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UNIT 3 Expansion and ContractionСтр 1 из 15Следующая ⇒
UNIT 3 Expansion and Contraction Section 1 Economic Cycle
Lead in All market economies have periods when consumption - spending on goods and services - rises. Consumers buy more, companies invest more, and production, income, profits and employment increase. These periods are always followed by periods when spending and investment fall, and unemployment rises. This is the economic cycle. The term " economic cycle " (or business cycle or boom-bust cycle) refers to economy-wide fluctuations in production, trade, and general economic activity. From a conceptual perspective, the business cycle is the upward and downward movements of levels of GDP (gross domestic product) and refers to the period of expansions and contractions of economic activities (business fluctuations) around a long-term growth trend. In many ways, the term “business cycle” is misleading. “Cycle” seems to imply that there is some regularity in the timing and duration of upswings and downswings in economic activity. Most economists, however, do not think there is. History shows *, expansions and recessions occur at irregular intervals and last for varying lengths of time. For example, there were three recessions between 1973 and 1982, but, then the 1982 trough was followed by eight years of uninterrupted expansion. The 1980 recession lasted just six months, while the 1981 recession lasted sixteen months. For describing the swings in economic activity, therefore, many modern economists prefer the term “short-run economic fluctuations” to “business cycle.” There are four phases that describe the business cycle. Here are some characteristics to watch in each phase of the business cycle: 1. Expansion: Many economic indicators, including GDP, employment, and incomes, are on the rise; corporate profits are rapidly expanding; and, monetary policy is still generally focused on providing stimulus for economic growth. 2. Peak: Corporate profits appear to be peaking; inventories and sales are growing in tandem; credit growth remains strong; policymakers are relatively neutral on taking any action; and, economic indicators are peaking. 3. Contraction: Economic indicators point to falling activity; credit becomes largely unavailable; corporate profits decline; monetary policy shifts towards easing rather than contraction; and, inventories and sales fall. 4. Trough: Economic indicators are relatively sideways; credit is still hardly available; corporate profits level off; monetary policy remains in easing mode; and, inventories begin to move towards lower levels. A period during which economic activity increases and the economy is expanding is an upturn or upswing. If it lasts a long time, it is called a boom. The highest point of the business cycle is a peak, which is followed by a downturn, during which the amount of economic activity decreases. If the economy keeps contracting for more than six months, the downswing is called a recession. A serious, long-lasting recession is called a depression or a slump. The lowest point of the business cycle is a trough, which is followed by a recovery, when economic activity increases again, and a new cycle begins. NOTE: A downturn is also called a downswing or a period of contraction; a recovery is also called an upturn, an upswing or a period of expansion. What Causes the Business Cycle? The business cycle is mainly affected by all the forces of supply and demand. In addition to demand, the business cycle is also heavily dependent on the availability of capital. This is known as liquidity, and is itself dependent upon interest rates. When consumers are confident, they buy now because they know there will be future income from better jobs, higher home values and increasing stock prices. Even a little healthy inflation** can trigger demand by spurring shoppers to buy now before prices go up. As demand increases, businesses hire new workers, which further stimulates more demand. This is the expansion phase.
If demand outstrips supply, then the economy can overheat. In addition, investors and businesses compete to outperform the market, taking on more risk to gain some extra return. This combination of excess demand, and the creation of risky derivatives, created the housing asset bubble in 2005. If demand isn't cooled down with higher taxes (fiscal policy) or higher interest rates (monetary policy), then the peak is not far off. You can always recognize a peak by two things: first, the media is saying that the expansion will never end. Second, it seems everyone and his brother is making tons of money from whatever the asset bubble is. In the contraction phase, confidence is replaced by fear or even panic. Investors sell stocks, and buy bonds, gold and the U.S. dollar. Consumers lose their jobs, sell their homes, and stop buying anything but necessities. Businesses lay off workers, and hoard cash. Confidence must be restored for the economy to enter a new expansion phase.
