Chapter 2: Economic Developments Flashcards
What is inflation?
increase in the price of goods and services which occurs when people have more money to spend than there are goods available
What is deflation?
fall in the price of goods and services which can lead to unemployment as people have less money to spend which decreases the demand for goods and services
When did food rationing end?
July 1954
How much did the population of Britain grow between 1951 and 1961?
by 1961 there were 51 million people living in Britain which was 5% more (2 million) than there had been in 1951
Why was the global economy booming in the 1950s?
countries were rebuilding after WW2
How did the boom in the global economy affect Britain?
-sustained increase in overseas trade which brought in high levels of earning from exports and investment
-this ensured plentiful employment in Britain
How many people were unemployed in Britain in 1955?
200,000 people (less than 1% of the workforce)
How many people were employed in service industries by 1960?
around 5 million people (1 in 5 of the population)
What was the impact of economic growth and low unemployment?
brought rising wages and most people enjoyed a spectacular rise in income
What was the average annual wage increase in 1960?
7%
How did Rab Butler boost Conservative election prospects in the run up to the 1955 election?
with a “giveaway” budget that provided the middle classes with £134 million in tax cuts
What was the result of people having more money to spend?
rise in affluence and consumerism
How did the improvement of world trade in the late 1950s affect Britain?
enabled Britain to import 29% more goods than it had in 1951 for the same number of exports
What was the problem with the large growth in wages?
outstripping rate of increase in production which brought inflation
What was the economic task constantly faced by the government?
how to maintain growth and employment at the same time as keeping prices steady
What were the function of government controls on the economy?
-had to curb excessive inflation and make sure taxation remained high
-to control excessive spending that would lead to an unwanted increase in imports and to pay for the rising costs of public services
What is meant by “stop-go economics”?
the pattern where the government attempted to control growth when the economy was in danger of overheating
What was the problem with higher internal consumer demand?
-did not encourage manufacturers to increase their export trade which would have helped improve export industries
-led to a trade deficit which caused problems with the balance of payments
What is the balance of payments?
invisible imports and exports e.g. services such as shipping, banking etc.
How did the Suez Crisis affect Britain’s economy?
pressure from the United States exposed Britain’s financial weakness which caused a run on the pound
What is a “run on the pound”?
used to describe a rapid fall in value of the pound in international currency markets, especially in relation to the US dollar
How did Macmillan’s chancellor Peter Thorneycroft want to solve this financial crisis?
limit wage increases and cut the money supply
Why were other (One Nation Conservative) ministers against Thorneycroft’s proposed policies?
would lead to increased unemployment and cutbacks in housing
What did this financial crisis and Conservative divisions symbolise?
problems with “stop-go” economics
Who did Macmillan side with in the end?
those in favour of expansionist economic policy
What did Thorneycroft propose in 1958?
drastic spending cuts
What happened after Thorneycroft’s proposal?
Macmillan overruled him which led to Thorneycroft’s resignation (as well as the resignation of his junior ministers Enoch Powell and Nigel Birch)
How did the financial crisis affect the Conservatives popularity?
did no lasting harm to the popularity of the Conservatives, which improved dramatically by 1959
What was the state of the economy by April 1959?
economy had expanded so much that the annual budget provided tax cuts of £370 million
What did worries about the economy overheating force the government to do in 1961?
introduce a “pay pause” to hold down wage inflation and ask for a loan from the IMF
Why did Macmillan reverse his party policy on Europe?
-becoming clear that economic growth in Europe was leaving Britain behind and trade with the Empire and Commonwealth was not sufficient enough to keep up
-therefore decided it was essential for Britain’s economy to be joined with Europes
When did Britain apply to join the EEC?
1961
What did Britain’s application to join the EEC symbolise?
failure of British economic modernisation
What does NEDC stand for?
National Economic Development Council
What was the NEDC?
consisted of government representatives, academics, employers and trade unionists formed to attempt to address Britain’s relative economic decline
When was the NEDC set up?
1961
What was the National Incomes Commission?
set up alongside NEDC to monitor wages and prices
When was the National Incomes Commission set up?
1962
When was Britain’s application to join the EEC rejected?
1963
When was the Beeching Report published?
1963
What was the Beeching Report?
report published as part of a review into cutting public expenditure
What did the Beeching Report recommend?
massive cuts in British rail network including closure of more than 30% of it
What was the result of the recommendations of the Beeching Report?
hundreds of branch lines and thousands of stations were axed which caused fundamental social change and left many rural areas isolated
How did the Chancellor Reginald Maudling push the economy into a “go” phase?
lowered the bank rate to encourage consumer spending
How did this “go” phase affect Britain’s economy?
growth rate rose from 4% in 1963 to nearly 6% in 1964
What was the ratio of imports to exports in Britain between 1961 and 1964?
exports rose just over 10% but imports remained nearly 20% higher
