US economy boom to bust (sheet)

Question 1

bretton woods agreement 1944

Answer 1

made the US dollar (valued $35 per ounce of gold) the world’s trading currency. until 1971, allowed US to run budget deficit without devaluing currency

Question 2

why was the US ideally placed to dominate the world economy after ww2

Answer 2

1. US infrastructure untouched
2. bretton woods agreement 1944
3. abundance of natural resources e.g. oil, coal, gas to provide low cost energy
4. most agriculturally productive farmland on the planet
5. more navigable waterways (17,000 miles) than the rest of the planet put together -> low cost transport (1/15th of land transport costs)
   6.huge third level sector, unrivalled number of engineers + scientists -> allowed innovation + america maintained tech edge over rivals

Question 3

how did ww2 lead to a post war boom

Answer 3

very good wages during ww2 due to increased employment + massive demand for war industries. Priority given to military production, not much consumer goods. pent up demand for goods and high savings led to post war boom -> age of affluence due to improvements in standard of living

Question 4

age of affluence

Answer 4

period of sustained economic growth in the US from 1945 to 1968. unemployment remained around 4%. average incomes rose from $3,000 to $8,000. US GNP grew from $299bn (1940) to over $500bn (1960). more workers joined the middle class and were able to afford a mortgage and annual vacation

Question 5

impact of baby boom on economy

Answer 5

coupled with increased prosperity, created huge demand for wider variety of goods and services -> new industries est. -> more jobs

Question 6

impact of easy credit on economy

Answer 6

banks extended easy credit via credit cards (1950) and hire purchase (instalment payments) agreements. allowed consumers to purchase goods immediately -> more money spent, more demand, fuelled economy

Question 7

how many demobilised people entered the workforce or went to college immediately after ww2

Answer 7

8 mil entered workforce,
2 mil attended 3rd level college

booming economy allowed them to be quickly absorbed back into civilian life

Question 8

GI bill 1944

Answer 8

all returning vets were entitled to receive federal grants to start a new life, to purchase a house, start a business or continue education.
-> investment in education paid for itself through increase in productivity

Question 9

truman ends wartime restrictions in 1946

Answer 9

under pressure from employers + workers, ended restrictions on prices and wages. within a few months there was a 25% rise in CPI. (inflation)
return to peacetime conditions also saw end to double shifts and overtime -> drop in purchasing power angered workers
–> TUs did wave of strikes for higher pay

Question 10

taft-hartley act 1947

Answer 10

truman’s drastic measures helped republicans gain control of congress in 1946. passed anti labour taft-hartley act in 1947 over truman’s veto
-stated that the president was empowered to order striking workers back to work for an 80 day ‘cooling off’ period
-federal employees prohibited from striking
-closed shop ended (workplaces could hire non union staff)

Question 10

how did truman tackle industrial unrest

Answer 10

• coal miners went on strike, truman issued exec. order to place coal mines under federal control
• threatened to do same when national railroad strike loomed. threatened to draft striking railroad workers

Question 11

truman fair deal reforms

Answer 11

succeeded in persuading congress to substantially raise min. wage -> reduced pressure on poorer families

Question 12

US housing boom

Answer 12

fuelled in part by low cost mortgages to vets

Question 13

Eisenhower era (1953-1961) prosperity

Answer 13

-per capita income grew while inflation stayed low
-large amounts of discretionary income -> americans had highest standard of living in the world
-over 60% of americans owned or were paying a mortgage on their homes
-3/4 of households had a tv

Question 14

though a republican, eisenhower was an economic pragmatist. how did he extend existing democratic programmes

Answer 14

-increased social security coverage to the self employed, farm employees and military personnel
-persuaded congress to raise min. wage to $1 per hour
-embarked on public works projects e.g. st. lawrence seaway, interstate highway act

Question 15

st. lawrence seaway

Answer 15

joint US-Canadian effort completed in 1959. gave ocean going vessels access to the great lakes ports

Question 16

interstate highway act 1956

Answer 16

authorised the federal government to provide 90% of the cost of building a network of interstate highways. individual states paid the remaining 10%
-total cost was $27bn over 30 years for 42,000 miles of highway. road system was funded by putting taxes on automobiles and gasoline

Question 17

highway act cost

Answer 17

total cost was $27bn over 30 years for 42,000 miles of highway

Question 18

what cuts did eisenhower make to roosevelt’s new deal

Answer 18

-cut farm subsidies
-promoted private rather than public development of the energy grid and natural resources
-construction of highways skewed transport policy towards automobiles + reduced spending on national railroads. discouraged building of urban mass transit systems (i.e. metros)

Question 19

eisenhower era budget issues

Answer 19

despite promise to reduce budget, increased public spending to lift country out of recessions in 1953, 57 and 58. done through increased defence spending, which remained at approx. 10% of the US’s GDP during the 50s + 60s

Question 20

GDP

Answer 20

gross domestic product: total market value of all goods/services produced in a country in a given year

Question 21

military industrial complex

Answer 21

in speech before leaving office, eisenhower warned of unhealthily close relationship between the armed forces and armaments industry. taking advantage of the cold war, contracts to supply the military had become a major source of income to too many sectors of the economy. EH cautioned that the military industrial complex had become powerful enough to exert an ‘unwarranted influence’ on the govt. e.g. boeing, GM, GE, IBM, lockheed

Question 22

mergers and acquisitions after WW2

Answer 22

e.g chrysler, ford, general motors swallowed smaller automobile manufacturers
-boeing and lockheed did same to smaller aerospace companies

