Consider the following in your answer: 1. What are the advantages and disadvantages of various methods of war financing? 2. What are the “costs” imposed on the economy by engaging in war? 3. Provide an example from US History; analyze the effects on economic institutions in the long run after a war.
1. In war, there are various economic benefits. First, all economic resources are being used, both goods and services. The unemployment rate hits the floor and there are goods being manufactured faster and more. Thus, this boosts GDP and increases the AS curve, due to the mass production of the goods. There may be the disadvantages of too small of a workforce, or after the war is done, coming back to the previous economic state may be difficult.
2. The population may fall, as wars take a toll on that factor. Also, to support the massive cost of the war, the government may have to take loans from other countries leading to a deficit. If the country loses the war, then there may be further financial repercussions, as we saw with Germany in the World Wars.
3. The second World War is the foremost example of such an economic turn. Stuck in the Depression, Americans needed a way to exonerate themselves from the suffering and poverty, and couldn’t find it. With the second world war and the need for goods and services, employment rose, as did spending, kickstarting the economy and getting it rolling again. This is a major example of an economic state being changed positively due to the war.