INFLATION

Date: 2015-10-07; view: 474.

Reading 1

Inflation is an overall increase in prices over a certain period of time. It's also a worry for anybodu who tries to make ends meet, and a headache for many governments. The rate of inflation is often in the headlines. However, inflation isn't really news. In most of Europe, for example, prices have risen year after year for at least the last 50 years. Deflation (overall decrese in prices) does happen occasionally, but the trend is mostly for the cost of living to increse.

There are lots of ways to measure inflation. One of the mos popular ways is the retail price index. This is calculated by recording increases in price for a range of goods and services. This is sometimes called a basket of goods. Some of the goods are weighted more heavily than others because they are more important. For example, food will be weighted more than cost of a cinema ticket, because a 5% increase in food is more important than a 10% increase in the cost of seeing a film. Inflation is worked out from an avarage of all the price increases in the basket.

Inflation can happen for number of reasons, but economists say there are two main culprits. These are demand-pull inflation and cost-push inflation. demand-pull inflation can happen when the economy is growing fast. Aggregate demand begins to grow faster than suppliers can cope with. This causes a shortage, and prices rise. At first, customers may be able to pay the higher prices, and demand grows again. This forces prices up even more, and the cycle continues.

One of the characteristics of demand-pull inflation is that there is often too much money going round the economy. This is explained by the quantity theory of money. This theory uses the folowing equation: money x velocity = average price x transactions.

Velocity is the speed that money is passed on from one person to another. Some economists say that velocity and the number of transactions don't really change. The only things that change in this equation are the money supply and average prices. This means that when the money supply increases, prices will increase too. For this reason, printing money is rarely a solution for economic crises.

Cost-push inflation, on the other hand, occurs when prices rise without an increase in demand. This happens when suppliers' variable costs increase sharply. For example, workers may demand higher wages or raw material may become more expensive. Producers then pass these increases on to consumers by raising prices. So, as usual, we are the ones who pay!

B Comprehension

Now read the text again and match each paragraph witht the correct heading.

paragraph 1

paragraph 2

paragraph 3

paragraph 4

paragraph 5

A Measuring inflation

B Too much cash

C The effect of aggregate demand on inflation

D Production cost changes

E Inflation is a fact of life

D Vocabulary

Complete each sentences with the following words or phrases:

can't be bothered, contracts, freelance, mobility, obsolete, region, relocates, retrain, shipyard, tastes

1 People's …… in clothes change with fashion and with their age.

2 If you …… to do something, you just don't feel like doing it.

3 When something ……, it gets smaller.

4 A …… is an area in country.

5 When a company …… to another part of the country or abroad, many workers lose their jobs.

6 …… workers are not employees for a company, but are self-employed.

7 If something is ……, it no longer exists because it isn't needed anymore.

8 If you lose your job due to mechanization, you may have to go to college and …… for something else.

9 A …… is where ships are built.

10 Your …… is your ability to move from one place to another.