Deck 26: The “Prosperity” of Wartime

Question 1

When World War II (1941-45)came,the U.S.civilian labor force could be expanded only by about 30 percent.

Answer 1

True

Question 2

During World War II (1941-45),Golden (1990)argues,the opportunity cost of women staying ?at home

A) decreased.
B) stayed the same.
C) increased.
D) cannot be measured.

Answer 2

increased.

Question 3

Pegging the bond market in 1942-45 meant that World War II (1941-45)

A) would be financed by free-market interest-rate determination.
B) fixed high interest rates.
C) fixed low interest rates.
D) sent high interest rates floating above the peg.

Answer 3

fixed low interest rates.

Question 4

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).

Question 5

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

Question 6

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.

Question 7

The Employment Act of 1946 continues to impact us today.It gives the federal government official responsibility in managing full-employment efforts in the U.S.through fiscal policy.

Question 8

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

Question 9

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

Question 10

The command of World War II (1941-45)

A) was more structured than that of World War I (1914-18) (WWI).
B) experienced the same unconstitutionality problems experienced ?during WWI.
C) was distinct from WWI in most ways.
D) did not involve rationing of goods and services, given the high unemployment ?of the period.

Question 11

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.

Question 12

The U.S.economy experiences a public debt when the value of its annual deficits exceeds the value of its annual surpluses over an extended period of time.

Question 13

According to Robert Gordon (1969,1999),the extraordinary expansion of physical production in 1942-45 was achieved by

A) massive government investment in new plants and equipment.
B) finally bringing into production manufacturing plants and equipment that had been idle ?since the early 1930s so that big government investment was not necessary.
C) the Federal Reserve's peg on the bond market, which enrolled the private sector to ?mobilize the necessary capital to invest in new plant and equipment.
D) none of the above.

Question 14

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.

Question 15

Residential construction did not return to its 1926 high levels until 1949.

Question 16

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.

Question 17

When World War II (1941-45)came,

A) the labor force expanded by very little despite the high unemployment of 1941.
B) unemployment was still high enough that the armed forces could be expanded and ?war production expanded without a large increase in the labor force.
C) a large increase in the labor force occurred in all categories, including men ?over 65 and women.
D) none of the above occurred.

Question 18

Unlike World War I (1914-18),the war debt of World War II (1941-45)was manageable and did not contribute to inflation.

Question 19

If the increase in government expenditures of World War II (1941-45)is matched against the decrease in private investment and consumption during the same period,it was the end of World ?War II that officially concluded the depression era,not the start of World War II,according to ?Robert Higgs (2007).

Question 20

During World War II (1941-45),Engel's law applied.As income rose,consumption of food dropped relative to all other goods and services purchased.

Question 21

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

A) Labor
B) The idle and wealthy class
C) The government
D) Foreign-born individuals

Question 22

Bonds sales to finance World War II (1941-45)

A) helped finance the government's current budget deficits.
B) helped finance, manage and eventually pay down the private debts accumulated during ?World War I (1914-18).
C) were loans the U.S. government made to individuals in its private sector.
D) led to higher interest rates and decreased private spending and investment.

Question 23

Tax policies involving increases in taxes paid by the private sector

A) are generally tolerated when incomes are rising faster than taxes.
B) are always opposed by the private sector.
C) are death to politicians concerned about re-election.
D) are progressive when the lowest income bracket pays the highest ?percentage of total income.

Question 24

Discuss the forces behind the tax policies during and shortly after World War II (1941-45).

Question 25

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

A) Real GDP per capita
B) Private consumption expenditures
C) Private investment
D) Government expenditures

Question 26

How did World War II (1941-45)(WWII)affect family incomes and wages? Business expectations? Consumer confidence? Overall demand for goods and services? Use your answer to explain why,in part,post-WWII unemployment figures returned to the pre-WWII levels.

Question 27

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

A) teenage females.
B) married women.
C) retired people 65 years of age or older.
D) all of the above.

Question 28

What is Engel's law? How does it apply to World War II (1941-45)(WWII)changes in consumption and real income? Look at Table 26.6,and note that real income and wages were rising.Comment ?on what you observe and describe those forces that interfered with the application of Engel's law during WWII.

Question 29

What is the "pay-as-you-go" tax policy? Identify its roots in the New Deal Era and World War I?(1914-18).Explain why it is generally acceptable; specifically identify what taxpayers receive in exchange for the taxes paid.What would taxpayers sacrifice if there were no taxes? Hold all else constant.

Question 30

Which of the following was a source of the U.S.federal government's financial revenue for ?World War II (1941-45)?

A) Tariffs
B) Bond sales to other governments
C) Bond sales to the Federal Reserve System
D) Bond sales to the U.S. Congress

Question 31

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

A) the World War II (1941-45) (WWII) economy was operating below full employment ?levels of production.
B) the WWII economy was operating at full employment levels of production.
C) the WWII economy was operating above full employment levels of production.
D) price controls prevented the surge in prices across the economy.

Question 32

After World War II (1941-45),the U.S.public debt

A) remained unchanged in 1947 even though the government ran a budget ?surplus (government expenditures fell below revenues in 1947).
B) continued to rise even though the government ran a budget surplus at times.
C) decreased even though the government ran a budget surplus continuously.
D) remained high while the government continuously ran deficits.

Question 33

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

A) increasing production and employment.
B) increasing employment and income.
C) increasing income, thus fueling additional spending.
D) contributing to all of the above.

Question 34

World War II (1941-45)bond sales

A) were successful and purchased primarily by banks, not private individuals.
B) were successful and purchased primarily by private individuals, not banks.
C) were successful but eventually led to inflation when bondholders decided to ?cash them in or sell them to the Fed.
D) were not successful.

Question 35

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

A) unemployment levels returned to those levels experienced during the ?Great Depression.
B) unemployment levels returned to their full employment levels.
C) unemployment dipped sharply and inflation surged.
D) unemployment rates increased and deflation emerged.

Question 36

Discuss World War II's (1941-45)(WWII)impact on the supply of and demand for agricultural goods.Compare WWII's impact on the agricultural sector to the manufacturing sector.

Question 37

During World War II,price controls were necessitated as shortages emerged in consumer markets.This required

A) the federal government to ration goods through tickets.
B) the federal distribution of rationing points.
C) a forced reduction in private consumption.
D) all of the above actions.

Question 38

The federal government's abilities to tax during war- and peace-times are constrained by

A) the need to be re-elected by the voting population.
B) the interests of the non-voting population.
C) the U.S. Constitution.
D) the protected rights of state and local governments to tax.

Question 39

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

A) Increased demand for factory workers
B) Increased demand for imported goods
C) Decreased demand for agricultural goods
D) All of the above

Question 40

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

A) Assuming power and responsibility for managing the world economy
B) Assuming power and responsibility for managing the U.S. economy
C) Relinquishing all influence for managing the U.S. economy to state governments
D) Relinquishing all influence for managing the U.S. economy to the private sector

Question 41

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

Question 42

Discuss Keynes' (1941)views on wartime spending.Highlight the measures needed to manage inflationary pressures.

Question 43

Describe the economic consequences associated with the inefficient allocation of resources associated with the rationing of private consumer goods and services during World War II.Explain why there was a rise in the proportion spent on food at a time when incomes were increasing during this period.

Question 44

What is rationing? Describe its economic benefits and costs.What type of rationing took place during World War II (1941-45)? How did rationing affect some economists' application of Engel's law?

Question 45

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.

Question 46

How did the post-World War II surge in demand for consumption goods and services help boost investment spending? What was the impact on output and income? Prices?