WWI economic impact Flashcards
How did WWII impact national economies (overview)?
- changed aggregate demand composition
- reallocated factors of production in specific sectors
- changed the role of goverment which became intrusive
Why did the domestic aggregate demand change? How was the GDP affected?
The increased pressure on national production system boosted output, but governments needed even more resources which came from increasing imports. Decrease in capital expenditure of firms limited their investments and their growth.
How did household consumption demand change during the war years?
The household consumption sector decreased because resources were rationed; only consumption of inferior good like margarine increased, while butter was consumed less. This was also caused by the general decrease of disposable income due to raised taxation.
How did the trade balance change during the war?
Increased imports to meet war demands generated a large trade deficit.
In which direction did the reassocation of factors of production move?
Factors of production, like investments, eqipment and human capital, moved to the following sectors: metallurgical, ship building, armament sector, chemical sector to create explosives and gas.
How did the goverment control the internal economy during WWI?
Goverments set up new administrative systems, new ministers and departments, local and also international commettees to control firm and achieve international coordination; international councils between allied countries were set up (AMTC).
What did goverments do to control borders and international exchange?
Goverment controlled imports of raw materials and exports of strategic goods; they exercised price control, by keeping a fixed exchange rate, in order to avoid inflation, harmful for real wages of the working class.
What were the resources used by the government to finance the war?
Taxation: not so successful, only UK
Debt: higher share of financing through issuing war loans brought by the domestic market but also external investors, like the US.
Printing of money: monetization of debt was a mojor souce of revenue, but it bought away purchasing power from the population; it was the cause of high inflation during war, together with the low supply of goods.
What were the main areas of impact in the international economic dimention of WWII?
Suspention of the international gold standard
Dislocation of world production
Changes in the balance of payments of nations
Political and institutional changes
What happend to the international gold standard during WWI and how did governments react?
It was suspended, first by England (1914); international coooperation between States kept the exchange rate fixed.
What is the dislocation of production during WWII?
Countries in Latin America, the USA and Japan filled the manufacturing production void left by European countries, but exported also commodities; the shrank of european agricoltural production contrinuted too. After the war, prices fell due do overproduction, while Europe struggled to take back its share of the market, mainly for US competition.
How did the balance of payments change during WWII?
Increased imports, large trade deficit.
Increased external debt.
More share of foreign assets, an opportunity for capital exporting countries, created lower inflows of payments for the domesticn economy. Overall, international accounts were left unstable and vulnerable to the international economy.
What are the main institutional and political changes during WWII?
Firms grew larger and created oligopolies, making prices of goods more rigid, and there was a surge in membership of trade unions in the labour market. After the war, recontructing the international monetary system became difficult, because prices were not omogeneous anymore; shift to floating exchange rate.
What is the corporatist system and how was it born?
During and after WWII, there was a shift from liberal to corporatist system, where associations mattered more than individuals; working class and industrials were mediated by the government, who had the role of negotiator. In fact, the role of the goverment in the economy was reevaluated during the war.
