1b: Responding to economic challenges

Question 1

outline the economic overview between 1920-21

Answer 1

• after a brief post war boom, a devastating economic slump led to a huge increase in unemployment and poverty from 1920-21

Question 2

where were the hardest hit areas in britain

Answer 2

the hardest hit areas were the regions associated with heavy industry, the south Wales coal fields, the shipyards of Tyne and Clydeside and the mining areas of northern England

Question 3

how did areas associated with heavy industry suffer more than the rest of the country

Answer 3

during the 1930s the depressed regions suffered disproportionately to the rest of the country . The National Unemployed Workers’ Movement organised several hunger marches, protesting against poverty and the means test

Question 4

in more affluent parts if the country the 1930s were a time of ?

Answer 4

• in more affluent parts if the country the 1930s were a time of growing living standards, jobs and consumer goods

Question 5

outline the major parties approach to the economy in the post war period

Answer 5

• the Labour party wished to continue government intervention in the economy after the war and pursued a policy of nationalisation
• during the same period both Labour and Conservative parties had a broad agreement over the management of the economy, with a commitment to full employment, nationalisation and tolerance for a degree of price inflation

Question 6

what enabled an increase in consumer spending in the 50s

Answer 6

• the 1950s saw a relaxation in consumer credit and an increase in new products available to buy, leading to a dramatic increase in consumer spending

Question 7

what were signs of the consensus being challenged

Answer 7

• in the late 1950s the first sign that the consensus on the economy was being challenged came from within the Conservative Party senior treasury ministers resigned, arguing that Macmillan should adopt monetarist policies

Question 8

summarise what was happening with inflation and the impact on unemployment throughout the 1960s

Answer 8

• throughout the 1960s inflation began to gradually increase and by 1970s so did unemployment

Question 9

harold wilson and the economy

Answer 9

• Harold Wilson’s attempt to modernise the British Economy were undermined by his high spending plans, his refusal to devalue the pound and relative economic decline

Question 10

britains economic status after ww1

Answer 10

emerged from the war economically damaged for many reasons

• war lasted longer than they thought and commanded more resources as a result

industries forced to switch to war production instead of supplying export markets

• by 1918 lost >3/4m men which impacts on production
• total financial cost was £3.25b

Question 11

what percent of ships did german u boats sink and how did this affect income

Answer 11

had been cut off from valuable export markets by German U-boats; sank 40% of our merchant shipping, in 1914 exports were 1/3 of income but by 1918 only 1/5

Question 12

debt after ww1

Answer 12

by 1920 total debt was £8b, budget was £800m and £300m went straight on paying off debts

Question 13

income tax rose by how much in 1924

Answer 13

• 1908 standard rate of income tax was 5% but rose to 25% by 1924

Question 14

summarise the short lived boom, 1918-20

Answer 14

• lack of wartime restrictions meant everyone started buying; war meant that many had accumulated considerable savings in cash and bonds
• throughout 1919 consumers and businesses spent their savings; individuals buying items like coffee, soap and cigarettes and businesses bought and sold stocks/shares
• amount of shares issues: 1918=£65m by 1920=£384m
• investors bought old industries: shipyards, cotton mills, coal mines; poor investment choices as the monopoly that GB once had prewar had vanished due to new competitors, USA, Japan, South America; industries outdated and had received little wartime investment
• 1919 there was a surplus of ships
• wartime industries returning to civillian use couldn’t keep up with demand; goods in short supply were expensive which meant demand declines and the boom ended

Question 15

summarise the effects of the 1920-21 recession ->

unemployment levels
cost of living

Answer 15

unemployment levels u to 12%;by 1921 2 million workers unemployed; areas such as south Wales and Tyneside effected the worst as old industries collapsed

• crisis in coal industry led to a wave of strike action
• cost of living increased by 25%, 1918-20; wages stagnated

Question 16

-recession was caused by

Answer 16

• deflation:
  
  • loss of export trade:
  • underinvestment

Question 17

-recession was caused by

deflation

Answer 17

government cut spending by 75% 1918-20; bank of england raised interest rates to 7% (expensive to borrow); drained available money to spend on the economy; by end of the decade debt had rose from 120% of GDP to 160%

Question 18

• recession was caused by

- loss of export trade:

Answer 18

global economy no longer dominated by GB; competitors had taken advantage of GB disruptions during the war (i.e. u boats); e.g. loss of textiles, Japan supplied India and South East Asia with cotton and silk during WW1 which meant the industry in the north west of england declined

Question 19

• recession was caused by

- underinvestment

Answer 19

: in the steel industry output was lower than rivals during war and by 1920 a growing number of GB manufactures began to import USA steel for its superior quality and price; by 1937 GB steel foundaries produced 83000 tonnes pa by USA were producing 210000 tonnes and Germany produced 125000 tonnes

Question 20

attempts to solve problems, 1921-4 ->

• geddes axe:

Answer 20

1921 DLG appointed Sir Eric Geddes to implement cuts; high taxes were blamed on high spending so wanted to cut tax; Geddes recommended £87m cuts 1922-3 budget, came from military and health/welfare/housing (£205.8m 1920-1 to £182.1m 1922-3)

Question 21

attempts to solve problems, 1921-4 ->

- tariffs and free trade:

Answer 21

pre war GB used free trade, post war used tariffs; free trade means domestic industries have to compete with foreign competitors;tariffs (protectionism) means adding tariffs to certain goods that are imported into the country to protect struggling domestic industries who can’t compete with foreign prices.

