Responding to Economic Challenges

Question 1

Why was Britain economically damaged after WWI

Answer 1

-America’s banks on Wall Street had loaned Britain large sums of money to enable it to continue the conflict

-The British Gov= didn’t expect it to last for so long or require as much money as it did

-Britain had been cut off from its most valuable export markets by German U-boats, which sank 40% British merchant shipping

-Britain’s industries had been forced to switch to war production instead of supplying export markets

-By 1918 the country had lost 750,000 men (essential for Britain’s economic output)

-The war costed £3.25Billion

Question 2

How much did Britain’s exports account for in 1914 and what did it decline to by 1918

Answer 2

1914: 1/3 of Britain’s total wealth

1918: 1/5 of Britain’s total wealth

Question 3

Why had individuals and buisnesses been able to accumulate considerable savings during the war

Answer 3

-Because wartime restrictions and rationing meant they had been unable to spend as much

Question 4

What did individuals and buisnesses begin to do with savings during 1919

Answer 4

-Spend their savings on luxury items that had been rationed during the war like coffee, soap, clothes and cigarettes

Question 5

Why was there a speculative boom

Answer 5

-Buisnesses issued new shares for traders, investors and other buisnesses to buy and more money poured into the London stock market than any other time in history

-Particular in areas such as cotton mills, ship yards and coal mines

Question 6

How much did the total amount of shares issued increase from 1918-20

Answer 6

1918: 68million

1920: 365 million

Question 7

Why did the Post war boom come to an end in 1920

Answer 7

-British industries, still in the process of returning to civillian usage, could not keep up with the demands and so goods were in short supply and became excessively expensive

Question 8

What did unemployment decrease to after ww1 during the recession

Answer 8

12%

Question 9

What did the cost of living increase to during the recession

Answer 9

25%

This meant that unions were more likely to strike

Question 10

What counties were particularly affected by the recession

Answer 10

-Wales and Tyneside:
Deeply depressed as the shipping and coal industries collapsed

Question 11

Why was there a post war recession

Answer 11

-Deflation
-Loss of Export Trade
-Underinvestment
-Industrial relations

Question 12

Why did deflation cause the post war recession

Answer 12

-The Government cut spending by 75% between 1918-20 and raised the interest rate to 7% to return the value of the pound to pre war levels. This meant it became expensive to borrow money.

Question 13

Why was loss of export trade a cause of the post war recession

Answer 13

-The global economy was no longer dominated by Britain, there was several new foreign manufacturing and financial competitors
-Countries like the USSR, America and China became the world leaders

Question 14

Why was underinvestment a cause of the post war recession

Answer 14

-The British industry suffered from long-term underinvestment by the 1920s and caused serious problems.

-The mining and steel industries were no longer invested in by the government as they were no longer needed

Question 15

why was industrial relations a cause for the post war recession

Answer 15

-1919 David Lloyd George had bought off British workers in the main industries with generous pay and working hours, in order to prevent a general strike.

-These workers were unwilling to lose these conditions when time became tough (many were ex soldiers).

-The creation of a 8 hour working day resulted in a 13% decrease in working hours, but no increase in productivity during the hours worked. Wage rates also stayed high, meaning products remained overpriced and uncompetitive

Question 16

What attempts were made under DLG’s coalition government to solve the post war economic problems

Answer 16

-Retrenchment:

-The Geddes Axe:

-Tariffs and free trade:
One of the most important questions of the interwar years was that of tariffs. For most of the previous century Britain had adopted free trade

Question 17

What was retrenchment

Answer 17

A policy of spending cuts.

Lloyd George believed that there was little choice but to wait for the economy to improve on its own. However, he was anxious to appease middle class voters who were experiencing financial hardship after 1920, who wanted to tax and spending cuts

Question 18

What was the Geddes Axe

Answer 18

In 1921, DLG appointed Sir Eric Geddes to implement greater cuts in public expenditure.

-High taxes= blamed on high spending and DLG hoped tax cuts would stimulate the economy.

-Most of these came from the government military budget, but the health, housing and welfare budget was reduced from £205million in 1920 to £181million in 1922

Question 19

Advantages of free trade

Answer 19

Free trade means that domestic industries have to compete with foreign competitors

-No import taxes on foreign goods so British manufacturers have to make sure that their products are sold at the lowest possible prices in order to attract customers

-British buisnesses can trade in other countries without the threat of protectionist tariffs being imposed

Question 20

Disadvantages of free trade

Answer 20

-Free trade means that more competitive foreign buisnesses can out compete British ones and force them into bankruptcy. This can lead to unemployment and poverty, particularly in areas heavily dependent on one industry

Question 21

Advantages of tariffs/ protectionism

Answer 21

-It helps to protect domestic industries that are struggling from competition by making the goods more expensive. This protects the profits of domestic manufacturers

Question 22

Protectionism

Answer 22

Protectionism is the policy of adding tariffs to certain goods that are imported into a country.

