Download Chapter 27: Before the New Frontier

Chapter 27: Before the New Frontier: The Postwar Economy
Summary
From World War II into the 1960s, the rest of the world’s attention was drawn to the U.S. The U.S.
experienced remarkable progress as it ended WWII military production. And it made the transition into
peacetime production without an overall economic bust or runaway inflation. Cyclical bumps were felt
but the period from 1950 to 1962 did not suffer any real crisis.
Key Terms and Concepts
Automatic stabilizer
Bretton Woods System
European Common Market
Cyclical unemployment
Fixed exchange rates
Full employment
Marshall plan
Military-industrial complex
Natural unemployment rate
Structural unemployment
Teaching Tips
1. Discuss the economic difficulties associated with making the transition from a war- to a peacetime economy. Ask students to describe how the U.S. made its transition to peace-time
production out of WWII production. Encourage them to connect this experience to
contemporary war-related events in the U.S. or around the globe.
2. Define automatic stabilizer. Ask students to explain how automatic stabilizers are built into the
economy through progressive income taxes and unemployment compensation. Provide details
on how they are supposed to smooth out cyclical fluctuations by requiring less in taxes from
people with reduced or no income and by providing unemployment compensation when people
are laid off. Explain how these built-in-support mechanisms can contribute to fiscal deficits.
3. Define the natural rate of unemployment and explain to students that there is always structural
(and frictional) unemployment -- even when an economy is operating at full capacity. Structural
changes in the economy necessitate people leaving the workforce to acquire sufficient skills,
receive additional training and the like. These “laborers” are considered structurally
unemployed when they are not working but going to school or receiving training with the full
intent of returning to work. Ask students to provide examples of how changes in technology
have contributed to structural unemployment. Consider typists in the computer age, horse-andbuggy drivers in the auto age, and tailors in the age of the mass production of designer clothes.
When the unemployment rate goes above its natural rate, cyclical unemployment exists. It
exists when there is not enough demand in the economy, according to Keynes. Ask students to
give examples of each type of unemployment in the U.S. today.
4. Ask students to define the Marshall Plan. Let them research how it benefitted the U.S. as well as
the European countries it targeted. Ask students to explain how funding the Marshall Plan and
everything associated with it impacted American taxpayers.
5. Ask students to research the origins of the European Common Market after reflecting on the
events leading up to the colonists’ eventual ratification of the U.S. Constitution. Discuss the U.S.
benefits associated with an expanding and growing European market. Discuss the costs. Ask
the students to determine if the net benefits in the U.S. are positive or negative after reflecting
on the growth in the European markets.