Crisis Decades

Question 1

Time period

Answer 1

70s and 80s

Question 2

Main features

Answer 2

High inflation, high unemployment, new protectionism, debt crisis

Question 3

Why were they a crisis: (6)

Answer 3

Decline in international cooperation: End of Bretton Woods, Nixon shock in 1971 where they impose 10% surcharge and ended the gold standard

End to optimism of Golden Years

American economy struggling -> less demand for X

Resurgence of economic nationalism

Oil shocks in 1971 and 1973 -> inflation

rise of new economic powers -> structural unemployment

developing countries had debt crisis

social and political instability: strikes, riots

Question 4

Qualify: not as bad as great depression (3)

Answer 4

international trade still continued - governments took part in GATT

international cooperation still continued - IMF, World Bank, GATT, leaders met up through OCED, G7. Regional cooperation (EEC) grew

US was still a major economic power (largest economy)

Question 5

qualify: worse for some countries than others

Answer 5

oil producing countries during oil shocks / japan were having good-ish times

Question 6

qualify: differences over time period

Answer 6

UK and US recovering by 1980s

but latin america had debt crisis?

Question 7

High inflation stats

Answer 7

• UK was 24% in the mid 1970s

- World inflation after the first oil shock was 14.4%, from 6.1%

Question 8

High inflation causes (4)

Answer 8

Golden years caused increase in prices of commodities like oil and copper which pushed up production costs (cost push inflation!)

oil shocks

increase in interest rates : 1979 Volcker Shock ir became 20%

governments stimulus packages only added to inflation (failure of fiscal policy)

Question 9

High unemployment stats

Answer 9

1975-1997:

6. 8% in US,
7. 7% in UK
8. 6% in France
9. 5% in Japan

Question 10

High unemployment causes (5)

Answer 10

1. competition from other countries like Japan and Asia Tigers caused structural unemployment

eg Detroit used to have the highest incomes in 1950s

UK- unemployment highest in Newcastle, Liverpool, due too decline of engineering and automobile sector)

2. because of inflation, companies laid off workers
3. because of measures to reduce inflation: monetarism and volcker shock increased costs for firms also
4. techonology and mechanisation
5. New protectionism- firms cannot compete, lay off workers/shut down

Question 11

high unemployment analysis

Answer 11

mostly bad for developed countries

Question 12

New protectionism egs

Answer 12

• Nixon Shock of 1971- end of Bretton Woods system and depreciation of the US dollar, 10% surcharge on imports
• 1974 Multifibre Agreement was US attempt to restrict imports of textiles
• French Skis thing

Question 13

New protectionism causes (2)

Answer 13

• Competition due to Golden years, governments faced pressure from the unemployed
• Tit for tat responses as governments responded to protectionist measures with measures of their own

Question 14

New protectionism results

Answer 14

• SLOWED DOWN GLOBAL TRADE – growth in international trade halved to 3.2%, international trade reduced by 13% from 1973-75, and industrial production fell 10% in a year
• Non-tariff barriers (eg sending all Japanese VCRs through one small French customs house in the 70s)

Question 15

Debt crisis stats

Answer 15

• started in Mexico in 1982
• Debt in Latin America: 32 billion US$ in 1970, 260 billion in 1980
• In 1990, 24 countries owed more than their GNP

Question 16

Debt crisis causes (1)

Answer 16

• these countries borrowed heavily from developed countries, and also oil-producing countries after the 1973 oil shock (oil dollar recycling), when interest rates increased they were unable to pay back (bc real cost increased)
• paid for rising costs of oil in USD (stupid)

Question 17

Debt crisis results (4)

Answer 17

• Mexico defaulted
• Debt service ratio was around 20% of exports (significant proportion of GDP)
• Decline in average growth from 6.3% a year to 1.7% per year, but taking population growth into account, GDP was actually negative
• Famines, esp in 3rd world countries

Question 18

debt crisis analysis

Answer 18

• mostly bad for/affected developing countries (especially Brazil, Argentina, Mexico)
• caused by the US