8. What phenomenon do we observe when speculative profits become too easy?
9. What is the most common measure of inflation?
10. How can we calculate the inflation rate?
11. What do we call the absence of significant changes in the average price level?
12. What do we observe when the demand for goods and services increases faster than production?
Exercise 5. Read and translate the following dialog:
T.: Haven't seen you for a long time. What are you busy with?
D.: I am making preparations for my exam in economics. By the way I know
you are competent in questions concerning inflation. Will you help me to
distinguish the phenomenon of inflation from price increases for specific
goods.
Т.: With pleasure. The first thing you should take into account is that inflation
is an increase in the average level of prices, not a change in any specific
price.
D.: And what about deflation? Have you any idea about it?
T.: Well, deflation occurs when price decreases on some goods and services
outweigh price increases on all others.
D.: Thank you, Tom, there is one more point to be cleared up. What is the
difference between nominal income and real income?
Т.: Nominal income is the amount of money you receive in a particular time
period, and real income, by contrast, is the purchasing power of that money
as measured by the quantity of goods and services your dollars will buy.
D.: I see you are really a specialist in problems connected with inflation.
T.: Thank you for the compliment, but I'd like to draw your attention to the fact
that there are two basic lessons about inflation to be learned: not all prices
rise at the same rate during an inflation and not everyone suffers equally
from inflation.
T.: What do you mean by that?
D.: Typically some prices rise very rapidly, others only modestly and still others
not at all. Those people who consume the goods and services that are rising
faster in price bear a greater burden of inflation; other consumers bear a
lessen burden, or even none at all, depending on how fast the prices rise for
the goods they enjoy.
T.: And do you know anything about the measure of inflation?
Т.: Well, the most common measure of inflation is the Consumer Price Index.
As its name suggests the CPI is a mechanism for measuring changes in the
average price of consumer goods and services.
D.: I'm very much obliged to you for your exhaustive explanation. I think with
you help I'll pass my exam in a good way. Thanks a lot.
Т.: Not at all. Good luck!
D.: Why don't we go to the cafe and have a snack together?