Учебное пособие Москва Издательство мгту им. Н. Э. Баумана 2014 г




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Text 3A

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.

Inflation varies considerably in its rate. Hence, the consequences for the business community differ according to circumstances. Mild inflation of a few percent 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.

Economists recognize that two general types of inflation exist:

  • Demand-pull inflation

  • Cost-push inflation

Demand - pull inflation occurs when demand for a nation’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.

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 owing to trade union militancy, the rising costs of imported raw materials and components or companies pushing up prices in order to improve their profit margins.

Inflation affects business in a number of ways. Significant rates of inflation can cause accounting and financial problems for business. They may experience difficulty in valuing assets and stocks, for example.

Such problems can waste valuable management time and make forecasting, comparisons and financial control more difficult.

Many businesses may experience falling sales during inflationary periods for two broad reasons. Firstly, it may happen that saving rises in a time of inflation. We would expect people to spend more of their money when prices are rising to avoid holding an asset (cash) which is falling in value. However, during the mid-1970s, when industrialized nations were experiencing high inflation rates, savings as a proportion of income rose! It is not easy to identify the reason for this, but some economists suggest that people like to hold a relatively high proportion of their assets in a form which can be quickly converted into cash when the future is uncertain.

Businesses might be hit by a reduction in sales during a time of inflation for a second reason, as inflation progresses, it is likely that workers’ money wages (that is, wages unadjusted for inflation) will be increased broadly in line with inflation. This may well take a worker into higher tax bracket and result in higher percentage of his or her wages being taken as tax. This process, known as a fiscal drag, will make workers spend less money available on firms’ goods and services. The poverty trap has a similar impact as money wages rise, the poor will have to find that they no longer qualify for state benefits to supplement their incomes and at the same time they begin to pay income tax on their earnings.


This leaves less disposable income to spend on the output of firms. The wages of many groups are not index-linked and so they rise less quickly than the rate of inflation, causing a reduction in spending power and demand for goods and services.

Inflation is often accompanied by high interest rates. High interest rates tend to discourage investment by businesses as they increase the cost of borrowing funds. Thus, investment falls. Businesses may also be dissuaded from undertaking investment programme because of a lack of confidence in the future stability and prosperity of the economy. This fall in investment may be worsened by foreign investment being reduced as they also lose some confidence in the economy’s future. A fall in investment can lower the level of economic activity, causing lower sales, output and so on.

During a bout of inflation, firms will face higher costs for the resources they need to carry on their business. They will have to pay higher wages to their employees to compensate them for rising prices. Supplies of raw materials and fuel will become more expensive as will rents and rates. The inevitable reaction to this is that the firm has to raise its own prices. Such cost-push inflation may make the goods and services produced by that enterprise internationally less competitive in terms of price.

Some economists think that a low and stable rate of increase in the price level can be beneficial.

Governments realize that low rates of inflation exist in many economics. Inflation rates of 5 percent or below are not considered to be a great problem, especially if competitor nations are suffering similar rates.

However, inflation is, in general, harmful to business and its environment. It is for this reason that its control has been a major objective of government economic policy for years.

Exercises

  1. Answer the questions to the text:

  1. How can “inflation” be defined?

  2. What can cause accounting and financial problems?

  3. What types of inflation do you know?

  4. Why is inflation harmful to business and its environment? Explain your point of view.

  5. Is inflation often accompanied by high interest rates?

  6. What are the reasons of falling sales during inflationary periods?

  7. Why do the wages rise less quickly than the rate of inflation?

  8. How can firms compensate rising prices to their employees?

  9. Do firms face higher or lower costs for the raw materials during inflationary periods?


2. Match each word or word combination with its definition.


1.

a demand

a

comparing favourable in price and quality

2

profit

b

to predict

3

accounting

c

absence of trust

4

a reduction in sales

d

the total of the sums of money earned by an employee

5

a lack of confidence

e

a recession

6

to make forecasting

f

a store of goods for sale ; a store of raw materials

7

competitive

g

a system of recording the money value of businesses dealings

8

earnings

h

The amount on which the price received in greater than the cost

9

a stock

i

an association of employees

10

trade union

j

a request

3. Translate the sentences paying attention to the word combinations: owing to, no longer, tend to, in terms of, because of, in line with.
1. Because of hyperinflation customers and workers face a lot of difficulties.

2. Many businesses may no longer experience rising sales during inflation periods.

3. The business trip was delayed owing to organizational problems.

4. People tend to think that their salaries depend on the efficiency of their work. .

5. Mild inflation tends to pose few difficulties.

6. A number of firms faced high costs for resources.

7. I could give you a number of reasons for not going to the meeting.

8. The number of homeless people has increased dramatically.

9. In terms of sales many businesses will benefit in this situation.

10. Annual pay increase will be in line with inflation.

11. We should carry on with our work while our boss is away.
4. Mark these sentences T (true) or F (false) according to the information in the text.

  1. Hyper inflation which results in high rates of inflation can cause serious problems for the government, business, consumers and workers.

  2. Many businesses may experience rising sales during inflation periods.

  3. Continuous rise in general price level might lead to a corresponding rise in the purchasing power of money.

  4. In 1970s when countries were experiencing high inflation rates, saving and income of population rose.

  5. When people’s wages are not indexlinked during the inflation period, they rise less quickly than the rate of inflation.

  6. Significant rates of inflation can cause financial problems for most businesses, which find it difficult to value their assets.