NOTE:
1)history shows*-(зд.) согласно ранее полученным данным, предшествующий опыт показывает; historical statistics - статистические данные за определенный период в прошлом 2) a little healthy inflation**- при появлении первых признаков регулируемой инфляции 1. Read and translate the text. Answer the following questions: a) Gordon Brown's promise to free Britain from the economic cycle was music to everyone's ears. Why? b) What does human nature have to do with business cycles? c) What causes the "boom and bust" cycle? d) Why do you think the economic cycle forecast is of vital importance? Boom and Bust Not that long after taking office as Chancellor of the Exchequer, Gordon Brown said in a number of speeches that he intended to free Britain from the old cycle of ‘boom and bust’. It was music to everyone’s ears. Britain had endured an unpleasant series of slumps, brought about by an overheating economy. Its citizens were ready to forgo a bit of boom if it meant not stomaching a bust. Little more than a decade later Gordon Brown, now Prime Minister, had stopped repeating the mantra. The economy was sliding towards a recession and its worst housing slump in living memory, if not ever. Most embarrassingly of all, the downturn was worse than that created by his political rivals, the Conservatives, when they had been in office. Leaving aside Brown’s blushes, one thing was clear: reports of the business cycle’s demise had been all too premature. Economies by their very nature are prone to cycles of boom and bust: markets swing from confidence to pessimism and consumers from greed to fear. What controls these variables is not altogether understood because they are subject to the whims of human nature. And as Brown’s experiences showed, attempts to tame the cycle have tended to fail dismally. In theory, there ought to be an optimum level of economic activity at which a country could remain indefinitely. This is referred to as full employment; all the elements of production in an economy would be used to their optimum capacity. As such, inflation would not need to rise and the economy could grow at a consistent rate. In practice, however, this optimal point has never been reached. Cycles of various sorts have occurred throughout history. The Bible, for example, refers to periods of plenty succeeded by years of famine. The same rhythm applies to the sophisticated high-technology economies of the 21st century. All major economies - the United States included - suffer these major swings in economic activity, which were first officially documented in 1946 by Arthur Burns and Wesley Mitchell. The growth trend. Every economy has a ‘ trend’ growth rate - the speed at which the economy has tended to grow over recent decades. For the US in recent years this trend growth rate has been around 3 per cent, while in the UK and much of Europe it has been slightly lower at around 2.5 per cent, meaning that they have expanded at a slower rate. The business cycle (often called the economic cycle) is simply a fluctuation of economic activity above or below that growth rate. The difference between the two is known as the output gap. An economic cycle covers the time it takes for an economy to go through a boom, into a bust, and back to trend again. At the peak, an economy can grow very fast indeed, but often this expansion is short-lived, giving way to a fall - i.e. the economy contracts. If the economy contracts for two successive quarters, it is technically in recession. This goes hand in hand with higher unemployment and falling profits among companies. Why cycle? There are a number of explanations for cycles, though in truth none is as convincing as the fundamental fact that human beings are emotional creatures, and can swing very quickly from optimism to pessimism and vice versa. One explanation involves monetary policy: changes in interest rates, whether by private banks or central banks, have the knock-on effect of either speeding up or slowing down the economy’s growth, as well as inflation and unemployment. Another technical explanation revolves around the rate at which companies build up inventories - their hoards of unsold products. They tend to overstock these when growth is strong, since they expect the boom to continue, and to deplete them when the economy shrinks. In both cases, this makes the swings more violent than they ought to be.
Human experience is also an important factor. Some say that the seeds of a financial crisis are sown the year when the last banker who lived through the previous crisis retires. In other words, the more people forget the harsh consequences of a bust, the greater becomes the likelihood of similar mistakes being made again, generating another bubble. In addition, unexpected events cause the economy to reel from one cycle to another. Clearly, few people expected the credit crisis that began in 2007 nor the collapse in oil prices a year later. The two together turned a downturn into a global recession. Perhaps the economy would behave more predictably without such shocks. Others suspect that politicians are partly to blame, since they sometimes allow booms to get out of control in order to capitalize on the ‘feel-good factor’ generated by, for instance, soaring profits, rising house prices and high employment. They follow pro-cyclical policies - puffing air into the bubble - rather than counter-cyclical policies aimed at deflating bubbles gently before they explode.
Yes, we have no bananas
Where does that leave us today? Most economists dismiss the likelihood of a 1930s-style depression or a repeat of Japan in the 1990s, because policymakers are unlikely to repeat the mistakes of the past. In the Great Depression, the Fed let hundreds of banks fail and the money supply shrink by one-third, while the government tried to balance its budget by cutting spending and raising taxes. America's monetary and fiscal easing this time has been more aggressive than Japan's in the 1990s. Undoubtedly, policymakers will not make the same mistakes as in the 1930s, but they may make new ones. Afterword: In 1978 Alfred Kahn, one of Jimmy Carter's economic advisers, was chided by the President for scaring people by warning of a looming depression. Mr Kahn, in his next speech, simply replaced the offending word, saying “We're in danger of having the worst banana in 45 years.” America's economy once again has a distinct whiff of bananas.
