INTEREST RATES AND THE MONEY MARKET

Date: 2015-10-07; view: 552.

Reading 1

UNIT 15

A Vocabulary

Match the words and phrases with the definitions.

1 purse

2 cash till

3 form

4 willing

5 a plus

6 target

7 reserve account

8 to ensure

9 shortage

10 obliged

11 state

12 securities

A when there is not enough of something

B where a store of bank's money is kept

C to make sure

D an advantage

E has to

F prepared to do

G say formally

H place in shop where money is kept

I kind (of)

J something you aim to achieve

K a way to invest money by lending it to the government

L small bag to keep money in

Economic growth is a plus, like all good things, it's best not to have too much at once. If economy grows too rapidly, the result can be inflation. Steady growth is best, and governments use fiscal and monetary policy tools to achieve this. For example, they set interest rates in order to control borrowing and investment. However, the government can't just state, ‘today's interest rate is four per cent' and expect all the other banks to follow. As usual, things are a bit more complicated!

The interest rate is not really set by the government at all, but by the levels of demand and supply of money in the money market. Imagine that money is like any other commodity, and the price of money is the interest rate. Banks can charge any interest rate that customers are willing to pay. If there is a limited amount of money available, the supplier (the banks) will charge a higher price (the interest rate) as demand for money increases. Demand comes from the public who want to spend money to buy things and from businesses who want to invest money in order to grow. Just like other commodities, demand for money will fall as the price (interest rate) rises. The interest rate will be set by the market. It will be where the demand and supply curves meet – the equilibrium point. You can see this relationship shown in figure 1.

B Comprehension

Now read the text again and decide whether the statements are true or false.

D Vocabulary

Complete each sentence with the following words or phrases:

disrupt, go on strike, gross national product, knock-on effect, miner, sharply, stagflation, unrest

1 The total value of a country's goods and services consumed in one year is called the … .

2 If something done affect something else, which then again affects something else, we call this a … .

3 If people are not happy with their government, there may be political … .

4 Being a … and digging underground to bring out minerals, must be very dangerous.

5 Some people … as a way of showing their unhappiness with work conditions or pay.

6 If we have …, there is a sharp drop in production of some goods causing their price to rise.

7 A fallen tree can … the electricity supply to thousands of homes.

8 Prices have risen … but unfortunately wages haven't.