Unit 15

Pre-text exercises

1. Find the transcription of new words in a dictionary: growth, quality, previous, sustainable, overheat, essential. Try to read them fluently.

2. Word-building Compile and translate: to sustain υ. + -able → to depress υ. + -sion → technology n. + -ical → to educate υ. + -tion → to invest υ. + -ment →

Read the text Economic growth and shocks

Many millions of people enjoy a quality of life today that previous generations could not have dreamed of. Home ownership, private cars and holidays are now standard for most families in industrialized countries. And yet at the same time, billions of people in other countries live without even clean drinking water. How can this be? The answer is that the fortunate few live in countries with sustained economic growth.

An economy is growing 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 $510 billion from one year to another. That’s an increase of two per

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cent in output. Very impressive! However, if the rate of inflation was two per cent, then there has been no real growth at all.

The other thing to remember 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, the long run growth of the UK economy since 1950 has been a steady 2.5% per year. However, if you look closely at any decade you’ll see that there is a cycle of growth, recession and recovery. The truth is steady growth in the short term is very hard to achieve.

Governments try their best to control economic growth, but there are some things that nobody can control. For example, war, political events in 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 shock.

The causes of demand-side shocks may be events in the local economy (domestic demand) or events abroad (external demand). An example of domestic demand was when house prices in the UK dropped suddenly in the late 1980s. 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 on the rest of the economy. Aggregate demand fell sharply and the Gross national product fell with it.

External demand-side shocks happen when a country relies heavily on exports or on foreign investment. The Great Depression in the 1930s is a classic example of this. At the time of the Great Depression, many countries exported their goods to the USA, 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.

Supply-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

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increase in manufacturers’ variable costs. Manufacturers will then have to increase their prices.

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 can happen when new technology makes the production of materials or products much easier or more efficient. The result – prices fall and output grows.

Words:

quality — качество assets — имущество industrialized country — развитая knock-on affect — эффект до- страна мино sustained — устойчивый to rely — полагать Gross national product – GNP — supply-side shock — потрясе- валовый национальный продукт ние, вызванное со стороны rate of inflation — темп инфля- предложения ции disastrous — гибельный, бед- to overheat — перегреваться ственный recession — спад, кризис to disrupt — разрушать to try ones best — делать все воз- in short supply — дефицитный можное roller-coaster ride — головокру- to affect — воздействовать жительный подъем to cause — вызывать short run — краткосрочный shift in demand — изменение supply-side shock — потрясе- в спросе ние, вызванное предложением aggregate — совокупный long run — длительный

Post-text exercises

Working on the text