Question 23

Disadvantages of tariffs/ protectionism

Answer 23

-The downside to protectionism is that it prevents consumers from having access to cheaper goods and it can result in other countries applying tariffs to British exports in retaliation

Question 24

Which industries were the most affected by the economic crisis

Answer 24

-Cotton
-Dock work
-Iron and steel
-Coal
-Ship building

Shops and markets, where the workers form these industries spent their wages were also heavily affected

Question 25

What was the difference in unemployment between 1929 and 1930

Answer 25

1929: 1million
1930: 2.5 million

Question 26

Ways the rise in unemployment put pressure on the labour government 1929-31

Answer 26

-Tax revenue declined
-The number of people applying for unemployment assistance rapidly increased

Question 27

How much did the British economy shrink by in 1931

Answer 27

5%

Question 28

What was the Labour government’s main priority during the economic crisis

Answer 28

-Keeping the pound in the Gold Standard system and supporting it’s value through spending cuts and high interest rates

Question 29

Why did providing for the unemployed become unsustainable 1929-31

Answer 29

-Chancellor Snowden believed that unemployment relief should come from taxing the wealthy and from corporate profits.
-However, as these profits slumped and wealthy individuals were becoming anxious to protect or conceal it, the cost of providing for the unemployed become unsustainable

Question 30

Who was John Maynard Keynes

Answer 30

A British Economist
Played an important role in the changing in the British public’s opinion of the Treaty of Versailles

Question 31

What did John Maynard Keynes suggest to help the economic crisis and what was Snowden’s response

Answer 31

-Suggested government spending on public works, such as new roads, to create jobs, but Snowden refused.
He knew that people had little patience for further spending .

Question 32

What was the only part of the economy that the labour government invested in during the economic crisis

Answer 32

-The defence industry
This did create some jobs

Question 33

What rumours spread during the summer of 1931

Answer 33

-Rumours that the forthcoming budget would be unbalanced ( the government would spend more than it could afford) leading to an increase in borrowing

Question 34

Why did the rumours spread about the labour government summer 1931 lead to the pound slumping in value

Answer 34

-The banks in America started to engage in panic selling of the pound, exchanging it for other currencies, causing the pound to slump in value.

This led to the gov implementing spending cuts including a 10% cut in unemployment assistance, causing division within the labour party and resulting in their resignation 24th August 1931

Question 35

What was the Special Areas Act and when was it introduced

Answer 35

-1934
-A measure that identified, Wales, Tyneside, South Wales, West Cumberland, and Scotland as regions in need of government assistance ( areas hit hardest by the Depression)

-However only a trickle of investment came to them. A new steel works in Ebbw Vale brought some jobs but it was too little to late

Question 36

On average between 1932-37, how did Britain’s economy recover

Answer 36

-Real incomes rose by 19%
-Industrial production rose by 46%
-GNP rose by 23%
-Exports increased by 28%
-Unemployment fell from 17% to 8.5%

Question 37

What did the decision to remove Britain from the Gold Standard enable?

Answer 37

Enabled the following economic measures:

-A cut in interest rates
-The government was able to allow for a degree of inflation
-The devaluation of the pound made British exports cheaper and more competitive
-Banks became more willing to spend again
-Economic growth was stimulated by restructuring British war debts

Question 38

How did Churchill’s national government create a
managed economy ( + impact of ww2)

Answer 38

-Economic Aid

-Military expenditure

-Post-war austerity

-The Marshall Aid

-Nationalisation

Question 39

Economic Aid (creating a managed economy)

Answer 39

-1938-41, USA had offered Britain a considerable amount of economic help.

-Churchill had arranged a Lend-Lease Agreement: this meant that the USA would supply Britain with what it needed but the debt would be resolved after WW2

Question 40

Military Expenditure (creating a managed economy)

Answer 40

-When Britain appeared to be losing the war in 1940, the growth of state intervention, resulted in a huge increase in war production and military expenditure.

-Britain produced 15,000 aircraft in 1940, 47,000 in 1944 and 6000-8000 tanks.

Question 41

Post war austerity (creating a managed economy)

Answer 41

-By the end of ww2, Britain had accumulated over £4 billion of debt with USA. Repaying this and the interest costed £70 million every day.
-Trade was also severely damaged

Question 42

The Marshall Aid (creating a managed economy)

Answer 42

-Britain = one of the biggest recipients of this aid, recieving £2.7 billion in loans. It was supposed to help with general infrastructure but by 1965, Britain’s investments only stood at 9%, whereas countries like Japan and Germany were closer to 20%. Britain had lagged behind

Question 43

Nationalisation (creating a managed economy)

Answer 43

-The labour government tried to nationalise everything in 1945

-The Coal Industry Act 1946
-The Bank OF England Act 1946
-The Transport Act 1947
-The Electricity Act 1947
-The Gas Act 1948
-The Iron and Steel Act 1949

-The total bill for nationalisation exceeded £2billion, leaving little money for modernisation needed and stored up economic problems for the future

Question 44

What economic problems were faced 1951-79

Answer 44

-Balance of payments problems
-Devaluation of the pound
-Inflation
-Union disputes
-Unemployment in the 1970s

Question 45

What was one of the main motivations for decolonisation

Answer 45

-The realisation that they cost more to govern than they were worth in trade, since foreign rivals now dominated trade to Britain’s colonies

Question 46

What was the NEDDY
(The National Development Council and Office)

Answer 46

-Set up in 1962.

-An institution where management and unions could discuss the development of the economy and co operate with one another.

-It was assumed that they would want to work together because both would benefit from long term economic growth. NEDDY was unable to enforce any legal control over either industry or unions, and the gov hoped that both sides would come to voluntary agreements with each other

Question 47

What was the NICKY
(The National Incomes Commission)

Answer 47

-An advisory council assembled from economists and industry experts
-They gave guidance to employers and unions on what the government considered ‘reasonable’ pay increases.
-It could not enforce any of its decisions.

-Unions mostly ignored NICKYS calls for wage restraint as they were mindful that their members wanted improved living standards and greater spending power.

Question 48

What was the Prices And Incomes Act 1966

Answer 48

-Forced a statutory wage freeze for 6 months to curb inflation

Question 49

What was the Prices And Incomes Act 1967

Answer 49

-Allowed wage increases in companies that could prove they were increasing productivity and output.

Question 50

What was the National Board of Prices and Incomes (NBPI)

Answer 50

-Created to regulate pay settlements.
It was accompanied by the Prices and Incomes Act of 1966 and 1967