Ex 5. Answer the questions

1. What economic phenomena may have negative consequences for the economy? What do they imply?

2. What is called the situation when there is no inflation or deflation?

3. Why is it important to differentiate between movements in prices of any individual good or service and movements in the general price level?

4. How can stability in the general price level go in line with substantial changes in individual prices?

5. How can inflation be measured? Why measure it?

6. What is “market basket”?

7. What is CPI? How it is calculated?

8. How is the annual rate of inflation calculated?

9. What is implied in ”average consumption pattern”? who is an “average customer”?

Ex 6. Find in the text the words and expressions that characterize or name:

1) the situation when prices neither increase nor decline

2) the purchasing patterns of consumers

3) the overall price changes faces by each individual consumer

4) a means for giving a general picture of what is happening to many prices

Ex 7. Comment on the following:

1. Frequent changes in individual prices are quite normal in market-based economies, even if there is price stability overall.

2. The inflation measured by the index (CPI) is only an approximate measure of the average situation in the economy.

3. The price index may rise despite some prices actually declining.

Text B

The information given in the previous text explains why inflation and deflation are generally undesirable phenomena.

Indeed, there are substantial disadvantages and costs related to inflation and deflation. Price stability prevents these costs from arising and brings about important benefits for all citizens. There are several ways in which price stability helps to achieve high levels of economic welfare, e. g. in the form of high employment.