Question 22

ramsey macdonald and the economy in 1924

Answer 22

• had campaigned on the issue of unemployment and critised Baldwin’s failed attempts
  
  • when he was president however he was unable to make any real improvements and blamed it on the complexities of government
  • MacDonald lacked a parliamentary majority which meant he required support from other parties which he didn’t receive

Question 23

ramsay macdonald and unemployment/inflation

Answer 23

• between 1921-4 unemployment declined from 12%-6.5% but rose during MacDonald’s premiership to 8%

in 1925; meant there was a fall in inflation from 15%in 1920 to <1% in 1924 ;
inflation fell because spending had collapsed due to unemployment not because of MacDonald

Question 24

• Baldwin’s second administration, 1924-9 ->

gold standard

Answer 24

• value of the pound was decided by the Gold Standard, used prewar when economy was booming;

Gold Standard was suspended during the war but in 1925 Churchill returned to the Gold Standard because it would look bad for GB if we didn’t and he thought a competitive economy could not be built if the government made it easy.

Question 25

withdrawal from gold standard

Answer 25

• businesses wanted off the Gold Standard and had to make up for high cost by reducing wages or putting them on short-hour contracts
  
  • 1931 September the bank was forced to admit it couldn’t keep the pound in the Gold Standard; interest rates already at 8%; withdrew from Gold Standard and devalued the pound (enabled GB economy to recover quicker than other countries)

Question 26

-Depression, 1929-34 ->

impact on GB exports
effect on industry

Answer 26

October 1929 a stock market crash on Wall Street USA; as USA had surpassed GB as largest importer it meant that it had repercussions worldwide;

global trade contracted by 66% over 5 years; GB exports declined by 50% which was worth 1/3 of the countries Gross National Product (GNP)

-collapse affected coal, dock work, cotton, iron, steel and ship building; shops where the workers of the industries spent their wages were affected by the loss

Question 27

how much did unemployment increase by

Answer 27

• unemployment was 1m in 1929 went to 2.5m 1930; put pressure of government so tax revenue delcinedbut the amount of people applying for financial assistance increased

Question 28

how much did the economy shrink by in 1931

Answer 28

• 1931 GB economy shrank by ~5% but the government prioritised keeping the pound in the Gold Standard system and supporting its value (withdrew September 1931)

Question 29

-Labour government’s response->

1931

Answer 29

• during the summer of 1931 there were rumours that the budget would be unbalanced and USA started to panic sell the pound causing it to slump in value; to reassure financiers the government proposed spending cuts and introduced a 10% cut in unemployment assistance; kept the pound stable but caused hardship for the poorest which split the labour party
  
  • the split meant the government resigned in August 1931

Question 30

-national government’s response ->

Answer 30

• the special areas act: introduced 1934; identified Tyneside, south Wales, west Cumberland and Scotland as regions in direct need of government assistance but they only received a small part of the investment
  
  • a new steel works in Ebbw Vale brought some jobs to depressed south Wales valley but it was too little too late
  • king edward VIII visited Dowlais in Wales 1936 stating ‘something must be done’ about the poverty and unemployment
  • hunger marches: famous march from Jarrow to Tyneside in 1936 called the Jarrow Crusade; marches aimed to raise attention

Question 31

summarise economic recovery in the 1930s

Answer 31

• depression did not last as long as other countries, between 1932-7:
  
  • real income rose 19%
  • GNP rose 23%
  • exports increase 28%
  • unemployment fell from 17%-8.5%
• economic growth averaged 4% a year 1934-7

Question 32

removal from the Gold Standard enabled:

Answer 32

• a cut in interest rates. borrowing was cheaper which enabled more spending and job creation whilst making it ess attractive to save money which increased spending too. fueled a housing boom in southeast and midlands, mortgages in 1930 =£316m by 1937=£636m . cut in rates referred to as a ‘Cheap Money’ policy.

Question 33

what did the devaluation of the pound mean for exports

Answer 33

• government allowed a degree of inflation the national government stimulated spending which led to slight price rises, e.g. spent money on road building which increased e car industry
  
  • devaluation of the pound made exports cheaper and more competative
  • banks were more willing to spend
  • national government also stimulated economic growth by restructuring war debts so they only cost 25% of tax revenue instead of 40%