Question 23

conglomerate example

Answer 23

international telephone and telegraph co. purchased many smaller businesses, e.g. sheraton hotels, continental baking, hartford fire insurance, avis rent a car

Question 24

growth of TNCs

Answer 24

by early 1960s, companies and conglomerates had grown so large and had such ready access to wall street investment funds that they spread overseas to acquire foreign companies.
-encouraged by opportunity to take advantage of lower wages, lower taxes

Question 25

GATT 1947

Answer 25

general agreement on tariffs and trade: set up the UN agency of the same name at geneva in 1947 to promote free trade between signatories.
-through a series of ‘rounds’ (agreements) GATT succeeded in reducing the avg. tariff on manufactured goods among the industrialised nations from 40% to 5%.
-replaced by WTO in 1995
-laid the foundations for globalisation

Question 26

globalisation

Answer 26

the process of increasing the connectivity and interdependence of the world’s businesses and markets. goal is full integration of the global economy. can be achieved through free trade, free flow of capital and exploitation of cheaper foreign labour markets

Question 27

reasons for end of age of affluence

Answer 27

-cost of great society combined with vietnam led to expanding budget deficit
-LBJ borrowed to fill the gap
-foreign investors dumped dollars, driving down its value and forcing US to take dramatic steps to preserve international monetary system
-1968, US fed. reserve increased interest rates to 5.5%, highest since 1929
-international competition increased, particularly west germany and japan -> america’s share of world trade fell from 25% (1947) to 10% by 1975
-US conumers bought cheaper foreign goods -> trade deficit + unemployment
-domestic oil supplies could not meet demand, forced to import
-following yom kippur war (1973), OPEC announced oil embargo. created energy shortage
-after embargo ended prices stayed high (400%)

Question 28

OPEC embargo

Answer 28

embargo on exports of oil to america following their support of israel in arab israeli war 1973. went on until march 1974

Question 29

stagflation

Answer 29

combination of spiralling inflation, high unemployment and declining worker productivity that leads to stagnant demand for goods/services

Question 30

gerald ford (1974-1977) economic policy

Answer 30

cut public spending and US federal reserve raised interest rates. however economy worsened + unemployment reached 9%
-WIN ‘whip inflation now’

Question 31

jimmy carter (1977-1981) economic policy

Answer 31

wanted to tackle unemployment before inflation. used public work programmes, but they weren’t taken up well
-during his only term, inflation doubled
-fed. reserve’s decision to raise interest rates was disaster. mortgages became unaffordable + construction dropped off
-proposal to set up dept. of energy was approved by congress, 3 mile island nuclear accident in 1979 discredited nuclear energy
-OPEC further raised prices after iranian revolution in 1979 to $30 a barrel, compared to $3 a barrel in 1973
-gasoline prices rose to $1 a barrel, compared to 40c in 1973

Question 32

1979 oil crisis

Answer 32

OPEC further raised prices after iranian revolution in 1979 to $30 a barrel, compared to $3 a barrel in 1973
-gasoline prices rose to $1 a barrel, compared to 40c in 1973

Question 33

why was reagan elected

Answer 33

reagan elected in 1980 -> demonstrated disillusionment with economic policies of 70s. unemployment at 10% and inflation at 13.5%

Question 34

reaganomics

Answer 34

based on the belief that cutting the federal budget would permit the lowering of marginal tax rates. this, in turn, would encourage people to work harder, leading to more saving and investment, creating more demand and producing more revenue for the govt. as firms grew

Question 35

trickle down economics

Answer 35

claimed the US economy would benefit from deregulating businesses and reducing govt. oversight. would give businesses an incentive to produce more goods/services, and in the end boost the income of lower and middle classes. everyone would benefit from the spending of the wealthy

Question 36

economic recovery tax act 1981

Answer 36

reagan convinced congress to pass.
-cut personal taxes by 25% over 3 years
-reduced max. tax rate from 70% to 50%
-lowered CGT

-funded through $30bn cuts to over 300 govt projects that provided welfare payments, social housing, employment training schemes and school lunches

Question 37

how did reagan justify spending cuts

Answer 37

stated the fed. govt had become too big, expensive and intrusive.

Question 38

poverty increases under reagan

Answer 38

despite claims of leaving ‘safety net’ to aid the poor, poverty rose.
-1979 to 1983, no. of americans below poverty line rose from 11.7% to 15.2%

Question 39

deregulation

Answer 39

deregulated key sectors of US economy, belief that increased competition would ultimately benefit the consumer through better service and lower costs.
-fed. agencies removed or didn’t enforce existing regs. e.g. air pollution, safety regs (airbags)

Question 40

ending the recession

Answer 40

by 1982 severe recession caused by high interest: business bankruptcies risen by 50% since 1981, unemployment exceeded 10%.
however, by ‘83, economy recovered + entered longest period of sustained growth since ww2
-annual inflation remained below 5% until 1987

Question 41

budget deficit 1980 v 1986 v 1987

Answer 41

1980 - $74bn
1986 - $221bn
1987 - $150bn

US national debt trebled under reagan, largely fuelled by defence spending

Question 42

did reagan make the US a more prosperous nation

Answer 42

-many new jobs created in services sector to replace loss in manufacturing jobs, however poorly paid
-removed the protections and benefits that workers traditionally had
-number of wealthy people grew rapidly, but proportion of their earning they paid in taxes fell sharply
-US became an unequal society, where the rich-poor gap increased significantly and wealth was concentrated in fewer hands