6. 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.

7. Significant rate of inflation can cause accounting and financial problems for businesses. There may be difficulties in valuing assets and stocks, for example. Such problems can waste valuable management time and make forecasting, comparisons and financial control more difficult.

Exercises

Ex.2. Give English equivalents to the following word combinations:

Cтійке зростання; збільшення цін; ціновий рівень; ціновий контроль та нормування; річний показник; повна зайнятість; міжнародні борги; надмірна купівельна спроможність; рух вгору; внутрішня пропозиція; збільшити прибуток; рівень накопичення капіталу; оподаткування; оцінка активів та цінних паперів; значний рівень; прогнозування.

Ex.3. Find where in the text it is said about the points given below. Put down the number of the paragraph.

1. ways of defining inflation;

2. example of hyperinflation;

3. exports and imports;

4. problems caused by inflation.

Ex. 4. Find the terms in the text which designate the following:

1. a situa­tion in which the general price level is persistently moving upwards;

2. the extreme form of inflation where prices rise at a phenomenal rate;

3. a situation where demand exceeds supply, but the effect on prices is minimized by the use of such devices as price controls and rationing;

4. the most common type of inflation where the general price level rises at an annual rate between 1 and 6 percent;

5. a situation where aggregate demand persistently exceeds aggregate supply at current prices so that prices are being 'pulled' upwards;

6. a situation when firms face increasing costs.

Ex.5. Say if the following statements are true or false:

1. Price controls deals with the causes of inflation; they do not just attempt to suppress the symptoms.

2. The excess demand still exists and it will tend to show itself in the form of queues and black markets.

3. Cost-push inflation is usually associated with conditions of full employment.

4. Once the nation's resources are fully employed, an increase in demand must lead to an upward movement of prices.

5. Imports are inflationary because they generate income at home but reduce home supplies.

6. Significant rate of inflation can cause accounting and financial problems for businesses.

7. Demand inflation 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.

Ex. 6. Find the answers to the questions in the text. Put down the number of the paragraph:

1. How can inflation be defined?

2. What is suppressed inflation? What situation is referred to as creeping inflation?

3. When may a situation of excess demand arise?

4. Why are exports inflationary?

5. What problems can inflation cause for business?

Ex. 7. Answer the questions of the Ex. 6 orally

Ex. 8. Explain the difference between demand inflation and cost-push inflation.

Ex. 9. Describe the situations of excess demand.

Ex. 10. Prove that inflation can cause serious problems for business.

Ex. 11. Make up a plan covering the main ideas. Discuss the text according to the plan.

Ex. 12. Discussion points:

1. Find the information and prepare the report about inflation rates in the current year in different countries. Compare these figures with Ukrainian ones. Discuss the causes of inflation.

2. Discuss methods and ways of preventing and overcoming inflation.

3. Look through the information given below. Discuss the situation with price inflation. Suggest the reasons of increasing prices for some goods while decreasing for the other.