Exam 26: The “Prosperity” of Wartime

Keynes (1941)claimed that government spending during wartime could generate a healthy increase in the demand for output,thus raising employment levels and boosting incomes.To avoid inflation,physical rationing,monetary measures and other controls were consequently needed.

Shortly after World War II (1941-45)and the price controls ended,

Some economists argue that the increases in aggregate demand for output spurred by wartime spending,complemented by the strong spending in the private sector,impacted the U.S.?economy by

The Field Hypothesis (2003)suggests that production possibilities expanded during the depression years.Much of the resulting increase in potential went unrealized,though.This explains why potential output in 1942 was greater than expected.

All economists agree that World War II (1941-45)was responsible for ending the Great Depression.

During World War II,the distribution of income shifted.Who did this shift favor?

According to the Quantity Theory of Money (Chapter 3),the increase in the money supply from $39.7 billion in 1940 to $99.2 billion in 1945 should have fueled strong inflation.However,it ?did not because

Since the economy was operating at less than full capacity when the U.S.entered World War II (1941-45),price controls did not surface until the end of the war.

Apply the Quantity Theory of Money first presented in Chapter 3 to the wartime economy of World War II (1941-45).Using Table 26.2,quantify the changes in the money supply from 1940 to 1945.Explain why these changes did not lead to the rapid inflation one would predict using this theory.

The low interest rates that prevailed after 1942 made World War II (1941-45)financing problems fundamentally the same as World War I (1914-18).

During World War II (1941-45)which of the following fell?

World War II (1941-45)bond sales

Under the Employment Act of 1946,what action did the federal government take for the first time in U.S.history?

The wartime demand for manufacturing goods directly impacted the economy in which of the following ways?

During World War II (1941-45),the market coordinated what the government commanded in terms of production.

During World War II,a labor shortage emerged in some markets.New recruits into the civilian labor force included

Output expanded and was distributed toward wartime uses and away from private uses only during World War I (1914-18),not World War II (1941-45).The high unemployment of the 1940s made this possible.

Tax policies involving increases in taxes paid by the private sector

Explain why Robert Higgs (2007)argues that the Great Depression did not conclude until World ?War II ended.

The rules of strict constitutionality apply even during times of war in the U.S.