Relationship between the money and bank deposits

Part of the failure to hit the money supply growth targets were the problems associated with the M3 measurement as through financial innovations the relationship between the money and bank deposits had been distorted. From this, less rigorous attempts were made in controlling the supply using various other measurements such as M0, M1 and PSL2. The fluctuations of the exchange rate reflect both the volatility of oil prices and interest rates of the 1980’s. The effects of low interest rates and rising output combined with the strong performance of the dollar over sterling had a relatively de-stabilising affect on the economy.
The cost of importing rocketed resulting in further inflationary pressures and leaving the system open to speculators. The decision was made to unofficially peg sterling to the DeutschMark as the UK was unwilling to join the ERM. The reason for following the DM were based around the reputation of independent banks, e. g. the Bundesbank, for delivering low, stable inflation and thus exchange rate valuations, and also the closeness of the West German economy with the UK’s.
The last period of the Thatcher administration was characterised by boom and bust and so were reflective of the economic uncertainty associated with the era. The substantial acceleration of the economy during the late 1980’s can be traced back to the policies outlined in earlier budgets by Howe and the then Chancellor Nigel Lawson. In creating an environment of low interest rates and the favourability of a depreciating pound, British industries productivity rose dramatically and the financial support (through more borrowing from low interest rates) meant internationally they were more competitive.

This also occurred domestically as the low tax levies on income from previous budgets meant people had more disposable income, allied to the redundant credit restrictions, represented a huge rise in consumption. Not only did the period see greater financial market competition but changes in housing finance. Arguably, this could have been the driving factor in the late 1980’s boom as house prices became sky high through lower stamp duties, especially in the South East, as households expectations of future wealth grew.
The changes to housing finance meant the extraction of equity from houses was simpler and more accessible, releasing more wealth into the economy adding to aggregate demand. It is no coincidence that the savings ratio was also at its lowest for a decade, with a figure of 5. 3, during the peak of the boom in early 1988. 7 By the end of 1988 the economy had down-turned significantly as it had over expanded due to the monetary policies of the March 1988 budget.
Despite predictions and warnings and due to concerns over the exchange rate deficiencies, Lawson continued to keep interest rates too low for too long a period. Thus an economic instrument to alleviate spending and over-expansion above sustainable levels was eliminated from use. The consequences of this non-action was the demand pull effect on inflation and the subsequent re-balancing of interest rates to those experienced in the 1979 to 1983 period with the final result the return to deep recession in the early 1990’s.
The continued shadowing of the DM meant entry into the ERM was finally achieved after the demise of Thatcher. Yet it was unsuccessful resulting in Black Wednesday in 1992 when the UK left the mechanism after substantial devaluation of the pound at the hands of speculators including George Soros, who profited enormously. From the evidence outlined it is clear that the Thatcher administration’s economic era was a mixture of limited success and disastrous failures. A major criticism can be placed on the lack of consistency and at times coherence of the policies.
Initially the emphasis was on reducing inflation through money supply regulations and then, when deemed unsuccessful, a shift towards exchange rate protectionism occurred. However, I would defend this because while adapting to the changing economic circumstances during this period, the economy had to withstand large fluctuations in oil prices and being an oil-producing nation, the UK is particularly sensitive. Also, the Single European Act reinforced the challenges of closer European integration through the relaxation of barriers and its effect on international trade in 1897.
Having since witnessed the benefits of allowing the Bank of England independence under New Labour, further criticism of Thatcher’s administration would not be misplaced. Since entering independent status, the Bank of England has delivered stable levels of low inflation at around 2 to 3 percent, albeit in a favourable climate. This has effectively eliminated key decision making economic tools so as not to be exploited as short-term vote winners as the Conservatives may have used them in the past. It is beyond doubt that the nature of policies created the extreme conditions of the 1980’s and into the 1990’s.
The anti-inflationary policies of the early period deepened the recession and the expansionary monetary policies of the mid to late 1980’s accentuated the boom beyond sustainable rates. In this respect the Thatcher administration’s monetary policies were unsuccessful in achieving the stable economy required for sustained growth.
It can be concluded then that the exaggerated emphasis on the monetarist policies had a detrimental impact on the UK economy and indeed was one of the fundamental failings of the Thatcher administration. Perhaps with a greater use of fiscal and supply side policies may have resulted in a more successful stay in power, as demonstrated by Tony Blair and today’s New Labour.
Bibliography
Crystal, Alec K. , and Price, S. (1994), Controversies in Macroeconomics, 3rd Edition, Harvester Wheatsheaf. Griffiths, A. , and Wall, S. (1999), Applied Economics, 8th Edition, Longman. Heeney, N. (1990), Mrs Thatcher’s ‘Fight Against Inflation’, Ten Years Without Cheer. Lipsey and Crystal (1999), Principles of Economics, 9th Edition, Oxford University Press Website http://www.bbc.co.uk

Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 15% with the discount code SUCCESS