Unit 15
Reading I: Economic growth
Many millions of people today enjoy a quality of life that previous generations could not have dreamed of. Home ownership, travelling on holidays and private cars are now standard for most families in industrialized countries. And yet, at the same time, billions of people in other countries live without proper food or even clean drinking water. What is the reason for this huge abyss between the formers and the latters? The reason is that the fortunate few live in the countries with sustained economic growth, while the unhappy millions of others – in the underdeveloped ones.
An economy is growing when the gross national product is increasing year after year. But economists must take into account the effects of inflation while calculating economic growth. Let’s imagine that the gross national product of a country increased from 500 billion dollars to 510 billion dollars during a year. It means – there is an impressive increase of two per cent in output. However, if the rate of inflation was the same two per cent, then there has been no real growth at all.
Speaking about economic growth we should remember that not all growth is good. Governments, undoubtedly, want steady, sustainable growth, because sudden, sharp increases in here (a boom) can cause the economy to overheat and fall into recession. For many economies, the long run growth over many years is steady, but the short run is a roller-coaster ride of boom and depression. For instance, the long run growth of the UK economy since 1950 has been a steady
2,5% per year. However, if we look carefully at any decade, we’ll see that there is a cycle of growth, recession and recovery. It’s true, that steady growth in the short term is very hard to achieve.
Why are many countries struggling to achieve any kind of growth at all? What is necessary for growth to happen? Economists have tried to find the answer to this question, and there are many different theories here. Most economists, however, agree that three things are essential for economic growth to happen: capital growth, savings and technological progress.
Capital refers to the factories and machinery that the labour force uses to turn raw materials into products. Plus, the economy needs more capital for the labour to use: capital growth can also include training and education for the labour force, because this makes the workforce more efficient, creative and productive.
It is necessary to pay for the new machines and training. In other words, capital growth needs investment. Money for investment should be borrowed from banks, but banks can only lend if customers make savings. So, savings are very important for growth. However, the economy will not grow if everyone is saving and nobody
is spending. Getting the right balance between consumption and saving is another part of the challenge of economic growth.
|
|
Above all, technology is the real miracle worker of economic growth. An advance in technology can increase productivity from the same amount of capital and resources wonderfully!
Vocabulary
quality – качество previous – предыдущий dream of – мечта о ч-л. proper – надлежащий
abyss – пропасть
the former – первый из названных, прежний the latter – последний (из названных) reason – причина
fortunate – удачный, удачливый
sustained – длительный, продолжительный underdeveloped – слаборазвитый
the gross national product – ВНП
take into account – принять во внимание calculate – вычислить
impressive – внушительный rate – норма; величина
the same – то же самое sudden – внезапный sharp – острый; резкий
to overheat – перегреть recession – спад steady – устойчивый
roller-coaster – «американские горки» recover – выздороветь; поправиться
achieve – достигнуть struggle – борьба
to happen – случаться essential – существенный labour force – рабочая сила challenge – вызов
miracle – чудо
wonderful – замечательный
Assignment 1
Answer the questions, according to the text.
1. Why do some people today enjoy the high quality of life, while others do not even have proper food or water?
2. When does an economy grow?
3. Is its growth connected with the rate of inflation?
4. Is any economic growth good?
5. Speak about the long run growth and the short run one. Do they look similar?
6. Is it easy to achieve steady growth in the short term?
7. Why do many countries struggle to achieve any kind of growth?
8. What is necessary for growth (to happen)?
9. What is capital growth? Why does capital need investment?
10. Why are savings very important for growth?
11. Why should the right balance between consumption and savings be kept?
12. Does technology encourage the economy to grow?
Assignment 2
Suggest the Russian equivalents for the expressions and word-combinations given below.
.
Millions of people today enjoy a quality of life; previous generations could not have dreamed of; home ownership; standard for most families; at the same time; live without proper food or even clean drinking water; huge abyss between the formers and the latters; the fortunate few live in industrialized countries; sustained economic growth; the underdeveloped countries; the gross national product is increasing year after year; economists must take into account the effects of inflation; calculate economic growth; an impressive increase of two per cent in
|
|
output; no real growth at all; we should remember that not all growth is good.; governments want steady, sustainable growth; sudden, sharp increases; a boom can cause the economy to overheat and fall into recession; the long run growth over many years; the short run is a roller-coaster ride of boom and depression; look carefully at any decade; we’ll see that there is a cycle of growth, recession and recovery; steady growth in the short term is very hard to achieve; many countries struggle to achieve any kind of growth; three things are essential for economic growth to happen: capital growth, savings and technological progress; labour force turns raw materials into products; capital growth can include training and education for the labour force; this makes the workforce more efficient, creative and productive; capital growth needs investment; savings are very important for growth; the economy will not grow if everyone is saving and nobody is spending; the right balance between consumption and saving; another part of the challenge of economic growth.
Assignment 3
Fill in the gaps in the sentences, using the words given below.
