There are various theories as to the cause of the business cycle. Internal (or endogenous) theories consider it to be self-generating, regular, and indefinitely repeating. A peak is reached when (or just before) people begin to consume less, for whatever reason. As far back as the mid-nineteenth century, it was suggested that the business cycle results from people infecting one another with optimistic or pessimistic expectations. When economic times are good or when people feel good about the future, they spend, and run up debts. If interest rates rise too high, people find themselves paying more than they planned on their mortgage or rent, and so have to consume less. If people are worried about the possibility of losing their jobs in the near future they tend to save more. A country's output, investment, unemployment, balance of payments, and so on, all depend on millions of decisions by consumers and industrialists on whether to spend, borrow or save.
Investment is closely linked to consumption, and only takes place when demand and output are growing. Consequently, as soon as demand stops growing at the same rate even at a very high level, investment will drop, probably leading to a downturn. Another theory is that sooner or later during every period of economic growth - when demand is strong, and prices can easily be put up, and profits are increasing - employees will begin to demand higher wages or salaries. As a result, employers will either reduce investment, or start to lay off workers, and a downswing will begin.
External (or exogenous) theories, on the contrary, look for causes outside economic activity: scientific advances, natural disasters, elections or political shocks, demographic changes, and so on. Joseph Schumpeter believed that the business cycle is caused by major technological inventions (the steam engine, railways, automobiles, electricity, microchips, and so on), which lead to periods of 'creative destruction! He suggested that there was a 56-year Kondratieff cycle, named after a Russian economist. A simpler theory is that, where there is no independent central bank, the business cycle is caused by governments beginning their periods of office with a couple of years of austerity programs followed by tax cuts and monetary expansion in the two years before the next election.
Ex. 1 Memorize the words.
at full capacity на полную мощность
behave вести себя, действовать (опред. образом)
behaviour образ действия, поведение, режим работы
cause причина; служить причиной, вызывать
counter противостоять, наносить встречный удар
contraction сокращение, сжатие
downturn (downswing) спад деловой активности (конъюнктуры)
duration длительность, продолжительность
employment занятость
expansion распространение, экспансия; рост
external внешний
fluctuate колебаться, меняться
forecast предсказывать, прогнозировать
intermediate промежуточный; посредник
internal внутренний
intervene вмешиваться
invention изобретение
lay off временно увольнять; приостановка
multiplier множитель, коэффициент
office (period of) период нахождения у власти, на посту
recognize осознавать, распознавать
recover выздоравливать, приходить в себя
surplus излишек; избыточный
trough самый низкий уровень экон. активности
turn поворачивать(ся); поворот, изменение
upturn (upswing) подъём, рост
variable переменная (величина); изменчивый
worry беспокоить(ся); тревога, забота
Ex. 2 Find pairs of synonyms in A and B.
A: business, output, depression, link, fall, contrary, lead to;
B: slump, opposite, result in, trade, drop, connect, production.
Ex. 3 Find pairs of antonyms in A and B.
A: permanent, boom, expand, at full capacity, peak, internal, result from;
B: contract, trough, variable, cause, external, recession, below potential.
Ex. 4 Insert the preposition (where necessary).
на полную мощность ….. full capacity
спрос на товары demand ….. goods
влезать в долги run ….. debts
на том же уровне ….. the same rate
назвать в честь кого-либо name ….. somebody
Ex. 5 Find the words in the text which mean the following.
1 beliefs about what will happen in the future
2 money borrowed in order to buy a house or flat (AE apartment)
3 money paid for the use of a house or flat owned by somebody else
4 the amount of something produced by a company, a country, etc.
5 spending on new machines, factories, and so on
6 owners or managers of manufacturing companies
7 spending on goods and services
8 to dismiss employees
9 concerning the number of births, deaths, population figures, etc.
10 an absence of luxury and comfort
Ex. 6 Match up the following half-sentences.
1 Companies may reduce investment or the size of the work force
2 Companies only invest
3 During a period of economic growth
4 External theories of the business cycle
5 Governments often stimulate the economy
6 Increases in interest rates
7 Internal theories of the business cycle
8 People can demand higher pay
9 People tend to spend less
A consumers borrow a lot of money.
B if labour costs increase too much.
C if their company's sales are increasing.
D include psychological factors.
E include technological and population changes.
F prior to general elections.
G result in higher rents and mortgages.
H when they are afraid of becoming unemployed.
I while consumption is increasing.
Ex. 7 Answer the following questions.
1. What is a boom? What is characteristic of it?
2. What is a recession? What is characteristic of it?
3. How are the highest and the lowest points of the cycle called?
4. How do internal theories explain the causes of the cycle?
5. How do external theories explain the causes of the cycle?
Ex. 8 Summarize the content of the text.
Ex. 9 Comment on the following.
1 Which of the various theories of the business cycle mentioned in the text do you find the most convincing?
2 What is the current economic situation in your country? Why?
3 Are the people you know optimistic or pessimistic about the future? Are they saving money for bad times ahead, or spending and borrowing without worrying too much about the future? Can you see anything coming that can make them change their behaviour?