a piece of news he/she had in his/ her letter.Tell your friend your bad news.
PARAGRAPH 2
Explain how yon lost your job. Explain what the government's reasons were for closing the yard (inflation made exports uncompetitive).
PARAGRAPH 3
Explain how you feel about losing your job. How is it affecting you and your family?
PARAGRAPH 4
Explain what you're planning to do (retrain / relocate?).
Sign off
Write 100-140 words
Pronunciation guide
Culprit kslpni. Velocity \.fli r Deflation ii HViJiv Equation fkwei г Freelance HI... Revolutionise к лл|;г.|.->п;н/ Shipyard |ip, sd Inflation u. I. I:
Revision Vocabulary Units 13 to 16
 | |||
 | |||
not fit.
kinds of money
fiat, commodity, fake, intrinsic
things yon can do in a bank
deposit, barter, borrow, make a withdrawal
kinds of inflation
demand-pull, exchange rate, cost-push, high
kinds of unemployment
target, structural, cyclical, seasonal
economic problem
shortage, stagflation, mobility, depression
other words for money
cash, exchange, currency, coins
д tf\
Now write six example sentences using as many words as possible from this exercise.
В Complete the crossword with words we use in economics.
V
DOWN
1 This is the cost of borrowing money.
2 A kind of income tax system.
4 The whole income of a country is called the gross national
5 When money is paid back.
6 The oil crisis of the 1970s caused an economic
G Read this letter and fill in the gaps with the words and phrases from the box.
■ allowance ■ cash till Ш knock-on effect
■ lend ■ make ends meet ■ obliged
■ plus ■ purse ■ relocated ■ transport
Murnillin G n i a» to lionnitl RevitienVoohulir* Unit i 13 ■ If 87
Before you read
Discuss this question with your partner.
-* What do you think makes an economy grow?
д Voc3bulciry
Choose the correct answer А, В or С from the list opposite.
In many ways liio for previous................... was
much more difficult.
Home................... has increased m many parts
of Europe.
When the economy grows dangerously fast, we say
it....................
i A................... is when the economy is growing
quickly.
.................. are fairground rides like trains that
go up and down very fast.
I................... in technology in the last 30 years
has been incredible.
1.................. is when you get better after
something bad like an illness - or economic depression.
When you................... you fight or work hard
for something.
Don*t buy anymore milk. We've got...................
m the fridge.
A fortunate person is very.....................
Mountain climbers are people who enjoy a
The................... is the government minister
responsible for the economy.
3.................. growth is growth that can continue
for a long time.
1 *!
ownership boils over
4 A bang
roller-coasters
growth discovery overheat plenty
10 A hard-working
11 A challenge
12 A economist
sustainable
8? Reading 1
Economic growth
Many millions ot' people enjoy a quality of life today that previous generations could not have dreamed ot'. Home ownership, private ears and holidays are now Standard lor most families in industrialised countries. And yet at the same time, billions of people in other countries live without even clean drinking water. How can this her The answer is that the fortunate lew live in countries with sustained economic growth.
An economy is grow iug when the gross national product is increasing year after year. When economists calculate economic growth, though, they must take into account the effects of Inflation. For example, imagine that the gross national product of a country increased from #500 billion to Н5Ю billion from one year to another. That's an increase of two per cent in output. Very impressive! However, if the rate ol inflation was two |xt cent, then there has been no real growth at all.
Tile other thing to remeniK-r about economic growth is that not all growth is good. Governments want steady, sustainable growth. Sudden, sharp increases in growth - a boom - can cause the economy to overheat and fall into recession. For many economies, the long run growth over many years is steady, but the short run is a roller-coaster ride of boom and depression. For
instance, tlie long run growth ot the UK economy since l'>5<) has Ix'en a steady 2.5% per year. However, it you look closely at any decade you'll sec that there is a cycle ol growth, recession and recovery. The truth is, steady growth in the short term is Very hard to achieve.
Nevertheless, many countries are still struggling to achieve any kind of growth at all. Why is this? What is necessary for growth to happon'r Many economists have tried to lind the answer to this question, and there are plenty of theories to choose from. However, most economists agree that three things are essential for economic growth to occur, capital growth, savings ami technological progress.
Capital rclers to the factories and machinery that the labour force uses to turn raw materials into products. More workers and more raw materials will only lead to a certain amount of growth. Eventually, the economy needs more capital for the labour to use. (Capital growth can also include training and education for the labour force. This makes tin- workforce more efficient, creative and productive.
()f course, someone has to pay for the new machines anil training. In other words, capital growth needs investment. Money for investment needs to Ik- borrowed from banks. Banks etui only lend if customers make savings. This is why" savings arc so important for growth. However, the economy will not grow if everyone is saving and no one is spending, (jetting the right balance between consumption anil saving is another part of the challenge of economic growth.
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