D Vocabulary
Complete each sentence with a word or phrase from the box.
- disrupt
- go on strike
- gross national product
- knock-on effect
- miner
- sharply
- stagflation
- unrest
1.The total value of a country's goods and services consumed in one year is called the ………….
2.If something done affects something else, which then again affects something else, we call this a …..……
3.If people are not happy with their government, there may be political …………….
4.Being a ………. and digging underground to bring out minerals, must be very dangerous.
5.Some people ………. as a way of showing their unhappiness with work conditions or pay.
6.If we have ………., there is a sharp drop in production of some goods causing their price to rise.
7.A fallen tree can ……… the electricity supply to thousands of homes.
8.Prices have risen …….. but unfortunately wages haven't.
Reading 2
Economic shocks
Governments try their best to control economic growth, but there are some things that nobody can control. For example war, political unrest in another country or simply a change in the weather can all affect an economy in unexpected ways. Sometimes the effect of these events will cause a sudden shift in aggregate demand or aggregate supply. This is an economic shock.
The causes of demand-side shocks may be events in the local economy (domestic demand) or events abroad (external demand). An example of domestic demand was when house prices in the UK dropped suddenly in the late 1980s. Because a home is one of the largest assets most people have, homeowners suddenly felt that they were not as wealthy as they had been. As a result, people started to spend less. This had a knock-on effect on the rest of the economy. Aggregate demand fell sharply and the gross national product fell with it.
External demand-side shocks happen when a country relies heavily on exports or on foreign investment. The Great Depression in the 1930s is a classic example of this. At the time of the Great Depression, many countries exported their goods to the USA, and many other countries relied on American money for investments to help their industries grow. When the American economy collapsed, it had disastrous effects for other economies, too.
Supply-side shocks occur when the supply of goods is disrupted. If the commodity is an important raw material for many industries, then the supply from these industries will drop dramatically. When raw materials are in short supply, they become more expensive. This will cause an increase in manufacturers' variable costs. Manufacturers will then have to increase their prices.
Imagine, for example, that miners in the iron industry went on strike. The supply of iron and steel to manufacturers would be disrupted. This would mean a drop in supply of all sorts of goods, from teaspoons to aeroplanes. As you can see from figure 2 below, the sudden drop in supply will cause a shift in the supply curve. As a result, prices rise even though aggregate demand stays the same. This unfortunate situation is called stagflation.
The good news, however, is that sometimes positive supply-side shocks happen. These occur when there is a sudden increase in supply while demand stays the same. This can happen when new technology makes the production of materials or products much easier or more efficient. The result - prices fall and output grows.
E Comprehension
Now read the text again and choose the best way to finish each sentence.
1 An economic shock causes...
A prices to rise.
B a demand or supply shift.
С demand to fall.
2 Demand-side shocks of a domestic nature...
A are caused by events in another country.
В are only caused because of a fall in property prices.
С are caused by events at home.
3 The Great Depression is an example of...
A an external demand-side shock.
В an external supply-side shock.
С a domestic demand-side shock.
4 Supply-side shocks can cause...
A a fall in variable costs.
В an increase in variable costs.
С a fall in fixed costs.
5. Stagflation is when...
A prices fall but output rises.
В prices rise and output rises.
С prices rise and output falls.
6 A positive supply-side shock is when...
A prices fall but output rises.
В prices rise and output rises.
С prices rise and output falls.
Before you listen
Discuss the following with your partner.
An embargo happens when a country stops trading with another. In 1973, there was an embargo on oil. What effects do you think this had on the world's economies?
