English for Economists

mand for money consumption and savings, fiscal and monetary policy, and economic growth. Games Tobin received the Nobel prize in economic science in 1981. Michael Parkin spoke with Professor Tobin about the challenges that face the economy.

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M.P. What economic principles would you share with students?

G.T. First, opportunity cost is a simple, fruitful concept. Students can learn it, most people innocent of economics, don't understand it. Second – fungibility – "money mingles", a friend of mine liked to say. You can give people money, for your own purpose, but the recipients will generally find a way to accommodate their own priorities.

Third, economics students who understand the macro identities – for example, Y = C + I + G + NX1– know more than most politicians and journalists.

Note:

1. Y(GDP) = Consumption+Investment+Government Purchases+Net Exports.

TRANSLATION

A. Translate the text from English into Russian.

Consumer Price Index Criticism

Just as there is criticism of the unemployment rate, the CPI is not a perfect measure of inflation, and it has recently been the subject of much public debate. There are four key reasons for this criticism.

First, changes in the CPI are based on a typical market basket of products purchased that does not match the actual market basket purchased by many consumers.

Second, there are some difficulties in adjusting the CPI for changes in quality. Compare a personal computer made in the past with a new personal computer. The new computer may cost somewhat more, but it is much better than the old computer. If the quality of items improves, increases in the CPI overstate inflation.

Third, the use of a single base-year market basket ignores the law of demand. If the price of a product rises, consumers purchase substitutes, and a smaller quantity is demanded.

Finally, there have been made numerous changes in the methodology used to calculate the CPI during the 1990s. For example, now more consume substitution of goods in response to rising prices is allowed.

B. Translate from Russian into English into English.

Инфляция – это ситуация, при которой имеет место падение покупательной способности денег, результатом чего является рост общего уровня цен. Инфляция измеряется на основе относительных измерений за определенный период времени соответствующего индекса

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цен, обычно индекса цен на потребительские товары или дефлятора ВВП.

Инфляция, вызванная ростом издержек производства, начинается с роста некоторых элементов издержек, например бурный рост цен на нефть в 70-х годах.

Инфляция, вызванная превышением спроса над предложением, возникает из-за слишком высокого совокупного спроса.

Гиперинфляция – это исключительно высокая инфляция, когда цены растут настолько быстро, что деньги в значительной степени теряют свою функцию средства обращения.

Галопирующая инфляция – инфляция, при которой цены начинают удваиваться, утраиваться ежегодно.

LISTENING

A.Make sure that you understand the following words and word combinations.

B.Listen to the interview and decide whether the following statements are true or false (T or F).Give the reasoning.

1.Keynesians believe that if the government borrows and spends more money, economic activity will increase.

2.Keynesians want to boost domestic demand, meaning spending by households rather than businesses.

3.If the government borrows more money, this affects interest rates and business investment.

4.Monetarists say that the only result of increasing the money supply is to raise prices.

5.Keynesians believe that a government can increase the money supply without people noticing it, so that they spend more, and business invest more.

6.The goal of Keynesianism is to eliminate recessions.

7.Monetarists see neither economic advantages nor disadvantages in increasing the amount of money in circulation.

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SPEAKING

A.

Read the dialogue and practice the conversation between a journalist and a Finance Minister.

Journalist: Has the policy of the government changed?

Minister: No, we are looking towards increasing the quality of services and making the economy strong.

Journalist: What do you predict as a level of inflation over the next 12 months?

Minister: Inflation will continue at present levels – about 2.5 per cent. Journalist: Are you confident that economic growth will remain strong? Minister: Economic growth is now at 2 per cent and should rise to 4 per

cent over the coming year.

Task: Make dialogues according to the model discussing the level of inflation and the rate of economic growth for the coming year in Belarus, the European Community and the USA.

B.

Dwell on:

–Inflation and hyperinflation. Their effects on economy and well-being.

–The current level of inflation in the USA, EU and Belarus.

–Consumer Price Index.

