Higher costs

High interest rates.

Inflation is often accompanied by high interest rates. High interest rates tend to discourage investment by businesses as they increase the cost of borrowing funds. Thus, investment may fall. Businesses may also be dis­suaded from undertaking investment programmes because of a lack of confidence in the future stability and prosperity of the economy. This fall in investment may be worsened by foreign investment being reduced as they also lose some confidence in the economy's future.

Such a decline in the level of investment can lead to businesses having to retain obsolete, inefficient and expensive means of production and cause a loss of international competitiveness. Finally, a fall in investment can lower the level of economic activity, causing lower sales, output and so on. Thus, to some extent, businesses can influence the economic environ­ment in which they operate.

During a bout of inflation firms will face higher costs for the resources they need to carry on their business. They will have to pay higher wages to their employees to compensate them for rising prices. Supplies of raw materials and fuel will become more expensive as will rents and rates. The inevitable reaction to this is that the firm has to raise its own prices. This will lead to further demands for higher wages as is called the wage-price spiral. Such cost-push inflation may make the goods and services produced by that enterprise internationally less competitive in terms of price. An economy whose relative or compara­tive rate of inflation is high may find that it is unable to compete in home or foreign markets because its products are expensive. The eco­nomic model tells us that a situation of declining exports and increasing imports lower the level of activity in the economy with all the conse­quent side-effects.

JNIT 13. INFLATION AND BUSINESS

Answer the following questions. 1. The impact of inflation on business (in brief): • accounting and financial problems; • falling sales; • high interest rates.   2. How can businesses influence the economic environment? 3. Do you believe in the advice to borrow heavily in a period of inflation? Give your reasons.

VOCABULARY impact - вплив, удар

NOTES to waste valuable time - марнувати

дорогоцінний час onerous - складний, обтяжливий wages unadjusted for inflation - заробітна плата без урахування рівня інфляції to supplement income - доповнювати дохід

a higher tax bracket - наступна група, категорія (напр. при групуванні платників податків за доходом) fiscal drag - фінансове гальмо економічного зростання за допомогою податкових вилучень

EXERCISES I. Answer the following questions.

I'ha і гул»-»гі ґ* + глт inn atirtn ґ~чл Kiicmocc /in

they no longer qualify for - вони більше не попадають під... disposable income - чистий дохід index-linked - індексований reduction in spending (syn. buying, pur­chasing) power - зниження купівельної спроможності

declining demand - падіння попиту tend to discourage investment - не сприяє інвестуванню

to dissuade - відмовляти, відговорювати to retain - зберігати, стримувати, підтримувати

bout (syn. period, spell) of inflation -період інфляції

Give Ukrainian equivalents:

difficulty in valuing assets and stocks

to avoid holding an asset

increased in line with inflation

this may well take a worker into a higher tax bracket

fiscal drag

poverty trap

wages are not index-linked

spending power

the cost of borrowing funds

the wage-price spiral

in terms of price

Replace the parts in italics by synonyms: broad reasons

to identify the reason for this business may be hit by a reduction in sales wages unadjusted for inflation in line with

to supplement incomes

will increase withdrawals depressing firms' sales may be dissuaded from undertaking

І І

IV Find in the text English equivalents for the following: робити щось складним; періоди інфляції; назвати причину чогось; перевести в готівку;

розповсюджуватися на когось (про державні пільги); дохід, що залишається після сплати податків;

PART I. ECONOMICS

товари першої необхідності; компенсувати комусь щось.

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

1. Accounting and financial problems can waste_____ and make____,___ and___ more

2. Businesses may be____ by a reduction in sales.

3. The process, known as____, will cause workers to have less money available.

4. If the wages are not____, they rise less quickly than the rate of inflation.

5. Those selling____, such as food, may be little affected in an inflationary period.

6. High interest rates tend to_____ by businesses.

7. The fall in investment may be____ by foreign investment being reduced.

8. Firms will have to pay higher wages to their employees to______ rising prices.

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