Many economists argue that the Great Depression was brought to an end by World War II. In Keynesian terms, how could a war contribute to combating unemployment?
The correct answer and explanation is :
In Keynesian economics, unemployment is often seen as a result of insufficient demand for goods and services in the economy. According to John Maynard Keynes, during times of economic downturns, the government can play a crucial role by increasing its spending to boost demand, which in turn stimulates production and reduces unemployment. This concept is known as demand-side economics.
World War II helped combat the Great Depression by providing a massive increase in government spending. Keynes argued that when private sector demand for goods and services is insufficient, government spending can take its place. During the war, governments around the world, particularly in the United States, significantly increased military expenditures. These expenditures created a surge in demand for a wide range of goods and services, including weapons, equipment, and supplies. As a result, factories that had been idle or underutilized during the Depression were retooled for war production, creating jobs and reducing unemployment.
Additionally, the war effort led to the need for labor in industries related to defense, manufacturing, and logistics. This demand for workers absorbed many of the unemployed into jobs, lowering the unemployment rate substantially. The war also helped address the economic stagnation by forcing technological advancements and industrial production at an unprecedented scale, leading to further economic growth.
In Keynesian terms, this government-driven expenditure—though driven by military needs—acted as a catalyst for broader economic recovery. The spending boosted demand in both the public and private sectors, and as unemployment fell, people had more income to spend, further stimulating economic activity. Thus, World War II, through increased government spending, directly contributed to reducing the high levels of unemployment that were a hallmark of the Great Depression.