–Demand-pull inflation. Why does it become a problem when the economy approaches full employment?

–Cost-push inflation. How does it differ from demand-pull inflation?

–Inflation and the real and nominal interest rates.

VOCABULARY

boost v – стимулировать, повышать borrow v – брать взаймы

borrower n – должник, дебитор, заёмщик borrowing n – заем, кредит

capacity n – мощность

productive ~ – производственная мощность consumer n – потребитель

~ price index (CPI) – индекс потребительских цен

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credit n – кредит, доверие, репутация

creditors n – кредиторы, кредиторская задолженность curve n – кривая (линия)

cutback n – сокращение, уменьшение debt n – долг

bad ~ – безнадёжный долг

debtors n – дебиторы, дебиторская задолженность disinflation n – дисинфляция; замедление темпов инфляции hyperinflation n – гиперинфляция

inflation n – инфляция

cost-push ~ – инфляция, обусловленная ростом издержек

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

lend v – давать в займы, одалживать lender n – кредитор, заимодавец

~of last resort – кредитор последней инстанции loan n – заём, суда, кредит

loan v – одалживать, давать в займы

~out – выдавать заём

multiplier n – мультипликатор, коэффициент recipient n – получатель

surplus n – избыток, профицит

GLOSSARY

·GDP chain price index is a measure that compares changes in the prices of all final goods during a given year to the prices of those goods in a base year.

·The consumer price index (CPI) is the most widely known price-level index. It measures the cost of purchasing a market basket of goods and services by a typical household during a lime period relative to the cost of the same bundle during a base year.

·Inflation is a situation in which a decline in the purchasing power of money results in a rise of the general price level.

·Cost-push inflation is an increase in the general price level resulting from an increase in the cost of production.

·Demand-pull inflation is caused by pressure on prices originating from the buyers' side of the market. In contrast, cost-push inflation is caused by pressure on prices originating from the sellers' Sideof the market.

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·Deflation is a decrease in the general level of prices. During the early years of the Great Depression, there was deflation, and the CPI declined at about a double-digit rate.

·Disinflation is a reduction in the inflation rate. Between 1980 and 1986, there was disinflation. This does not mean that prices were falling, but only that the inflation rate fell.

·Hyperinflation is an extremely rapid rise in the general price level.

·Nominal income is income measured in actual money amounts. Measuring your purchasing power requires converting nominal income into real income, which is nominal income adjusted for inflation

·Nominal interest rate is the annual percentage amount of money that is earned on a sum loaned or disposed in a bank.

·The real interest rate is the nominal interest rate adjusted for inflation. If real interest rates are negative, lenders incur losses.

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3.3. ECONOMICBUSINESS CYCLES ANDUNEMPLOYMENT

DISCOVERING CONNECTIONS

1.Are there any jobs in your country which are in constant demand?

2.In which economic sectors have jobs disappeared / have been created?

3.What is the most difficult job you can imagine? And the most pleasant?

4.If you could choose any job in the world, what would it be? Why?

5.Are you optimistic or pessimistic about your own future? Do you expect the qualification you are currently studying for to get you a permanent job?

6.Do you see any areas in which a large number of jobs might realistically be created?

7.In your opinion, when there is high unemployment during a recession, should the government intervene in the economy to create jobs?

READING

Text 1

As you read the text, focus on various theories of business cycle.

Economic Business Cycles

The business cycle or trade cycle is a permanent feature of market economies: gross domestic product (GDP) fluctuates as booms and recessions succeed each other. During a boom, an economy (or at least parts of it) expands to the point where it is working at full capacity, so that production, employment, prices, profits, investment and interest rates all tend to rise. During a recession, the demand for goods and services declines and the economy begins to work at below its potential. Investment, output, employment, profits, commodity and share prices, and interest rates generally fall. A serious, long-lasting recession is called a depression or a slump.

