According to the cost-push theory, inflation occurs when producers raise prices in order to meet increased costs. Higher prices for raw materials can cause costs to increase. Wage increases, however, are most often the biggest reason, since wages are the largest single production cost for most companies. Such wage increases can come when low unemployment leads employers to offer higher wages in an effort to attract workers.
Cost-push inflation can lead to a spiral of ever-higher prices. That is, one increase in costs leads to an increase in prices, which leads to another increase in costs, and on and on. The process, by which rising wages cause higher prices, and higher prices cause higher wages, is known as the wage-price spiral.
A full explanation of the reasons for inflation incorporates all three theories. That is why economists look at all elements when they try to understand the inflation process.
The effects of inflation can be seen mainly in purchasing power, income, and interest rates. The costs of inflation depend on whether it was anticipated and on the extent to which the economy's institutions allow complete inflation adjustment.
But the more inflation continues, the more the economy learns to live with it. There is a means to reduce the costs of some inflation effects - indexation. Indexed wages or loans mean that the amount to be paid or repaid will rise with the price level. Yet, when indexation is practiced for years, high rates of inflation are much likely to continue and even to increase.
Ex.1 Answer the following questions.
1. What is inflation?
2. What is hyperinflation?
3. How does the quantity theory explain the causes of inflation?
4. How does the demand-pull theory explain the causes of inflation?
5. How does the cost-push theory explain the causes of inflation?
6. Is indexation an adequate means for combatting inflation?
Ex. 2 Insert the preposition (where necessary).
ðîñò öåí a rise ….. prices
ñïðîñ íà òîâàðû demand ….. goods
öåíû íà ñûðü¸ prices ….. raw materials
ïîñìîòðåòü íà ÷-ë look ….. something
ïðè÷èíû èíôëÿöèè reasons ….. inflation
Ex. 3 Find and translate the sentences where Infinitive and Ving are used as: ÷àñòü ñêàçóåìîãî; b) îáñòîÿòåëüñòâî öåëè; ñ) îïðåäåëåíèå.
Ex. 4 Match up the words from A and B.
A:issue, keep, in the long, put, wage, pose;
B:term, increase, difficulties, money, in line , pressure.
Ex. 5Define parts of speech.
persistent, enormously, pressure, valuable, biggest, higher, indexation.
Ex. 6For words in A find synonyms in B and antonyms in C.
A: to rise, to continue, to cause, to incorporate, to produce.
B: to lead to, to manufacture, to go on, to increase, to include.
C: to consume, to stop, to fall, to exclude, to result from.
Ex. 7 Summarize the content of the text.