Issues Of Inflation

Question 1

What did Thatcher believe about inflation?

Answer 1

-following new right principles she believed it a threat to economy
-blamed Keynesian econ policies that allowed inflation to rise
-if inflation could be controlled then econ could grow

Question 2

How was inflation controlled?

Answer 2

-interest rates used as mechanism to control inflation
-raised to 17% 1979 but downside was more expensive for businesses to borrow

Question 3

What else did they do to control inflation?

Answer 3

-increased value of pound
-more difficult for business export

Question 4

What did the high interest rates of early 80s lead to?

Answer 4

-inevitably led to decline of both output + demand
-econ into recession with many businesses bankrupt which led to high unemployment

Question 5

What other attempts were made to control inflation?

Answer 5

-initially inflation up peaking at 22% May 1980 + then fell to 2.5% 1986
-attempts control led to further recession + eventual entry into European exchange rate mechanism
-by 1990 reached double figures