Issues With Stop-Go Economics

Question 1

What was the stop-go cycle

Answer 1

Imports exceed exports + BoP crisis -> govt controls: high interest rates + wage freezes -> demand falls -> output decreases -> controls removed -> demand increases -> rising imports (then back to start)

Question 2

What is the meaning of stop-go

Answer 2

-derived bane from tensions between expanding economy with low interest rates + rising consumer spending (go)
-and results of economy overheating with wage imports exceeding productivity + exports which deflected economy (stop)

Question 3

What were the main issues with the stop-go policy

Answer 3

-higher salaried did create large internal consumer demand but didn’t encourage an increase in export trade which would have helped bolster exports inds
-this led to trade deficit + problems with BoP (included services like shipping + banking)
-inflation rising as growth in wages outstripping role of increase in production

Question 4

What was the challenge from the unions over the stop-go issues

Answer 4

-in some industries they felt weren’t getting as much as other workers
-difficult to persuade they weren’t getting high wage increases

Question 5

How did the pressure from the Us over suez increase the problems

Answer 5

-exposed Br financial weaknesses + started run on the pound
-chancellor Thorneycroft believed in ‘monetarism’ (controlling supply of money to stabilise economy) + wanted limit wage increases + cut money supply
-Iain McLeod was one nation Tory opposed monetarism as led to increased unemployment + housing cutbacks
-Powell + Thorneycroft resign 1958 after mac overruled drastic spending cuts proposition

Question 6

What was the further entrapment of stop-go

Answer 6

-upon dealing with maintaining economic stability
-1961 worries economy overheating forced govt ‘pay pause’ to hold down wage inflation
-govt asked loan from International Monetary Fund
-economic growth in EU leaving leaving Br behind + trade with empire not sufficient