Can inflation be beneficial (может ли инфляция быть благотворной)?

We would be simplifying the impact of inflation on business if we suggested that all effects were unfavourable. There is a school of thought, which argues that a low and stable rate of increase in the price level can be beneficial. It believes that a steady rise in money profits produces favourable expectations and 'induces investment as firms seek to expand. This action expands the economy as a whole. Paradoxically, inflation can also reduce the costs of businesses in the short run. Many enterprises incur costs, which are fixed for some period of time – for example, the rent of a factory may be fixed at a particular figure for a few years. At a time when the selling price of the firm's product, and hence its sales income, is rising this cost will be falling in real terms and thus stimulating the business.

There is a. further argument that firms may be persuaded to borrow heavily in a period of inflation since the burden of repaying loans is reduced by inflation. If inflation is running annually at 10 per cent, for example, then the real value of the repayments of the loan will fall by approximately that amount each year. This may serve to encourage investment which, since it is an injection into the circular flow, will promote the level of activity. However, in these circumstances interest rates are likely to be high.

Government will accept that low rates of inflation are likely to exist in many economies. Inflation rates of 5 per cent or below arc not considered to be too great a problem, especially if competitor nations are suffering similar rates.

In spite of the above, the conclusion must be drawn that inflation is, in general, harmful to business and its environment. Indeed, many economists would contend that inflation is the fundamental evil as its presence leads to lack of competitiveness and therefore relatively high unemployment and low rates of growth. This viewpoint has gained in credence in government circles over the last few years. It is for this reason that its control has been a major objective of government economic policy throughout the 1980s and early 1990s.

Vocabulary notes

beneficial – выгодный, приносящий доход

unfavourable (ant. favourable) – неблагоприятный

there is a school of thought, which argues that – существует мнение, что...

and induces investment as firms seek to expand – и способствует росту капиталовложений, так как фирмы (предприятия) расширяются

in the short run – очень быстро

incur costs, which are fixed for some period of time – несут расходы, ко­торые в течение какого-то периода являются неизменными

a further argument – еще один аргумент

to borrow heavily – брать взаймы большие суммы

repaying loans – выплата займов

to contend – настаивать, утверждать

this viewpoint has gained in credence – эта точка зрения получила боль­шое распространение

a major objective – главная цель

Assignments

I. Suggest the Russian equivalents

a steady rise in money profits produces favourable expectations; this cost will be falling in real terms; this viewpoint has gained in credence in government circles.

II. Replace the parts in italics by synonyms

a steady rise in money profits induces investment as firms seek to expand;

rates arc not considered to be ...; the conclusion must be drawn

III. Fill in the gaps with the words and expressions from the text

1. A steady rise in money profits produces __ and induces __ as firms seek to expand.

2. There is a __ argument that firms may be __ to borrow heavily in a period of inflation.

3. Many economists would __ that inflation is the fundamental __.

4. This viewpoint has __ in government circles over the last few years.

IV. Find in the text English equivalents for the following стимулировать капиталовложения; устанавливать цену; брать взаймы крупные суммы; настаивать, утверждать; страдать от подобного уровня

Assignments to the whole text

I. Increase your vocabulary

a) Find in the text all word-combinations with the verb "to experience" and translate them. Think of your own examples with these combinations. What other word-combinations with this verb do you know? Give examples.

b) Find in the text the words expressing the English for:

"понижать(ся)" and "повышать(ся)";

"привести" and "вызвать".

Write out the word-combinations with them and use these in your own sentences. Give synonyms to each word-combination you found in the text. What other words expressing the same meaning do you know?

II. Find English explanations or paraphrase

the economy is stretched; fiscal drag; state benefits; not index-linked wages;

selling essential items; borrowing funds; a bout of inflation; wage-price spiral; a school of thought

III. Make a written translation of the paragraph beginning with "Businesses may be hit by..." ("Falling sales").

IV. Draw the scheme to mentioned cases of the impact of inflation on businesses related in "Falling sales", "High interest rates" and "Higher costs". For example: saving rises-spending falls-sales fall.

V. Answer the questions

1. Give the definition of inflation. What can you add to it?

2. The extent and severity of inflation.

3. Types of inflation (short characteristics). Are there any others?

4. Demand-pull inflation. Name countries with this type of inflation.

5. Cost-push inflation. Name countries with this type of inflation.

6. The impact of inflation on business (in brief):

• accounting and financial problems;

• falling sales;

• high interest rates.

How can businesses influence the economic environment?

7. Do you believe in the advice to borrow heavily in a period of inflation? Give your reasons.

8. Can inflation be beneficial?

9. What other factors not mentioned in this unit can cause inflation?

10. What "cures" for inflation do you know and can suggest?

VI. Translate into English using all the active possible

1. В прошлом месяце уровень инфляции составил 1%, а в нынешнем он, возможно, по официальным данным составит 0%.

2. Данный взгляд на уровень инфляции не отражает официальной точки зрения.

3. В периоды острой инфляции льготы, которые обычно распростра­няются на определенные слои населения, значительно сокращаются.

4. Падение спроса на товары первой необходимости в связи с их ухудшившимся качеством привело к относительно мягкой инфляции в несколько процентов.

5. Низкий процент инфляции не считается слишком большой про­блемой для государства и даже может способствовать увеличению капи­таловложений.