NOTE:
1) with GDP falling by around 30% between 1929 and 1933. *history shows*- так как ВВП сократился примерно на 30% за период с 1929 по 1933 год 2) higher government spending ** - рост государственных расходов lower interest rates** - снижение процентных ставок Прилагательные в сравнительной степени, выступающие в качестве определений, чаще всего переводятся существительными, определяемое существительное ставится в родительном падеже. 3) when countries were on the gold standard *** - когда национальные валюты были "привязаны" к золотому стандарту... Verbs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| to advance to firm to be firm to be firmer |  повышаться, расти незначительно
| to gain to be a little stronger to be slightly stronger | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Large upward movement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Verbs Nouns | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| to jump to soar to leap to strengthen to rocket to surge to shoot up to take off to skyrocket |  резко повышаться, резко возрастать
| a jump a leap | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Verbs Nouns | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| to dip to lower to decline to slide to drift down to ease to weaken to slip or slip back to be or come under pressure | замедляться (о темпах роста),
 ослабевать, уменьшаться, сокращаться/ падать незначительно
| a decline a slide | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Large downward movement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Verbs Nouns | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| to crash to dive to skid to sink to drop to slump to plummet to fall sharply to go south to go or fall through the floor to plunge to tumble |  резко падать, сокращаться, уменьшаться, рухнуть, обвалиться
| a crash a dive a drop a plunge to suffer a drop or a setback to take a beating or a knock to take a tumble | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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No change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Verbs: быть неизменным, не меняться | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| to be or remain steady or stable to be flat to level off to stagnate to stabilize to be or remain unchanged | 
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Vocabulary practice
Lead in
Macroeconomic indicators are statistics that indicate the current status of the economy of a state depending on a particular area of the economy (industry, labor market, trade, etc.). They are published regularly at a certain time by governmental agencies and the private sector.
These statistics help to monitor the economy's pulse; thus it is not surprising that these are religiously followed by almost everyone in the financial markets. After publication of these indicators we can observe volatility of the market. The degree of volatility is determined depending on the importance of an indicator. That is why it is important to understand which indicator is important and what it represents.
1) Interest rates play the most important role in moving the prices of currencies in the foreign exchange market. As the institutions that set interest rates, central banks are therefore the most influential actors. Interest rates dictate flows of investment. Since currencies are the representations of a country’s economy, differences in interest rates affect the relative worth of currencies in relation to one another. When central banks change interest rates they cause the forex market to experience movement and volatility.
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2) GDP is the broadest measure of a country's economy, and it represents the total market value of all goods and services produced in a country during a given year. Since the GDP figure itself is often considered a lagging indicator, most traders focus on the two reports that are issued in the months before the final GDP figures: the advance report and the preliminary report. Significant revisions between these reports can cause considerable volatility.
3) the Consumer Price Index (CPI) is probably the most crucial indicator of inflation. It represents changes in the level of retail prices for the basic consumer basket. Inflation is tied directly to the purchasing power of a currency within its borders and affects its standing on the international markets. If the economy develops in normal conditions, the increase in CPI can lead to an increase in basic interest rates. This, in turn, leads to an increase in the attractiveness of a currency.
4) Employment indicators reflect the overall health of an economy or business cycle. In order to understand how an economy is functioning, it is important to know how many jobs are being created or destructed, what percentage of the work force is actively working, and how many new people are claiming unemployment. For inflation measurement, it is also important to monitor the speed at which wages are growing.
5) the Retail sales indicator is released on a monthly basis. It shows the overall strength of consumer spending and the success of retail stores. The report is particularly useful because it is a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables. It can be used to predict the performance of more important lagging indicators, and to assess the immediate direction of an economy.
6) the Balance of Payments represents the ratio between the amount of payments received from abroad and the amount of payments going abroad. In other words, it shows the total foreign trade operations, trade balance, and balance between export and import, transfer payments. If coming payment exceeds payments to other countries and international organizations the balance of payments is positive. The trade surplus is a favorable factor for growth of the national currency.
7) Stabilization of the economy (e.g., full employment, control of inflation, and an equitable balance of payments) is one of the goals that governments attempt to achieve through manipulation of fiscal and monetary policies. Fiscal policy relates to taxes and expenditures, monetary policy to financial markets and the supply of credit, money, and other financial assets.
