The economy

What drives the world economy? The simplest answer to Consumer confidence
this question is 'consumer spending'. And what drives If consumers are confident about tomorrow they will spend
consumer spending? Some combination of the factors below more. The main factors affecting consumer confidence are
is generally considered to provide a reasonable answer. the level of unemployment - if people's jobs are at risk, or
they don't have a job, they will spend less - and house prices
GDP growth for different countries
- if people's houses are worth more than they paid for them,
Gross domestic product (GDP) measures the size of a they feel rich and will spend more freely.
country's economy. It represents the total value of all goods
and services produced over a specific time period. Growth in lnterest rates
GDP is one of the primary indicators used to gauge Interest rates are set by Central Banks. When interest rates
(= measure) the health of a country's economy. Usually, GDP
are low, consumers and businesses can borrow money
is expressed as a comparison to ihe previous quarter or year. cheaply and there is a stimulus to the economy. But the
cheap credit also causes inflaiion and too much liquidity in
Government trade policy
the system. This liquidiiy leads to bubbles in stock markets,
The two poles of government policy are liberalization and housing markets, etc. When the Central Bank sees the need
protectionism. to control inflation and cool growth a little, it raises interest
'Liberalization'is associated with free markets, open rates.
borders, deregulation and the free movement of capital
around the world. Exchange rates
'Protectionism' is associated with government Currencies fluctuate against each other: the euro against the
intervention, subsidies, quotas and tariffs, and restrictions doliał the yen against ihe yuan' This is due to many complex
on the movement of capital. factors such as the underlying strength of the economy,
National governments do have some genuine choices here, interest rate differentials and speculaiion. Having a strong
even if they are constrained by the policy of their regional currency makes imports cheap for domestic consumers, but
trading bioc (eg the EU, NAFTA, ASEAN). In the end most hurts exporters (whose products become more expensive
countries have a mixed economy which is somewhere overseas).
between the two extremes.
The business cycle
Generally speaking, free markets promote growth in the
world economy, and protected markets slow down the Economies go through cycles of growth and contraction
(= slowdown). This is covered in unit 2.
process (although they may have a beneficial effect on
particular industries inside a country).

Effects of glohalization

Economic Financial Political lnformational Cultural Ecological

Worldwide supply Worldwide Closer Rapid flow of C ross-cultura I Global
chains, markets financial markets; relationships information contacts; travel environmental
and products easier access to between across the globe and tourism; challenges
external financing governments immigration; needing
access to foreign international
products and co-operation
ideas

Arguments in favour of globalization Arguments against globalization

General prosperity; lower prices, more employment, lnequality of wealth within nations - not much 'trickle
higher standard of living. down effect' (when financial benefits are passed down
a lncreased opportunity and social / personal mobility. from big business to consumers and ordinary people).
a lmprovements for poor countries: life expectancy, infant Human costs: injustice due to increased power of local
mortality, literacy, participation o{ women in society. elites, erosion of traditional cultures.
Environmental damage.
 T THE ECONOMY

Exercises
'l .'! Find a word in the text opposite that matches each X.4 Read the article about the US economy, then answer
definition below. The words appear in order. the questions below. Check any unknown words in a
1 makes something work; provides the power for something dictionary.

2 removing the rules and laws that control business activity I I anufacturino in the US slowed more than forecast
lVl i. october as factories received tewer orders and
3 money that the government pays to support industries or production contracted, an industry report showed today.
reduce the cost of products Manufacturing is on the verge of stalling as the deepening
4 official limits on the amount of something housing slump weakens demand for construction equipment,
furniture and appliances. But, on a more positive note, the
E
J taxes on goods coming into a country weaker dollar is boosting exports and helping companies
6 limited, restricted that do much of their business overseas.
1 the amount of money in circulation These figures make it clear why the Fed cut interest
8 periods of time when people pay more than the real value rates by a quarter point last week. ln their statement, Fed
of something; balls of air in a liquid policy makers said that, 'the outlook for the economy is
with an important effect, but one that isn't easy to notice unceńain, even after solid growth last quarter.'They added
that, 'upside risks to in{lation roughly balance the downside
10 (format) the degree of difference between things risks to growth.'

Find a word in the text that means:

Now do the same for the words in 'Effects of
global ization' opposite.
1 (five words) nearly stopping in its progress

11 when people have money and everything they need for a

2 period when something is much less successful than before
qood life
the ability to read and write
12
3 helping something to increase
t.g Make phrases by matching an item from each column. 4 (short form,) (sn1161 Bank of the USA
5 approximal,ely
1 consumer
\ movement of capital
2 f ree and contraction See page 146 tor some discussion topics.
5 growth borders
4 life spending
) open
E
of living
6 standard expectancy

7 environmental rates
8 goods strength
9 interest and services
O
'l
cheap mobility
11 social damage
12 underlying credit

1.B Use phrases łrom'l.2 to complete the sentences

Ęż
below. The phrases are not in order.
I The economy will grow if ro:r5r'1'cr :pt :r i:r3 rs rising.
2 Consumers and businesses can take on too much debt if
there is easy access to
3 Economic Arowth brings material comforts, but also higher
prices for the basic necessities of life. ln other words, your
-..... goes up, but so does your
cost of living.
4 Economies go through cycles of
(= boom and bust).
5 The main tool available to a Central Bank is its ability to set
.MAF,sł
AcocEtlA
6 Over the long term, exchange rates depend on the
"This isn'tJbr ne-ił'-rfor tfu acanom1
,-. of the economy.

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