Age of Affluence: the American economy

Question 1

What was there a growth in after WW2?

Answer 1

Home ownership and consumerism, as well as expansion of the automobile industry

Question 2

What was consumerism fuelled by?

Answer 2

Hire-purchase agreements and consumer debt, but post-war economic boom brought prosperity

Question 3

How did WW2 benefit the economy?

Answer 3

It caused the economic boom, brought full-employment, meant the economic potential of the country was fully exploited, new methods of industrial organisations, huge federal spending.

Question 4

How was the American economy compared to other countries?

Answer 4

It was doing well, compared to other countries like Britain, who was enduring rationing and government debt.

Question 5

What caused the economy to dip? How did it recover?

Answer 5

Slight dip as emphasis shifted from war to peace but the outbreak of Korean War in 1950 kick-started economic growth again.

Question 6

What did WW2 stimulate?

Answer 6

Big industries like steel, oil and engineering. High-tech industries, such as the aircraft builders, also benefited from advances in scientific research and development during the war, as well as from high federal spending after it.

Question 7

What reshaped world trade?

Answer 7

The 1944 Bretton Woods Conference in ways that fitted American economic principles.

Question 8

What did the Marshall Plan achieve in doing?

Answer 8

American aid to Western European countries under the Marshall Plan from 1947 succeeded in rebuilding their economies but was also highly beneficial for American producers and exporters.

Question 9

How had the 1960 GDP changed?

Answer 9

It was three times higher than it had been in 1940; after 1960, GDP rose even more steeply.

Question 10

Kennedy faced an economic downturn between 1960-61. How did he deal with this?

Answer 10

Stimulated the construction industry, especially housing, raised the minimum wage, gave federal aid to “distressed” areas through the Area Development Act. Also introduced Public Works Act ($900 million for jobs creation).

Question 11

How did Kennedy try to stimulate the international economy?

Answer 11

Through the “Kennedy Round” - cutting tariffs and working with Japan and the EEC to liberalise trade.

Question 12

Did Kennedy’s plan work?

Answer 12

Not all his policies were effective as they were watered down by Congress but the injection of federal spending did stimulate economic recovery at a crucial time. An example of this is NASA and the space race against the USSR.

Question 13

What did the Council of Economic Advisers persuade Kennedy to do in 1963? Did it pass through Congress?

Answer 13

Propose big tex reductions to stimulate the economy. Kennedy called for tax cuts of $10 billion over the next 3 years but struggled to get it through Congress; it was only passed nine months later.

Question 14

How long was there unbroken growth for?

Answer 14

106 months between 1961-1969

Question 15

How did Johnson handle the economy?

Answer 15

He was a born spender and a great persuader, so was able to get his policies through Congress. He committed huge federal for his “War on Poverty” and plans for a “Great Society” - national debt increased by 13% to $42 billion

Question 16

What policies did Johnson pass to win the “War on Poverty”?

Answer 16

He introduced his anti-poverty bill and set up the Office of Economic Opportunity (OEO), which provided a variety of services including help for small farmers, job training and further education. In 1965, the funding of the OEO was also greatly expanded.

Question 17

What did critics say about Johnson’s economic tactics?

Answer 17

That this was “big government” at its worst, with too much emphasis on regulation, and spending that saddled the government with massive future debts.

Question 18

What positives were there about the economy under Johnson?

Answer 18

Despite all the social programmes and the cost of the Vietnam war, the underlying economy remained vibrant. Consumer spending was high and millions of middle-class Americans had disposable income to spend on luxury items

Question 19

What was the US hit with in the early 1970s?

Answer 19

High inflation, recession, rising employment, and an energy crisis

Question 20

What was the “Great Depression” of the 1970s caused by?

Answer 20

Partly due to the natural economic cycle, but also the strain from the massive military spending required by the Korean and the Cold War. America was also importing (oil) a lot more than it was exporting, causing a balance of payments deficit.

Question 21

How did Nixon deal with the Great Depression?

Answer 21

In August 1971, he called his economic advisors to Camp David for a weekend, where they decided to impose a freeze on wages and prices, raised tariffs on imports, took US off gold standard and devalued the dollar by allowing floating exchange rates.

Question 22

Why did Nixon allowing floating exchange rates create serious tensions with Europe?

Answer 22

It undermined the position of the dollar as a world’s reserve currency, established at the Bretton Woods Conference, which caused tensions with Europe and with the Organisation of Petroleum Exporting Countries (OPEC)

Question 23

What were the short term effects of Nixon’s measures?

Answer 23

It succeeded in reassuring Wall Street and reducing the US’s deficit, so it dealt with the immediate difficulties adequately.

Question 24

What were the long term effects of Nixon’s policies?

Answer 24

It led to high inflation in all Western economies, including the US’s. It also provoked OPEC into raising the price of oil in 1973, causing an energy crisis. By 1974, inflation was at 12%, unemployment 9% and production down to 15%. There was stagflation and American prestige was damaged