Now read the text again and choose the sentence which best summarises each paragraph.

PARAGRAPH 1

Changing interest rates is the most common

type of monetary policy.

Governments never change the amount of

money circulating in the economy.

Changing interest rates increases the amount

of money in the economy.

 

 

PARAGRAPH 2

A The commercial banks set exactly the same

interest rate as the central bank. В The central bank controls all other

commercial banks.

C The central bank influences the interest rates of other banks.

PARAGRAPH 3

A High interest rates are good for the housing market.

B Mortgages are the most common type of loan. C High interest rates are bad for the housing market.

PARAGRAPH 4

A Interest rates influence consumer spending. B In every country the proportion of credit card holders is high.

C Most people borrow money with then credit card.

PARAGRAPH 5

A Businesses invest more when interest rates are low.

B National output drops when interest rates are low.

C Business investment is not affected by interest rates.

PARAGRAPH 6

A How much a country exports affects the interest rate.

B The interest rate can affect exports. C A rise in exports reduces the total national income.

 

Before you listen

Discuss the following with your partner.

Every solution to a problem has its drawbacks. What do you think are the disadvantages of fiscal and monetary policy? Think about:

changes in people's behaviour

length of time policies need to take effect

 

F Listening)))

Now listen and choose the best way to complete each sentence.

1 One problem with macroeconomic policy is that...

A people never do what you want.

В you can never be sure how people will act.

С you can't stop people spending.

 

2 An increase in government spending may make people...

A spend more.

В work harder.

С save more.

 

 

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3 Another problem with macroeconomic policy is that...

A it costs money.

В it takes time.

С it almost never works.

G Speaking

Discuss these questions with your partner.

Do you believe people really think about the interest rate when they decide to save or spend money?

What affect do you think taxes have on the way people work?

 

Task

Give a two-minute talk on monetary policy. First read through text 2 again and make notes below about the following.

the tools of monetary policy that the government can use

how interest rates affect..

- house buying

- consumer spending

- business investment – exports

 

H Writing

Pronunciation guide

Allowance Taxation Circulate Mortgage

Imagine you run a business which has customers at home and abroad. Things are going well, and to make things better, the government has just announced a drop in interest rates. This is a good time to get a loan and invest in your business. Write a letter to your bank manager asking for a business loan.

Formal letter

Use this plan to help you.

INTRODUCTION

Dear Mr/ Mrs /Miss (give a name]. Say briefly why you're writing.

Useful words and phrases:

I am writing to request...

I would be grateful if you could...

PARAGRAPH 1

Explain what your business is. Say how much you want to borrow.

Useful words and phrases:

I run a... company which...

I would like to borrow approximately...

PARAGRAPH 2

Explain why now is a good time to expand: (increasing sales / interest rate cut and its effect on the economy).

Useful words and phrases:

The reason why... I believe this is the right time because...

It would be sensible to take advantage of...

PARAGRAPH 3

Say how you will spend the money.

Useful words and phrases:

I intend to spend the money as follows...

The majority of the money will be needed for...

In addition, some of the funds will be spent on...

PARAGRAPH 4

Ask for details about the loan: How long can you borrow for? What will the interest rate be?

Useful words and phrases:

Could you tell me how...

1 would be grateful if you could let me know...

CONCLUSION

Sign off politely

Useful words and phrases:

I look forward to hearing from you soon... Yours sincerely,

Write about 200 words

 

 

(77)

 

Before you read

Discuss these questions with your partner.

Why do banks charge interest on loans? Why do banks pay interest on savings? How often do interest rates change? Why do you think they change?

 

A Vocabulary

Match the words	and phrases with the
definitions.
1 purse	when there is not enough
	of something
2 cash till	where a store of bank's
	money is kept
form	to make sure
4 willing	an advantage
a plus	E has to
target	F prepared to do
• reserve account	G say formally
8 to ensure	H place in shop where money
	is kept
shortage	I kind (of)
obliged	something you aim to achieve
11 state	К a way to invest money by
	lending it to the government
12 securities	L small bag to keep money in

Reading 1

Interest rates and the money market

Economic growth is a plus, but, like all good things, it's best not to have too much at once. If the economy grows too rapidly, the result can he inflation. Steady growth is best, and governments use fiscal and monetary policy tools to achieve this. For example, they set interest rates in order to control borrowing and investment. However, the government can't just state, today's interest rate is four per cent and expect all the other banks to follow. As usual, things are a bit more complicated!

The interest rate is not really set by the government at all, but by the levels of demand and supply of money in the money market. Imagine that money is like any other commodity, and the price of money is the interest rate. Hanks can charge any interest rate that customers are willing to pay. If there is a limited amount of money available, the suppliers (the banks) will charge a higher price (the Interest rate) as demand for money increases. Demand comes from the public who want to spend money to buy things and from businesses who want to invest money in order to grow. Just like other commodities, demand for money will fall as (he price (interest rate) rises. The interest rate will be set by the market. It will be where the demand and supply curves meet the equilibrium point. You can see this relationship shown in figure 1 on page 78.

 

 

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Also, just like other markets, there can be shifts in the demand and supply curves. When shifts happen, the equilibrium point (the interest rate that is set) changes. This new interest rate may be above or below the government's target. What can they do about it? One thing they can do is to influence the supply of money in the market.

What exactly is the money supply and how can the government influence it? Obviously, the money supply includes all the notes and coins in purses, pockets and cash tills. Some of this money will be money that has been borrowed from banks, so loans form part of the money supply too. The supply also includes money that people and companies have in bank accounts, and the money that banks have in their reserve accounts in the central government bank.

Remember that banks lend most of the money that customers deposit. When customers want to make withdrawals, the bank takes cash from its reserve account with the central government bank. If the commercial bank has a shortage of cash in its reserve account, it is obliged to borrow from the central bank. When a commercial bank borrows from the central bank, it must borrow at the government's rate of interest. This is how the government can influence the interest rate equilibrium point of the market.

However, the government needs to ensure that at the end of each day the commercial banks have a shortage of cash. And, of course, they have ways of doing this!

 

В Comprehension

Now read the text again and decide whether these statements are true or false.

1 When the government sets interest rates, commercial banks must set

the same rate. T/F

2 Interest is the price of money. T/F

3 As interest rates increase, demand

for money falls. T/F

4 The money supply is only all the notes and coins that are in

circulation. T/F

5 Banks lend money, but they never

borrow money. T/F

6 At the end of each day banks usually have less money than

they need. T/F

Before you listen

Discuss the following with your partner.