Complete the statements.

1. Investors can make deposits with banks at … interest rates than with investment companies.

2. Treasury bills are ….

3. The length of time before a bond becomes repayable is called ….

4. The value written on bills is called ….

5. A short-term unsecured loan issued by major companies is ….

6. A financial contract, which is a combination of two transactions, is a ….

7. A treasure bill is safe because it ….

8. Most money market securities are sold at ….

5. Put the words in the correct order to make statements.

1 long-term a dealer for tries buyer to find a securities.

2 are … banks.. by… to… them … large… they …depositors… who… markets …issued… can… then… trade… in …the short-term …money.

3 can …flows …they… also ….irregular…. with …cash … more… cheaply… deal.

4 any … bank… could …to invest… wants… that …money …a… depositors ….withdraw …at… time.

5 into… can …short-term… by… borrowers...turning ….liquidity… assets cash… find.

______________

Text C

Pre-reading task:

Think and discuss.

· What do you know about inflation?

· Can you name some reasons that can cause inflation?

· What is the best way to overcome inflation?

What Is Inflation?

No word strikes more fear into the hearts of central bankers than inflation. Defined as a general increase in prices or as a decrease in money's purchasing power, inflation creates problems not only for central banks. Inflation affects everyone in the economy. Governments, businesses, and households are subject to inflation's influence. Inflation is either created by excessive demand or increases in producers' per unit costs, but it is sustained by too much money in circulation. Left unchecked, inflation can have cataclysmic results for a society.

There are two main types of inflation: demand-pull and cost-push. These types of inflation are not mutually exclusive, so it is possible for both to occur simultaneously. Left untreated, inflation can cause a wage-price spiral or even hyperinflation.

Demand-pull inflation occurs when spending on goods and services drives up prices. Demand-pull inflation is fueled by income, so efforts to stop it involve reducing consumer's income or giving consumers more incentive to save than to spend.

Demand-pull inflation persists if the public or foreign sector reinforces it. A failure of the central bank to reign in the money supply also makes the demand-pull inflation worse.

This type of inflation can spread across borders as well. China and India's economic growth not only puts pressure on prices in these countries but also on prices worldwide as the demand for imports increases.

If government spending is financed by printing currency or by the central bank monetizing the debt, demand-pull inflation can become hyperinflation. Hyperinflation is defined as annual inflation of 100% or greater.

Cost-push inflation occurs when the price of inputs increases. Businesses must acquire raw materials, labour, energy, and capital to operate. If the price of these were to rise, it would reduce the ability of producers to generate output because their unit cost of production had increased. If these increases in production cost are relatively large, the effect is to simultaneously create higher inflation, reduce real GDP, and increase the unemployment rate. You might recognize this combination by another name, stagflation.

Cost-push inflation is associated with decreases in GDP. The decreased GDP and resulting high unemployment help to bring producer prices back down. To combat cost-push inflation is to realize that it is not demand-pull. The policy prescription for each is different, and applying the wrong prescription can create more problems than it solves. It is the unemployment issue that usually spurs policymakers to action.

If they respond to the increased unemployment by increasing spending, the inflation problem can become worse. A wage-price spiral can result in more demand for goods and services at the same time that unit costs are rising.

Notes: to reign in the money supply- контролювати грошову масу

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