Conclusion: There are many economic indicators, and even more private reports that can be used to evaluate the fundamentals of the stock market. It's important to take the time to not only look at the numbers, but also understand what they mean and how they affect a nation's economy.
| volatility | неустойчивость(изменчивость) цен |
| foreign exchange market(forex market, fx) | валютный рынок |
| basic consumer basket | базовая потребительская корзина |
| purchasing power of a currency | покупательная способность валюты: сумма товаров и услуг, которую можно приобрести на одну денежную единицу по сравнению с базовым периодом |
| overall health of an economy | общее состояние экономики |
| balance of payments | платежный баланс, счета внешнеэкономической деятельности: система счетов, отражающая стоимостное выражение всех внешнеэкономических операций страны за определенный период времени |
| trade surplus | активное сальдо торгового баланса ("сальдо", как правило, используется в значении "активное сальдо") |
| fundamentals | основные показатели |
NOTE:
1)OECD *- Organization for Economic Cooperation and Development- Организация экономического сотрудничества и развития (ОЭСР)
2) Conference Board** -National Industrial Conference Board (NICB) - Совет национальной промышленной конференции: организация, созданная в 1916 г. для сбора и распространения информации, имеющей важное значение для бизнеса и промышленности (США).
Section 3 Inflation
1. Notable Quotable. Comment on the following:
" Inflation might be called prosperity with high blood pressure". Arnold Glasgow
Economic policy must adapt
Inflation used to be the curse of the world economy for quite a long while. Today most economies no longer struggle with runaway prices; instead they find inflation to be too low. A decade of interest rates at near-bottom level has not changed that. Nor has the printing of money by central banks in America, euro zone, Britain and Japan. Nor have the lowest in decades unemployment rates.
This shift in the inflation landscape reflects the ups and downs of economic policy. The advent of inflation-targeting central banks since the 1990s has gradually immunised economies, but policymakers seem to be unable to stop inflation falling short of their targets. Anchored inflation expectations, technological change and the flow of capital across borders have made inflation a less meaningful economic indicator. Banks are finding inflation targets hard to hit. Moreover, constraints on monetary policy mean that the risk of inflation shortfalls is larger than that of excessive price rises. New ways to adapt economic policy to this new world have to be found.
The rich world conquered price surge by the late 1990s as governments made central banks independent and gave them inflation targets. When oil prices crashed in 2014, inflation over 2% was a rare case. In emerging markets it is higher, but the direction of change is the same. For two decades now economists have been talking of an era of “ global disinflation ”.
Low inflation defies the classical inverse relationship between inflation and unemployment. In most developed countries a record proportion of population has jobs. According to economic models a “jobs boom” should have brought a pricerise, but it has not.
Inflation below target is by far a better problem than runaway prices, but it poses problems. Central banks that miss their inflation targets lose credibility. Low inflation causes lenders to profit and borrowers to suffer, as debts do not shrink as fast as they were expected to when loans were agreed.
Why is that? Some argue that governments have lost the ability to boost prices, which is not true. If it were, they could cut taxes to zero, boost spending, print money to finance the resulting deficits and never see an inflationary downside. Governments can always debase their currencies, as high inflation in Argentina and Turkey shows.
In fact, inflation has become harder to regulate as economies have changed in ways that are not yet understood. Monetary policy must adapt to rely less on classical models and take a longer-term view. And while central banks are challenged by low rates, fighting low inflation falls increasingly to fiscal policy. The case for reform rests first on an understanding of where economic models have gone wrong.
https://www.economist.com/special-report/2019/10/10/inflation-is-losing-its-meaning-as-an-economic-indicator
| inflation growth | рост уровня инфляции |
| rising inflation | растущая инфляция |
| to regulate inflation | контролировать/ регулировать уровень инфляцию |
| inflation targets to hit inflation targets to miss inflation targets (Syn.) to fall short of inflation targets | целевые показатели уровня инфляции достичь/ добиться контрольных показателей инфляции не достичь контрольных показателей инфляции |
| inflation below target | уровень инфляции ниже запланированного |
| inflation-targeting central banks | центральные банки, регулирующие инфляцию |
| an inflationary downside | инфляционный спад |
| the risk of inflation shortfalls | риск падения уровня инфляции |
| inflation landscape a shift in the inflation landscape | инфляционная ситуация изменение уровня инфляции |
| global disinflation | мировая/ глобальная дефляция |
| inflation expectations anchored inflation expectations | инфляционные ожидания устойчивые инфляционные ожидания |
| to debase a currency | обесценивать валюту |
| runaway prices | стремительно растущие цены |
Section 4 Unemployment
1. Notable Quotable. Comment on the following:
If one works to live, one has something worth working for. If one lives to work, hopefully one does not get fired. Siam Luu
Superheroes need not apply
There is an old Army joke about a sergeant who asks his soldiersif any of them are interested in music. When four hands go up, the sergeant says “Right, lads. You now carry this grand piano to the officers’ mess.”
