After the end of World War II, a pervasive, but unfortunately fallacious, economic perspective took hold. Based on the United States’ successful emergence from the Depression, the idea that war was good for an economy became fashionable. However, linking the United States economic recovery with its entry into World War II is a prime example of flawed economic thinking.

Supporters of the war benefits economy theory hold that a country at war is a country with a booming economy. Industry must produce weapons, supplies, food, and clothing for the troops. The increased production necessitates the hiring of more people, reducing unemployment. More employment means more money in the pockets of citizens, who are then likely to go out and spend that money, helping the retail sector of the economy. Retail shops experience an increase in business and may need to hire more workers, further reducing unemployment and adding to the economic momentum. While this scenario sounds good in theory, it does not accurately represent what truly happens in a war time economy.

In reality, the government can fund a war in a combination of three ways. It can raise taxes, cut spending on other areas, or increase the national debt. Each of these strategies has a negative impact on the economy. An increase in taxes takes money out of an individual’s hands, leading to a reduction in consumer spending. Clearly, there is no net benefit to the economy in that case. Cutting spending in other areas has its costs as well, even if they are not as obvious. Any reduction in government spending means the imposition of a greater burden on the benefactors of that government spending. Cutbacks in a particular program mean that the people who normally depend on that program now must spend more of their money to make up for the government cuts. This also takes money out of consumers’ hands and leaves the economy depressed. Of course, a government could go into debt during the war, but such a strategy simply means that at some point in the future, taxes must be increased or spending decreased. Plus, the interest on the debt must be paid as well.

1. The “pervasive…economic perspective” mentioned in line 1 took hold because

A. observers took the appearance of one phenomenon with another to indicate that one caused the other
B. the U.S. would not have emerged from the Depression had it not entered World War II
C. the booming economy during wartime created thousands of jobs in the U.S.
D. most people are not trained to think in economic terms
E. economists confused an event that was necessary for an outcome to occur with one that is merely sufficient to bring about that outcome


2. Which of the following situations best mirrors the effect that cutting spending in government programs has, as detailed in the passage?

A. Government cutbacks on public works maintenance lead to a deterioration of roads, which creates more work for private construction firms.
B. A decrease in the federal education budget causes certain schools to close, which forces families to send their children to schools that are farther away.
C. A federal decrease in unemployment payments causes some individuals who would otherwise remain on unemployment to seek jobs.
D. Government cuts in housing subsidies results in fewer houses being built.
E. A reduction in the federal spending on food safety inspections leads to a rash of illnesses and an increase in the amount of money spent on medicine.


3. The passage implies which of the following about a government that funds a war by increasing the national debt?

A. It is no worse off than it would be funding a war by cutting spending or increasing taxes.
B. The initial costs it incurs are less than with the other two methods, but the future costs are greater.
C. It must increase taxes in order to pay off the interest on the debt.
D. If the government does not increase taxes or decrease spending, its economy will not recover.
E. It receives a net benefit to the economy greater than it would achieve with either of the other two methods.


4. The second paragraph of the passage performs which of the following functions?

A. It describes the common economic benefits of a wartime economy.
B. It provides the background information necessary to understand the information in the third paragraph.
C. It explains what happened to the United States’ economy during World War II.
D. It presents a possible objection to the author’s main thesis.
E. It helps explain why individuals might hold the viewpoint presented in the first paragraph.