The highest point on the business cycle is called a peak, which is followed by a downturn or downswing or a period of contraction. The lowest point on the business cycle is called a trough, which is followed by a recovery or an upturn or upswing or a period of expansion. Economists sometimes describe contraction as 'negative growth'.

There are various theories as to the cause of the business cycle. Internal (or endogenous) theories consider it to be self-generating, regular, and indefinitely repeating. A peak is reached when (or just before) people begin to consume

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less, for whatever reason. As far back as the mid-nineteenth century, it was suggested that the business cycle results from people infecting one another with optimistic or pessimistic expectations. When economic times are good or when people feel good about the future, they spend, and run up debts. If interest rates rise too high, a lot of people find themselves paying more than they anticipated on their mortgage or rent, and so have to consume less. If people are worried about the possibility of losing their jobs in the near future they tend to save more. A country's output, investment, unemployment, balance of payments, and so on, all depend on millions of decisions by consumers and industrialists on whether to spend, borrow or save.

Investment is closely linked to consumption, and only takes place when demand and output are growing. Consequently, as soon as demand stops growing at the same rate, even at a very high level, investment will drop, probably leading to a downturn. Another theory is that sooner or later during every period of economic growth – when demand is strong, and prices can easily be put up, and profits are increasing employees will begin to demand higher wages or salaries. As a result, employers will either reduce investment, or start to lay off workers, and a downswing will begin.

External (or exogenous) theories, on the contrary, look for causes outside economic activity: scientific advances, natural disasters, elections or political shocks, demographic changes, and so on. Joseph Schumpeter believed that the business cycle is caused by major technological inventions (the steam engine, railways, automobiles, electricity, microchips, and so on), which lead to periods of 'creative destruction'. He suggested that there was a 56-year Kondratieff cycle, named after a Russian economist. A simpler theory is that, where there is no independent central bank, the business cycle is caused by governments beginning their periods of office with a couple of years of austerity Programmes followed by tax cuts and monetary expansion in the two years before the next election.

Vocabulary Focus

Ex. 1. Match the Russian words and word combinations in column A with their English equivalents in column B.

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1.Money borrowed in order to buy a house or flat (GB) or apartment (US).

2.Money paid for the use of a house or flat owned by somebody else.

3.The amount of something produced by a company, a country, and so on.

4.Spending on new machines, factories, and so on.

5.Owners or managers of manufacturing companies.

6.Spending on goods and services.

7.To dismiss employees.

8.Concerning the number of births, deaths, population movements, and so on

9.An absence of luxury and comfort.

Words for reference: mortgage, investment, lay off, expectations, rent, demographic, consumption, austerity, industrialist, output.

Ex. 3. Complete the sentences using the words given below.

1.Recurrent rises and falls in real GDP over a period of years is called the

_________ .

2.A (an) __________ is officially defined as two consecutive quarters of real GDP decline.

3.____ is measured by the annual percentage change in real GDP in a nation.

4.The _______ is the difference between full-employment or potential real GDP and actual real GDP.

5.The phase of the business cycle during which real GDP reaches its maximum after rising during a recovery is called a _______ .

6.A _______ is a phase of the business cycle during which real GDP reaches its minimum after falling during a recession.

7.An upturn in the business cycle during which real GDP rises is calleda___.

Words for reference: recovery; peak; trough; economic growth; GDP gap; business cycle; recession.

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Comprehension

Ex. 1. Match up the following half sentences:

1.The _______ phase of the business cycle follows a recession.

a.recovery;

b.recession;

c.peak;

d.trough.

2.The GDP gap is the difference between:

a.frictional unemployment and actual real GDP;

b.unemployment rate and real GDP deflator;

c.full-employment real GDP and actual real GDP;

d.full-employment real GDP and real GGDP deflator.

3.A recession is a business contraction lasting at least:

a.one years;

b.six months;

c.three months;

d.one month.

4.When is the GDP gap largest?

a.During peak periods in the business cycle;

b.During trough periods in the business cycle;

c.When unemployment rates are relatively low;

d.When cyclical unemployment is close to zero.

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