Economics (1918-36)

Question 1

How did Britain Pay for WW1?

Answer 1

• Taxes went up in WW1 & more people worked but weren’t able to cover more than 25% of the cost
• Borrow money
- Loans from countries (e.g. USA) of banks and bonds
- Britain borrowed 850million (35.1billion now) to fight final 2 years
• Print more money
- Increase money supply for war
- Caused inflation & devaluation of currency
• Selling foreign assets

Question 2

Why did Governments face such Problems with the Economy?

Answer 2

• Desire to get back into the Gold Standard - A means of fixing currency exchange rates to the rate of gold
- Only way for Britain to return to the gold standard was to deflate the economy but it was expected the pain would be worth the outcome
• Effects of deflationary policy
- Lack of investment worsened industrial stagnation in North
- Uncompetitive exports, comparatively cheap imports
- Reduction in spending effected health & welfare benefits, falling prices and uneven prosperity

Question 3

Why did Britain Abandon the Gold Standard?

Answer 3

• To finance the war
- e.g. Printing money

Question 4

How did Britain Plan to Return to the Gold Standard by 1925?

Answer 4

• They can affect the economy by changing: Taxation, spending & interest rates
• Grow - Reduce tax, Reduce interest, Increase spending
• Slow - Increase tax, Increase interest, Reduce spending

Question 5

How did the Focus on Returning to the Gold Standard effect the UK?

Answer 5

• As the £ got stronger exports were less competitive and imports cheaper
- More going out less coming in = losing money
• Policies contribute to standard of living issues but is uneven
- New industrial areas grew, old industries shrank
• Stubbornly high unemployment rate
• Exchange rates weakened exports
• Interest rates prevented investment & renewal
• Large contrast between what was expected and what the economy delivered

Question 6

How did Britain’s Economic Struggles Affect Free Trade?

Answer 6

• Free trade = Exchange between countries without taxes/tariffs
- Britain had supported it strongly
- Liberals stayed in support of Free Trade
- Tories suggested tariffs in 1923 which wasn’t very popular
• Free Trade was compromised over time