Beneficial.

CAN INFLATION BE

UNIT 14.

VI. Writing Practice. Make a short summary about inflation and its impact on business from the above text. Use the opening phrases from Appendix1.

IT 13. INFLATION AND BUSINESS 73

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discussion 1. What trends have occurred in recent years in Ukraine's economy?

2. What has happened to:

• the rate of inflation?

• interest rates?

• the GNP (Gross National Product)?

• the rate of unemployment?

reading CAN INFLATION BE BENEFICIAL?

We would be simplifying the impact of inflation on business if we sug­gested that all effects were unfavourable. There is a school of thought, which argues that a low and stable rate of increase in the price level can be beneficial. It believes that a steady rise in money profits produces favoura­ble expectations and induces investment as firms seek to expand. This action expands the economy as a whole. Paradoxically, inflation can also reduce the costs of businesses in the short run. Many enterprises incur costs, which are fixed for some period of time - for example, the rent of a factory may be fixed at a particular figure for a few years. At a time when the selling price of the firm's product, and hence its sales income, is rising this cost will be falling in real terms and thus stimulating the business.

There is a further argument that firms may be persuaded to borrow heavily in a period of inflation since the burden of repaying loans is reduced by inflation. If inflation is running annually at 10 per cent, for example, then the real value of the repayments of the loan will fall by approximately that amount each year. This may serve to encourage invest­ment which, since it is an injection into the circular flow, will promote the

74 PART I. ECONOMICS

level of activity. However, in these circumstances interest rates are likely to be high.

Government will accept that low rates of inflation are likely to exist in many economies. Inflation rates of 5 per cent or below are not considered to be too great a problem, especially if competitor nations are suffering similar rates.

In spite of the above, the conclusion must be drawn that inflation is, in general, harmful to business and its environment. Indeed, many econo­mists would contend that inflation is the fundamental evil as its presence leads to lack of competitiveness and therefore relatively high unemploy­ment and low rates of growth. This viewpoint has gained in credence in government circles over the last few years. It is for this reason that its con­trol has been a major objective of government economic policy throughout the 1980s and early 1990s.

> 3CABULARY beneficial - вигідний; такий, що

NOTES приносить прибуток

unfavourable (ant. favourable) -

несприятливий

there is a school of thought - існує думка

to induce investment - сприяти

зростанню інвестицій

in the short run - дуже швидко

to incur costs - нести витрати further argument - ще один аргумент to contend - наполягати, стверджувати this viewpoint has gained in credence - ця

точка зору одержала найбільше

розповсюдження

major objective - головна мета

EXERCISES I. Answer the following questions.

1. Can inflation be beneficial?

2. What other factors not mentioned in this unit can cause inflation?

3. What "cures" for inflation do you know and can suggest?

II. Suggest Ukrainian equivalents:

• a steady rise in money profits produces favourable expectations

• this cost will be falling in real terms

• this viewpoint has gained in credence in government circles

III. Replace the parts in italics by synonyms:

• a steady rise in money profits induces investment as firms seek to expand

• rates are «or considered to be...

• the conclusion must be dra

IV Fill in the gaps with the words and expressions from the text.

as firms seek to

1. 1. A steady rise in money profits produces_____ and induces.

expand.

2. 2. There is a___ argument that firms may be____ to borrow heavily in a period of

inflation.

3. 3. Many economists would____ that inflation is the fundamental_____.

4. 4. This viewpoint has____ in government circles over the last few years.

V Find in the text English equivalents for the following:

• стимулювати капіталовкладення

• встановлювати ціну

• позичати значні суми

• наполягати, стверджувати

• страждати від подібного рівня

.ХІТ 14. CAN INFLATION BE BENEFICIAL?

VI. Increase your vocabulary.

A. Find in the text all word-combinations with the verb "to experience " and translate
them. Think of your own examples with these combinations. What other word-
combinations with this verb do you know? Give examples.

B. Find in the text the words expressing the English for:
"знижувати(ся)" and "підвищувати(ся)";
"привести/призвести" and "викликати"

Write out the word-combinations with them and use these in your own sentences. Give synonyms to each word-combination you found in the text. What other words expressing the same meaning do you know?

VII. Find English explanations or paraphrase: the economy is stretched; fiscal drag; state benefits; not index-linked wages; selling essential items; borrowing funds; a bout of inflation; wage-price spiral; a school of thought.

76 PART I. ECONOMICS

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