1979-1987 Flashcards
define Keynesian economics
-a fall in demand for products causes industrial economies to slip into recession
-gov should borrow money and raise revenue streams
-boost will lead to genuine recovery and growth
-companies and firms have money to keep producing
-workers have money in their pockets to spend on goods and services
-gov then taxes companies and workers to recoup initial debt outlay
define interest rates
-high interest rates encourage saving and discourage irresponsible borrowing and spending
-low interest rates encourage spending and borrowing- increase demand
define public spending
gov spending money on services
what did thatcher think post war consensus policies contributed to
-inefficiency and low growth
-undermining of personal responsibility and creation of dependancy culture
-hard working members of society subsiding the work shy
-stifled initiative
what did thatcher want to do
-cut public spending
-reduce gov interference
-reduce gov bureaucracy
-reduce the power of the unions
define free market economics
let the natural economic forces of supply and demand operate with no gov control
what was built on the ideology of monetarism
-economic theory promoted by Milton Friedman
-root cause of inflation is gov spending
-gov therefore need to reduce public expenditure and restrict amount of money in circulation keeping currency value up to avoid prices rising
when were the two monetarist budgets introduced
1979 and 1981
what would controlling the money supply lead to
reduced inflation and economic growth
what happened to the economy by 1980
it plunged into recession
-inflation above 15%
-rising unemployment going above 2mil
-stagflation was back
what saved britain from a severe balance of payments crisis
the flow of the North Sea oil and gas
what did thatcherites believe about gov spending and what did it lead to
that individuals spent their money better than the gov
this led to to shift from direct taxation to indirect taxation
1988, top rate of income ta fell from 83% to 40%
standard rate fell from 33% to 25%
1979, VAT went from 8% to 15%
what were the view point on reducing direct taxation
supporters: it would incentivise wealth creation and allow ppl to keep more of what they earnt
critics: it was less progressive and would hit poor ppl harder
what was the loony left
the name given to the left wing councils that promoted liberal politically correct policies eg. promotion of multicultural initiatives
what was introduced to control overspending of labour local authorities
rate capping- limited the amount the money that the council was allowed to raise in local taxation
what were the reactions to the introduction of rate capping
1985, many authorities including Liverpool tried to rebel against it and refused to set budgets but they had to back down due to a threat of bankruptcy
1986, local gov act abolished the big metropolitan local authorities
Victory in short term against looney left but in long term it damaged local accountability
why did thatcher never manage to cut public spending
bc of spending on social security went up due to high unemployment
describe the demand side and the supply side in the economy
demand- keynesian (post war consensus): needs gov interference
supply- free market: allows market to control itself and individuals to take control
describe companies which privatised
BP in 1979
British Aerospace in 1980
The drive for privatisation gained momentum with the sale of British telecom in 1984
stats for privatisation
1979-1990 individuals owning stocks and shares went up from 3m to 9m
describe beliefs about privatisation
-driven by anti-socialist ideology
-core belief that private sector was more dynamic and efficient than the public sector at running and delivering goods and services
-businesses competing in the marketplace encouraged improvements and innovation
-Outsourcing (where companies take on contracts to deliver goods and services) became increasingly widespread
-life for employees was insecure- some lost jobs- can no longer rely on long term job security
-thatcherites wanted to push further privatisations
what was deregulation
-gov would interfere as little as possible
-removing ‘red tape’ made it easier for businesses to trade- encouraging entrepreneurship and wealth creation
what measures were introduced to encourage start up companies?
loan guarantee scheme- easier to borrow money
allowance scheme- encouraged unemployed to start business by giving £40 a week for a year
how did deregulation effect britain
-restored Londons position as a world financial centre- bigger risks taken led to bigger fortunes made
-financial services were UK’s most important export industries
-productivity didn’t increase much (2.2%) growth in GDP during 1980’s no better than in the 1970’s
what are the aims of interest rates
to control inflation
what actions were taken to control inflation
inflation at 17% in 1979
Increased the value of the pound
what were the effects of interest rates
-more expensive for businesses to borrow
-more difficult for businesses to export
-decline in output and demand
-many businesses went bankrupt leading to unemployment
-1980, inflation at22%
1986, inflations at 2.5%
what were the aims of unemployment
to no longer worry about it
to make the british industry more competitive
controlling inflation was more important than controlling unemployment
what actions were taken in relation to unemployment
many industrial plants closed permanently
youth employment schemes (employers to take on young ppl)
employer national insurance rates reduced for lower paid jobs
what were the effects of unemployment
-manufacturing output fell by 15% in 2yrs
-steel production cut by 30% to less than 14m tons
-1983, unemployment over 3m (13.5% of total workforce)- didn’t fall until 1987
-areas dependant on heavy industry, the employment rate went up by 25%
-workers found that traditional skills were not in demand as they were rendered out of date
