responding to economic challenges Flashcards
reasons for the post-war boom between 1918-1920?
considerable saving from individuals and businesses during wartime rationing
increased consumer spending on luxuary goods
what was meant by the speculative boom?
large investment during the imediate post war period, to try and stimulate consumer spending.
in terms of the economy what occurred between 1920 - 1921?
recession, unemployment rose to 12%
how many workers were unemployed in 1921?
2 million
was the regional discrepancy?
yes, Tynside and Wales suffered from a decline in industry, where as the west midlands and the south didn’t suffer economic hardship to the same extent.
how much did the cost of living go up by during the earl 20’s?
25%
examples of resistance against crisis of failing industry?
hunger marches and strikes
what factors contributing in causing the recession ?
- deflation: gov cut spending by 75% (1918-1920) and raised interest rates to 7% which drained money from the economy.
- loss of export trade: financial competition e.g. Japan, and India began to dominate
- under-investment: long-term under-investment of industry
- industrial relation: deteriorated due to fears of strike
what did Lloyd George suggest as a solution to the recession in 1921 - 1924?
a policy of spending cuts known as “retrenchment”
what is meant by the Geddes Axe?
1921 Lloyd George appointed Sir Eric Geddes to cut public expenditure as he hoped this would stimulate the economy.
what did Geddes recommend ?
£87 million cuts in health and welfare between 1922 -23
what was suggested to be put in place to protecting trading and industry during the recession?
the implementation of tariffs to protect British industry and reduce unemployment LG didn’t believe in Tariffs and left.
how did Ramsay MacDonald do in terms of solving the economic crisis of the 20’s?
- he failed to cut taxes and spending
- 1924 unmployment went down from 12% to 6.5% however began to rise again and inflation rose
what huge mistake was made under the leadership of Stanley Baldwin?
Winston Churchil the chancellor of the exchequer at the time reintroduced Britain to the gold standard which was catastrophic.
what happened to unemployment in 1930?
it rose to 2.5 million
what happened on October 29 1929?
there was a crash in the US stock market
why did Britain come out economically damaged initially after WW1?
- government had not expected the war to go on as long as it did and need so much of the nations resources
- America’s banks had loaned Britain large sums of money
- Britain’s industry had been forced to switch from war production instead of supplying export markets.
what was some of the consequences of the wall street crash?
- 66% contraction in global trade over the next five years
- Britains exports declined by 50%
what industries were badly effected by the wall street crash?
- coal
- dock work
- cotton
- iron and steel
- ship building
how much did unemployment increase by between 1929 to 1930?
2.5 million
despite all of these unemployment problems, what was the governments main focus?
keeping the £ on the gold standard and supporting its value through spending cuts and high interest rates.
huge levels of unemployment and massive debts led to a debate between the labour government, what was Phillip Snowden suggest?
the chancellor of the exchequer Phillip Snowden believed that unemployment relief should come from taxing the wealthy and from corporate profits.
what did economist John Maynard Keynes suggest about managing unemployment?
government should increase spending on public works such as new roads, creating jobs.
- Snowden refused he knew that bankers in NYC and LDN were sick of paying out money.
what was the only area of industry that the government invested money in during the depression?
- defence industry.
what rumours occurred during the summer 1931?
fears of an unbalanced budget - meaning the government had plans to spend more than they could afford.
what did fears of unbalanced budget lead to?
- banks in America to engage in panic selling of the £ exchanging it for other currencies which lead to the pound slumping in value.
how did governments try to reassure financers that there money was safe
they proposed spending cuts, the main measure being the introduction of a 10% cut in unemployment assistance.
- this would keep the pound stable but caused hardship for may of Britain’s poorest.
how did the national government respond to the depression?
- implemented public spending cuts
- primarially cutting sector workers pay by 10% and the means test for unemployment assistance
- alongside the cuts they tried to give direct assistance through the special area’s act for the area’s most hard hit by the depression.
what was the special area’s act ?
1934 the government introduced this act which identified; Tyneside, south Wales, west Cumberland and Scotland as regions in direct need of gov assistance.
- however only a trickle of investment came to them
- it was too little too late
how much did real income rise by between 1932-1937?
- 19%
how much did industrial production rise by between 1932-1937 /
- 46%
GNP rose by how much between 1932-1937?
- 23%
how much did unemployment fall by between 1932-1937?
17% - 8.5%
what did removing Britain from a the gold standard enable the governement to do?
a series of economic measures:
- a cut in interest rates. making borrowing for businesses and individuals became cheaper which enabled more spending and job creation. people began investing money into housing which created a housing boom in the southeast and midlands.
- they were able to allow a degree of inflation - they tried to stimulate spending and letting prices rise slightly.
- devaluation of the pound made British exports cheaper and more competivie
- banks became more willing to spend
what specific ministries were developed during wartime to which took control of war production?
