The American government lost gold worth $8 billion due to the balance of trade during this period and hitherto, there has been a deficit in the economy (Vatter 264). The Federal Reserve Banks board of governors contributed to the 1950s inflation through their policies (Vatter 129). They depended on the general credit control quantitative tools such as open market operations, changes in the bank reserve ratios and the discount rate. This was in an attempt to react to the looming economic downturns and recession and restore price stability in the economy. Prices Of Commodities The prices of commodities significantly increased during this period and this contribution of many factors.
One of such factors is the slackened productivity growth that was generally observed in the service sector, as a result, the elimination of price control after the World War II. Another main reason for increased prices of commodities was the Federal Reserve policy set by the Federal Reserve Bank in order to limit the American economy not to experience massive declines. The Federal Reserve Bank wanted the economy to experience only mild recessions instead. The other factor for increased commodity prices is the increased credit and demand by the consumers caused by the industrial sector’s poor productivity.
Other contributing factors were the significant rise in social security taxes and indirect taxes on businesses to almost double. Government Budget Classical budget maxims were then incorporated by the government with the aim of improving departmental efficiency, reducing the size of the budget and minimizing waste. The economic growth was generally entrusted to the hands of the private investors. During this era, the expenditures by the American government on defense and military decreased after the halt of the Korean War.
These funds were, however, re-channeled to social welfare programs as well as airports and highway construction grants. These steps taken by the government resulted in a significant rise in taxes in the economy and a consequential rise in the services offered by the government. Business Sector Several developments in the business sector were experienced during this era, especially financial intermediaries and capital markets. There was an increase of 27% in the housing supply and a general rise in the quality of housing in America.
Americans shifted from the suburbs to urban settlements due to rise in the level of living and health condition (Barach 57). There was increased consumer credit, industrial investments, and construction.
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