Abstract
During 1980 total output fell by 5% per cent and manufacturing output by 16 per cent. By May 1981 manufacturing output was 20 per cent below its 1979 peak level. in this Briefing Paper we use the London Business School model to explain the current recession. We conclude that the main identifiable came was the rise in the price of oil. but output was also affected by the increase in VAT and the reductions in public investment. Those cawes directly explain a reduction in output of about 3 per cent in 1980 compared with what might otherwise have happened. We suggest that additional links (not fully incorporated into the model) increased the impact of those shocks and led to the severe fall below potential output. The first part of the paper describes briefly the events of I979 and 1980. in the second part we ask how far the economic developments were predictable and in the third part we set out our explanations.
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