  7. Inflation is often accompanied by high interest rates, the latter having a tendency to increase the cost of companies’ resources.

  8. High inflation rates cause the increased spending power and demand for goods an services

  9. In the time of inflation businesses face a reduction in costs for raw materials fuels and other resources necessary to run their business.

  10. In general inflation is harmful to business and its environment.




  1. Match the two halves of these sentences.




1.

Inflation can change its rate

a

during inflation periods

2.

Many businesses may experience falling sales

b

when prices are rising and assets are falling in value.

3.

Mild inflation of a few percent may

c

May be often accompanied by high interest rates

4.

People choose to have the larger part of their assets in a form which can be.

d

according to the circumstances in business community

5.

Inflation process

e

The level of economic activity, sales and output

6.

Increasing costs could be caused

f

quickly converted into cash when they are not sure about their future

7.

Cost push inflation may make the goods and services by the firm which has raised its own prices

g

cause few difficulties for business.

8.

A fall in investment can lower

h

by an increase in wages due to the rising costs of imported raw materials and components

9.

People might spend more of their money.

I

to pay higher wages to their employees as a compensation for these raised costs.

10.

During inflation when firms face higher costs for the resources they have

j

less competitive in terms of price.


6. Find in the text sentences with the modal verbs. Before translating them define which of them express possibility depending on the capacity of doing the action, possibility depending on the circumstances (or supposition) and necessity of the event.

7. Translate the sentences into English.

  1. Скажи ему, что он мог бы быть более полезным для нашей фирмы.

  2. Фирма, вероятно, будет испытывать некоторые затруднения в подписании нового соглашения.

  3. Когда мы только начинали, всем приходилось работать сверхурочно.

  4. Теперь правительству придется уменьшить расходы, чтобы снизить инфляцию.

  5. Расширение нашего предприятия должно создать новые рабочие места и это очень важно, так как в вашем городе довольно высокий уровень безработицы.

  6. Могли ли мы предвидеть, что принятые меры приведут к такому резкому повышению цен.

  7. Предприятию следует провести (launch) рекламную кампанию, чтобы привлечь больше покупателей.

  8. На этой неделе нашим специалистам предстоит провести ещё ряд испытаний новой модели автомобиля.

  9. Мы уже подписали соглашение, и не было необходимости вносить какие-либо изменения.

  10. Завтра наши представители должны подписать этот контракт.

  11. Покупатели смогут увидеть весь ассортимент (range) товаров компании в ее каталоге на выставке.


8. Comment on the meaning of the modal verb “would” in the following sentences. Before doing this read the note.

1. We wanted to persuade him to talk with the director. But he wouldn’t listen to us

2. At the conference which I visited I would ask questions about economic cooperation with other countries.

3. During the recession in the 1930s in the US people would stand in long lines in order to get a job.

4. The manager wouldn’t change his decision, even though he knew it was wrong.

5. The car wouldn’t start this morning because it was freezing.

6. Would you mind leaving us alone for a few minutes?

7. When the boss was away, Mr. Brown would take over his responsibilities.

8. When I worked for this company I noticed that managers would spend most of their working time at the meetings.
Note: Remember that it is used to express unwillingness (mostly in negative sentences), when we talk about things happened regularly in the past, past habits, in set phrases.
9. Translate the sentences paying attention to the emphatic constructions:

It is… that (who, which); (именно, только);

1. It is inflation that is the subject of the discussion.

2. It is a lack of confidence that results in falling the investment in any country.

3. It is this problem that a project manager has not taken into account.

4. It was the new machinery by means of which they increased labour efficiency.

5. It is macroeconomics that studies the problems of the country’s economy as a whole.

6. It wasn’t until 1923 that Canada, Australia and New Zealand were able to free themselves from British control.

7. It is through well-planned programmes that extensive data can be collected.

10. Translate the sentences with the verbs “cause”, “make”, “force”.

1.The growing rate of inflation makes us think that the economic situation of the country is not stable yet.

2. Financial deficit in any country or region may cause economic and political downturn.

3. Demand pull inflation is caused by demand for a nation’s goods and services.

4. The government forces all the companies to pay taxes on their profits.

  1. The President of the company was forced to resign because his managing style led to big great losses.

  2. Sometimes it is difficult for a first year student to make himself understand the importance of studying Business English.


11.Translate the sentences into English using the verbs “to cause”, “to make”, “

  1. Система премиальных выплат побуждает сотрудников работать эффективно.

  2. Менеджер по продажам заставил персонал (sales team) пересмотреть (review) план продаж.

  3. Повышение цен на потребительские товары стало причиной сокращения покупательской способности населения.

  4. Повышение цен на нефть может вызвать рост инфляция.

  5. Богатых людей необходимо заставить платить более высокие налоги, так как их уровень жизни значительно выше большей части населения России.

  6. Новейшие достижения в области информационных технологий явились причиной развития глобальной компьютеризации.

  7. Государство вынуждено тратить большие средства на строительство спортивных сооружений в стране для того, чтобы больше людей имели возможность заниматься спортом.

  8. Генеральный директор заставляет начальников всех отделов делать отчеты (report) о проделанной работе каждый квартал. (quarterly).


Read the text and answer the questions:

  1. What has an investigation by the Sunday Times shown?

  2. Why were the supermarkets disguising price increases?

  3. What does John Winkler advise to improve profits?



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