Inflation threatens became the norm after the Second World War in all Western economies, and

the low rates of unemployment prevailing during the 1950s coupled with high rates of economic

growth were seen as a testimony to its success. In the 1960s, however, the UK faced difficulties

sustaining a stabilization policy, with a stop-go cycle by which reflation occurred, the economy

would “overheat” and then a rapid deflation would be necessary. In the 1970s stagflation developed,

and the traditional-style stabilization policy became obsolete. In the 1980s it was replaced in

the UK by an explicit non-stabilizing policy in the form of the medium-term financial strategy.

Stabilization policy fell out of favour for two main reasons. First, there are immense practical

difficulties in implementing it, primarily because of a lack of sufficient information. All that is

known about the economy is how it was behaving several months ago, but actions have to be taken

several months in advance. The problem has been likened to attempts at controlling the temperature

of water coming out of a shower when any twist of the hot or cold tap takes half a minute to

affect the temperature of that coming out of the nozzle. Secondly, it is argued that the temptation

to attempt to keep unemployment below its market level inevitably causes ever-accelerating inflation.

Instead, it is suggested, if the equilibrium level of unemployment is too high, measures affecting

the supply of labour, rather than demand, are necessary.

Despite the criticisms, stabilization to some extent exists in all economies: built-in stabilizing

factors (built-in stabilizers) (for example, in recession, unemployment benefits paid out rise, causing

an increase in government spending) will never be removed. Moreover, most economists allow

that moderate reflation at times of recession can be justified. What is rarely attempted is the finetuning

of the economy that occurred in earlier decades.

The action of government or trade associations to stabilize the price of certain commodities. By

holding stocks of the item in question, the authorities can, at least temporarily, affect demand and

supply in the market and maintain a constant.

Commentary and Notes to Text 16.7.1.2

1. A testimony — свидетельство

2. a stop-go cycle — фаза цикла, принятая британскими экономистами для описания

завершающегося периода фиксированного валютного курса

233

3. reflation — рефляция

4. to overheat — перегреваться

5. deflation — дефляция

6. in advance — с опережением, заранее

7. the equilibrium level of unemployment — равновесный уровень безработицы

8. built-in stabilizing factors — встроенные стабилизационные факторы

9. unemployment benefits — пособия по безработице

16.7.1.3. Read, translate the text "IMF Executive Board Concludes 2005 Article IV Consultation

with the Russian Federation" and answer the question: How does the IMF report estimate the

current state of the Russian economy?

IMF Executive Board Concludes 2005 Article TV Consultation with the Russian

Federation

Under Article IV of the IMFs Articles of Agreement, the IMF holds bilateral discussions with

members, usually every year. A staff team visits the country, collects economic and financial information,

and discusses with officials the country's economic developments and policies. These are

the extracts from the summary of the report dated September 21, 2005

Russia is in its seventh year of robust economic growth. This strong performance was ignited by

the sharp depreciation in the wake of the 1998 crisis, and subsequently sustained by large terms-oftrade

gains, in combination with increased political and macroeconomic stability. Higher output

and investment in the oil sector have been key conduits of the broad based recovery, which is still

running its course.

While still vibrant, the economy has softened notably since mid-2004, despite record high oil

prices. Yearly GDP growth decelerated from 7? percent in the first half of 2004 to 5? percent in the

same period this year, mainly owing to lower growth in oil production and investments. Consumption

has remained buoyant and has been the main source of domestic demand growth, fueled by

continued rapid increases in real wages.

Monetary policy remains relatively lax. While reserve money growth has slowed somewhat since

mid-2004, mainly because of an accelerated build-up of government deposits with the Central

Bank of Russia, it remains high, as do the increases in broader aggregates. Rising inflation, declining