Vocabulary list

1. inflation – инфляция

2. deflation - дефляция

3. hyperinflation - гиперинфляция

4. to have negative consequences (for) – иметь неблагоприятные последствия (для)

5. overall – общий, суммарный

6. average - средний

7. to make a distinction (between) – отличать, проводить различия (между)

8. general price level – общийуровеньцен

9. to offset - компенсировать

10. to be subject to something – подвергаться, подчиняться

11. feasible – осуществимый, возможный

12. Consumer Price Index (CPI) – индекспотребительскихцен

13. consumption pattern – структура потребления

14. the cost of living – стоимостьжизни

15. price stability – ценовая стабильность

16. living standard(s) – уровеньжизни

syn. standard of living

Notes

1. anaverageconsumer – средний (типичный) потребитель

2. an extended period – долгийпериод

3. a common-sense approach – разумныйподход

4. on a day-to-day basis –ежедневно

Ex 1.Suggest the Russian equivalents:

economic phenomena; broadly-based increase in the prices of goods; overall price level falls over an extended period; market-based economies; stability can go hand-in-hand with substantial changes; relative scarcity of the respective goods and services; it is neither feasible nor desirable; the purchasing patterns of consumers; the creation of what is referred to as a “market basket”; a change in the cost of living;

Ex 2. Fill in the gaps with the words and expressions from the text.

1. It is important to make …… between movements in prices of any good or service and movements …….

2. Falling and rising prices …… each other so that …… remains unchanged.

3. Price are …… continuous moves which basically reflect changes in …… individual goods and services.

4. Most countries have a single …… to measuring inflation, using the so-called ……

5. Each month a host of …… checks on the prices of these items in various outlets.

6. If a person’s …… differ substantially from the …… and thus from the market basket on which the index is based, that person may …… the change in the cost of living.

7. The price index tries to give a …… of what is happening to a great many prices.

8. When there is no inflation or deflation, we can say that there is …… if, on average, prices …… but stay stable over time.

Ex 3. Find in the text the English equivalents for the following:

привести к падению стоимости денег; ситуация абсолютной ценовой стабильности; неизбежно; цены подвержены постоянным колебаниям; принимать во внимание; годовой уровень инфляции; измеряемая индексом информация; умножить количество товаров на соответствующие цены; высчитывать индекс цен; дать общую картину.

Ex 4. Match each term with the appropriate explanation.

price-level, Consumer Price Index, inflation, deflation, consumer durables

1. An increase in the general price level, e.g. in the CPI over an extended period.

2. A sustained decline in the general price level, e.g. in the CPI, over an extended period.

3. The economic indicator which measures the prices of a fixed market basket of some 300 consumer goods and services purchased by a typical urban consumer.

4. Goods that are intended to be used over a period of time.

5. The average of all prices in a country at particular time.

Ex 5. Answer the questions.

1. What economic phenomena may have negative consequences for the economy? What do they imply?

2. What is called the situation when there is no inflation or deflation?

3. Why is it important to differentiate between movements in prices of any individual good or service and movements in the general price level?

4. How can stability in the general price level go in line with substantial changes in individual prices?

5. How can inflation be measured? Why measure it?

6. What is “market basket”?

7. What is CPI? How it is calculated?

8. How is the annual rate of inflation calculated?

9. What is implied in ”average consumption pattern”? who is an “average customer”?

Ex 6. Find in the text the words and expressions that characterize or name:

1. the situation when prices neither increase nor decline

2. the purchasing patterns of consumers

3. the overall price changes faces by each individual consumer

4. a means for giving a general picture of what is happening to many prices

Ex 7. Comment on the following:

1. Frequent changes in individual prices are quite normal in market-based economies, even if there is price stability overall.

2. The inflation measured by the index (CPI) is only an approximate measure of the average situation in the economy.

3. The price index may rise despite some prices actually declining.

Text B

The information given in the previous text explains why inflation and deflation are generally undesirable phenomena.

Indeed, there are substantial disadvantages and costs related to inflation and deflation. Price stability prevents these costs from arising and brings about important benefits for all citizens. There are several ways in which price stability helps to achieve high levels of economic welfare, e. g. in the form of high employment.

Price stability supports higher living standards by helping to reduce uncertainty about general price developments and thereby improve the transparency of relative prices.

First, price stability makes it easier for people to identify changes in the prices of goods expressed in terms of other goods (i.e. “relative prices”), since such changes are not concealed by fluctuations in the overall price level. For example, let us suppose that the price of a certain product increases by 3 %. If the general price level is stable, consumers know that the relative price of this product has increased and may therefore decide to buy less of it. If there is high and unstable inflation, however, it is more difficult to find out the relative price, which may have even declined. In such a situation it may be better for the consumer to buy relatively more of the product of which the price has increased by “only” 3 %. In the case of general deflation, consumers may not be aware of the fact that a fall in the price level of a single product merely reflects general price developments and not a fall in the relative price level of this good. As a result, they may mistakenly buy too much of this product.

Consequently, if prices are stable, firms and consumers do not run the risk of misinterpreting changes in the general price level as relative price changes and can make better informed consumption and investment decisions.

Uncertainty about the rate of inflation may also lead firms to make wrong employment decisions. To illustrate this, let us suppose that in an environment of high inflation, a firm misinterprets the increase in the market price of its goods by, say, 5 %, as a relative price decrease as it is not aware that the inflation rate has recently fallen from, say, 6% to 4%. The firm might then decide to invest less and lay

off workers in order to reduce its production capacities, as it would otherwise expect to make a loss given the perceived decrease in the relative price of its goods. However, this decision would ultimately turn out to be wrong, as the nominal wages of employees due to lower inflation may increase by less than that assumed by the firm. Economists would describe this as a “misallocation” of resources. In essence, it implies that resources have been wasted, as some employees would have been made redundant because of instabilities in price developments.

Price stability reduces inflation uncertainty and therefore helps to prevent the misallocation of resources described above. By helping the market guide resources to where they can be used most productively, lasting price stability increases the efficiency of the economy and, therefore, the welfare of households.