- ministry of aircraft production
- ministry of supply
- ministry of war productions
- ministry of food
- ministry of labour and national service
what was the most fundemental differences between Britiain during peace time and wartime?
- government had the final say in war productions
- during peacetime its detirmined by businessess.
what was Britiains war production like in 1939?
significant shortages in war equipment.
what happened when Britain appeared to be loosing the war?
1940 = increased gov intervention in war effort 1940 = Britain produced 15,000 aircrafts and in 1944 = 47,000
who was a huge economic support for the UK ?
USA - even though they started off neutral. the 1939 American neutrality act - allowed the UK to buy supplies with cash only, however this money did run out.
what did Winston Churchill agree with America after the cash ran out?
the agreed on a lend lease agreement making the UK to pay post war.
- USA Liberty ships provided coal, oil, food and was a lifeline during the war.
what happened after the WW2 due to borrowed money from america.
- accumulated dept of £4 million
- UK economy has contracted by 1/4
- relative economic position was declining
- Britain was one of the biggest recipients for Marshall aid - in 1948 receiving £2.7 billion in loans
what was the most important economic change during the post WW2 period?
nationalisation
who was the advent for nationalisation?
1945 new labour
what are some examples of nationalisation acts?
- coal industry nationalisation act 1946
- Bank of England act 1946
- The Gas Act 1948
when did the conservatives return to power?
1951
what did the conservatives oppose?
nationalisation and wanted end war time rationaing
what did the consensus lead to
commitment to full employment
mixed economy
what was a key feature of the period 1954-1964?
growing consumer affluence and the ability to spend and borrow more money.
what strategy did the government begin to employ in 1950-64?
“stop and go” economics which meant increasing IR when inflation was high and cutting them to boost and stimulate the economy
- they also relaxed the laws on borrowing and consumer credit.
what did stop and go economics lead to?
exports becoming more expensive and received resentment from tax payers.
what was Britain like in terms of relative economic performance 1957-64?
1960 = Japan achieved a growth of 12% and UK received a 4% growth in the same year
what two organisations was set up in order to improve Britain’s relative economic performance?
- NEDDY - national development council and office
- NICKY - national income commission.
what was NEDDY?
- an institution where management and unions could discuss the development of the economy and co-operate with each other.
- was unable to enforce any legal control over either unions or industry gov hoped that both sides would come to a voluntary agreement together.
what was NICKY?
- during the 50’s a number of working days were lost due to striking
- NICKY was an advisory council assembled from economists and industry experts
- role was to give guidence to employers and unions on what the government considered to be reasonable pay rises
- however it could not legally enforce any of the decisions.
by 1964 the government were encountering serious economic problems including what?
- unemployment 1963 grew to its highest level (878,000) since before the end of the war
- increased consumer spending and increased demand for foreign goods and Britain experiencing a balance of payments problems causing a threat to the value of the £
- August 1961 governemnt refused to devalue the pound so instead borrowed £714 million from the IMF in order to support it.
when did Harold Wilson come into power/
1964
what did Harold Wilson talk about making the economy?
more egalitarian which would result in growth by allowing the most talented people irrespective of class to have opportunities - he also believed the economy could be transformed by technology.
what was the National board on income and prices?
was created to regulate pay settlements and was accompanied by a prices and incomes act 1966 which forced a statutory wage freeze for six months to curb inflations.
what was the price and incomes act 1967?
allowed wage increase tin companies that could prove they were increasing productivity and output.
what did wilson’s belief in technological improvement lead to the creation of?
- the ministry of technologu in 1964 headed by Tony Benn from 1966 to guide and stimulate a major national effort to bring advanced technology and new processes into industry.
- one of its main achievements was the creation of the supersonic passenger plan Concorde.
what was the industrial reoganisation corporation ?
IRC promoted effecient practices in industry and offered loans to companies who wanted to implement new effeciency measures
- also promoted mergers between business as it was thought they could be more effecient through combining them.
what was Wilson forced to admit in 1967?
that the devaluation the £ would help ease deep-seated problems in the economy and allowed the pound to be devalued.
- decrease of 14%
what did Edward heath reject when he came to power?
- corporatism and wanted to embrace free market ideas/
- he got rid of the IRC as he felt it was not up to businesses to regulate wage.
what was the most significant economic problem faced by the labour government in 1974-79?
inflation by mid 70’s inflation was rising faster than wages.
what happened to international banks confidence in the British economy during the mid-70’s?
- decreased due to the rate of inflation and likelihood of further strikes
- this caused the value of the £ to fall again.
- British government were forced to accept an IMF loan which was agreed in September 1976.
how much did the IMF loan Britain?
- under £4 billion
- came with conditions e.g. they had to prove they were capable of paying it back and therefore was forced to agree on £3 billion spending cuts.
