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Task II. Answer the following questions.

1. What is consumer demand?
2. What is the theory of demand based on?
3. Why is the concept of marginal utility of great importance?
4. What will a price increase result in?
5. What does market demand depend on?

 

Inflation

 

Inflation is a steady rise in the average price and wage level. The rise in wages being high enough to raise costs of production, prices grow further re­sulting in a higher rate of inflation and, finally, in an inflationary spiral. Peri­ods when inflation rates are very large are referred to as hyperinflation.

The causes of inflation are rather complicated, and there is a number of theories explaining them. Monetarists, such as Milton Friedman, say that inflation is caused by too rapid increase in money supply and the correspond­ing excess demand for goods.

Therefore, monetarists consider due government control of money supply to be able to restrict inflation rates. They also believe the high rate of unem­ployment to be likely to restrain claims for higher wages. People having jobs accept the wages they are being paid, the inflationary spiral being kept under control. This situation also accounts for rather slow increase in aggregate demand.

On the other hand, Keynesians, that is, economists following the theory of John M. Keynes, suppose inflation to be due to processes occurring in money circulation. They say that low inflation and unemployment rates can be ensured by adopting a tight incomes policy.

Incomes policies, though, monetarists argue, may temporarily speed up the transition to a lower inflation rate but they are unlikely to succeed in the long run.

The costs of inflation depend on whether it was anticipated and on the extent to which the economy's institutions allow complete inflation adjustment.

The longer inflation continues, the more the economy learns to live with it. Indexation is a means to reduce the costs of some inflation effects. In­dexed wages or loans mean that the amount to be paid or repaid will rise with the price level. Indexation has already been introduced in countries that had to live with inflation rates of 30 or 40 percent for years. And the more coun­tries adjust their economies to cope with inflation, the closer they come to hyperinflation. Indexation means that high rates of inflation are much more likely to continue and even to increase.

 

Task I. Translate the following words and word combinations into Russian.

 

The average price; money supply; to restrict inflation rates; unemployment; to suppose; a tight incomes policy; to depend on; indexation; the price level; to adjust.

 

Task II. Answer the following questions.

 

1. What periods are referred to as hyperinflation?
2. What theories explain the causes of inflation?
3. What do the costs of inflation depend on?
4. What is a means to reduce the costs of some inflation effects?

What does indexed wages or loans mean