Th2.6: Policy Responses in the UK Flashcards
What did the UK government believe was key to recovery?
balancing the government budget and that borrowing money would prevent the private sector from doing so
What did the UK introduce and what did this do?
an emergency budget which cut public sector wages and unemployment benefits by 10% and raised income tax from 22.5% to 25%
How did this introduction of the emergency budget worsen the case?
it reduced AD at a time when it needed to be increased
What happened to the pound?
it came under attack from speculators and needed to be defended to prevent the UK form being forced out of the gold standard
What did a balanced budget result in in this situation?
it meant the UK didn’t have to borrow from abroad, which helped the exchange rate
What did higher interest rates result in in this situation?
the high interest rates helped defend the high exchange rate. however, the high interest rates also decreased demand
What happened on the 21st September 1931?
the UK was forced to leave the gold standard due to continued speculation against it
What did leaving the gold standard do?
caused the value of the pound to fall by 25% compared to other currencies and allowed the Bank of England to cut interest rates by 2.5%, both of which helped to increase AD by increasing exports or investment/consumption
Where was there recovery and where was there not?
recovery in London and the South East but Wales and Scotland did not reach full employment until 1941