1. When economic growth is calculated … is taken into account.
2. Sharp, sudden economic growth may cause the economy to overheat. Such growth is called ….
3. Savings, capital growth and technological progress are considered essential … for economic growth.
4. Technology advances lead to increased … from the same amount of capital and resources.
5. Long-term economic growth is often followed by …. [productivity, inflation, conditions, a recession, a boom]
Assignment 4
Say, whether these statements are true or false:
1. Economic growth does happen everywhere, in each country.
2. An increase in GNP may not show economic growth.
3. Any growth is good.
4. For economic growth there needs to be the right amount of saving and spending.
5. Technology creates greater output from the same amount of capital, labour and materials.
Reading II: The business cycle
An economy can grow at a steady rate over many years, in the long term. However, the climb up the hill of economic growth is quite complicated, really. Long term growth is made up of many short-term steps. Each short-term step may last from five to ten years. Over this short-term period the economy goes through a cycle of growth and recession. This may be called the business cycle, and it has four stages: boom, slump, recession and recovery.
|
|
Everything is very good during a boom. Demand for goods and services is high. Business is going well. Unemployment is low, because companies have to take on more staff – in order to meet demand. Consumers feel confident about spending because their jobs seem secure. What’s more, interest rates are reasonable, that is why people take out loans and use their credit cards. Low interest rates encourage companies to invest in new capital, and businesses grow. Confidence is in the air! Governments are happy too, because tax revenues are increasing.
But the governments should be very careful during the boom, because boom economies are always in danger of overheating. Demand-pull inflation or cost-push one will eventually bring these good times to the end.
When the slump comes, the economy continues to grow, but not so fast. Confidence falls, when inflation starts to rise. The government may want to put up interest rates – to slow down borrowing. People with mortgages, in this case, have to spend more money to pay off their debts, so they should less spend on other things. Higher interest rates discourage business investment. People, surely, hope, that the economy will improve again, but everything is moving slowly.
Recession is inevitable, if the government have not acted quickly enough. Fiscal and monetary policy changes may occur too late. A recession is bad news. Companies have to reduce costs because turnover is so low. The first thing they do is to lay off staff. If the recession is very bad, some companies may even go bankrupt and close. When this happens, thousands of workers lose their jobs. Unemployment rises, and the government needs to spend more on providing unemployment benefit for people who are out of work. These things can last for a number of years in the worst recessions.
Some economists say a recession exists when the current rate of growth falls below the long-term rate of growth. Others believe a recession is when there is no growth at all. The economy actually shrinks, and something should be done to improve the situation. Recovery will come eventually, with good government policy and a demand for goods and services from healthier economies abroad. Slowly, confidence returns, investment grows, and the cycle begins again.
Vocabulary
climb – подниматься short-term – краткосрочный stage – стадия
slump – кризис; (резкий) спад confident – уверенный reasonable – разумный
careful – осторожный eventually – в конечном счете
to pay off the debt – заплатить долг discourage – препятствовать
inevitable – неизбежный, неминуемый turnover – товарооборот
to lay off staff – увольнять, сокращать штат go bankrupt – обанкротиться
provide – обеспечить the worst – худший current – текущий shrink – сжиматься improve – улучшать
Assignment 1
Answer the questions, according to the text.
1. What is long term economic growth made up of?
2. How long is a short-term step?
3. What is the business cycle?
4. Describe the period of a boom.
5. Why should the government be careful during this period?
6. Does the economy continue to grow during the slump?
7. Why is a recession so bad in economic development?
8. Is recovery inevitable after recession?
9. What is the role of the government in the business cycle?
Assignment 2
Suggest the Russian equivalents for the expressions and word-combinations given below.
Grow at a steady rate over many years; the climb up the hill of economic growth is complicated; many short-term steps; the economy goes through a cycle of growth and recession; business cycle has four stages: boom, slump, recession and recovery; companies have to take on more staff in order to meet demand; consumers feel confident about spending; interest rates are reasonable, and people take out loans; companies invest in new capital, and businesses grow; be very careful during the boom, because boom economies are always in danger of overheating; inflation will eventually bring good times to the end; to put up interest rates in order to slow down borrowing; people with mortgages have to spend more money to pay off their debts; higher interest rates discourage business investment; recession is inevitable; the government have to act quickly enough; the first thing is to lay off staff; some companies may go bankrupt and close; the government needs to spend more on providing unemployment benefits; people may be out of work for a number of years in the worst recessions; a recession exists when the current rate of growth falls below the long-term rate of growth; the economy actually shrinks; recovery will come eventually; confidence returns, investment grows, and the cycle begins again.
Assignment 3
Translate the sentences into Russian.
1. The large scale transfer of ownership of industry from the public sector to the private sector has led to an important increase in the individual ownership of shares.
2. In recent years the government has provided financial assistance towards the costs of developments in micro-electronics, office automation, computer-aided design, robots and aerospace.
3. In many countries economic development has led to periods of rapid population growth.
4. Competition between firms will lead to the elimination of firms which are unable to change their products and their methods of production.
5. Consumers are assumed to wish to maximize their utility of satisfaction while firms are assumed to maximize their short-run profits.
Assignment 4
Do you think it is impossible for any economy to grow permanently? Give your arguments.