Dates - English Civilization

...

→ Demand management in a mixed economy: government had to intervene to achieve full employment and planned economic growth by:

- spending money on infrastructure

- stimulating demand by lowering taxes

Failure: Stagflation: rinsing unemployment and inflation.

1979: Geoffrey Howe's budgets

- 1st budget: A move away from Keynesian demand management

- To reduce the money supply in order to check (controler) inflation = monetarism

- To reduce direct taxation and public expenditures in order to boost consumer spending.

- 1981 budget:

- raise VAT and indirect taxes and to reduce corporate taxes to favour industrial recovery

The priority was to curb inflation and public deficit and after unemployment.

Monetarism: theory which rejects the aims of economic management proposed by Keynes.

- It aimed to keep inflation under control.

- Government's role is to control the money supply by restricting public investment and increasing rates.

The monetarism is based on the theory of Milton Friedman: If government restricted the money supply, inflation would fall

→ From 1979, the reduction of inflation was the Conservative government's main goal + Medium Term Financial Strategy: the government set annual targets for the rate of monetary growth over 4 year.

Failure:

- £ still remained high

- Inflation fall = supply increase

Classical economy - Laissez faire: against Keynesian thinking.

Thatcher favour this economic and their support for monetarism justify it. The aim was:

- to reduce government spending and borrowing

- to provide the conditions in which the market could regulate itself

Government should play a minimal role in economic management for free market solutions → Free market policy with cycles of growth and slump.

Free Market:

- No government interference in the working of the economy

- Prices is decided by the demands of consumers

Disadvantages: distribution of wealthiest

Planned economy:

- controlled fully by the government, they fixed the prices

Disadvantages: lack of incentive to work, less international trade and inefficiency

Mixed economy:

- not entirely free or planned, both systems → mix of private and public sector organisation

Socialist economy: redistribution of health to the poor → Keynes: it discourages initiatives.