Job recruitment has become more sophisticated since that story was first told. Today’s careers require a lot more than just muscle which sometimes makes jobs hard to define. The unfortunate result is a form of “adjective inflation” in recruitment ads as employers attempt to make routine tasks sound exciting.
Candidates must sometimes wonder whether they are applying for a nine-to-five role or to become part of the Marvel “Avengers” franchise. On Indeed, a recruitment website, a cocktail bar was recently looking for “bartenders who are client-focused, quality-driven, and have Superhero hospitality powers”. However, the ability to give customers the correct change was not mentioned.
Another British company advertised for “a call-centre Ninja, a superhero in people”, a job description which sounds a little over-the-top for what was in fact a role at an insurance broker in Isleworth. In case you think that advertisement was a misstatement, Indeed it featured jobs for “a black-belt prioritisation ninja”, and another demanding a “ninja-like attention to detail”. Short of turning up for the interview dressed head-to-toe in black, it is hard to see how candidates could demonstrate their ninja-ness.
Not all companies require candidates to possess the qualities of a Japanese warrior, of course. Some, in an echo of the 1960s slogan, “make love, not war”, require applicants to be passionate. A shopping mall in south-east England was looking for “passionate sales-driven brand ambassadors”, while “passionate crew members” were needed at a bakery in west London for a wage of just £8.23 ($10.32) an hour.
Of course, a Brit can be passionate about his wife or the fortunes of England’s sports teams, but when it comes to work, passion may not always be the most appropriate emotion. Would patients prefer a “passionate” surgeon or one renowned for keeping a cool head? As emotions go, pride in one’s seems important, as does a degree of empathy for colleagues, customers or patients, depending on what you do. In any case, passion is pretty hard to maintain consistently 40 hours a week, month after month.
In certain jobs, particularly in the caring professions, people’s devout belief in the social usefulness of their role persuades them to put up with long hours and low pay. But selling bread or shoes is not one of them. Instead of talking about passion, employers should rather be asking for enthusiasm. Workers may not learn to love their jobs, but with the right attitude, they can get enjoyment from the simple act of performing their task well. As well as keeping employees content, this ought to be enough for most bosses.
Another newish management mantra is “bring your whole self to work”. This slogan seems well intentioned. Workers should not have to suppress their personalities. They should not hide the fact that they have extra workload at home, like caring for small children or elderly relatives. But it is easy to see how the slogan can be turned into the idea that workers should give 100% commitment at all times. That is asking too much. It is great when people enjoy their work but the fact is a lot of people are doing their jobs to pay the bills, and dreaming of the few weeks in the year when they can take a holiday. They may have hobbies and interests outside work, but the word “outside” is key. Those are the moments when the company has no claim on its employees. Workers should be allowed to leave parts of themselves at home.
Job applicants should keep away from dubious advertisements that some companies place. Think of it as a first date. If the other person started talking of marriage and how many children you will have together, you might avoid seeing them a second time. So if a job advert talks about passion or superheroes, run away faster than a speeding Batmobile. Being a ninja should be reserved for teenage mutant turtles.
https://www.economist.com/business/2019/07/11/the-absurd-language-used-by-job-adverts
| career(s) | карьера, работа, профессиональная деятельность |
| Job recruitment | найм персонала, прием на работу |
| advertise for | давать объявление о поиске (специалиста) |
| to feature jobs for | размещать (на видном месте) вакансии для |
| a nine-to-five role | работа с 9 до 5 |
| client-focused | ориентированный на клиента |
| quality-driven sales-driven | работающий качественно ориентированный на повышение объема продаж |
| prioritisation | умение определять приоритеты |
| performance | (зд) успехи, результаты, производительность |
| to perform tasks well | справляться с поставленными задачами |
| extra workload | дополнительная нагрузка |
| to have a claim on smb | требовать что-либо от кого-либо |
Any Hope for Recovery
Which economy has been hit hardest by the global slump? Based on industrial production, Taiwan has suffered much the biggest shock. Output fell by 32% in the 12 months to December. Several economists are now forecasting that Taiwan’s GDP will contract by 3% or more this year, which would be the steepest downturn in Taiwan’s history.
Taiwan is one of the world’s most export-dependent economies, making many high-tech gadgets for Western consumers, so it has been battered by the slump in global demand.
Falling exports have, in turn, squeezed domestic spending. Unemployment rose to a six-year high of 5% in December, and the true picture may be far bleaker.
To prop up the economy, the central bank has cut interest rates six times since September, to 1.5%.
In the longer term, improved ties with China will benefit the economy. For now, however, Taiwan’s frightful economic news is more likely to encourage households to save rather than spend.
UNIT 3 Expansion and Contraction
