8-1 Discussion

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1950-1960 Economic History Analysis

Megan George ECO 202

Professor Errera

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1950-1960 of U.S. Economic History Overview

• In the 1950s the U.S was enjoying a prosperous economy compared to other countries around the world after the ending of World War II.Â

• In the 1950s the economy had grown by 37% making American families have very high purchasing power.

• There were low inflation and unemployment in the country. • There was a rise in consumerism since consumer goods

were made available after World War II so many people were consuming a lot of stuff.

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Gross Domestic Product (GDP)

• Gross Product is the measurement of the total production of goods and services of a country that is produced within a specified time period. It is typically a period of one year (Roser, 2020)

U.S. Bureau of Economic Analysis, 2020

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Recessions in 1954 and 1958


• In 1954 and 1958 there are dips in the economy and this led to recessions.

• In 1954 according to The National Bureau of Economic Research, there was a recession from 1953 to 1954 for 10 months because of the Korean war. The GDP declined due to a change in interest rates and was 2.2 %.

• In 1958 where another recession occurred because of the Fed's contractionary monetary policy and the decline in foreign trade. The GDP dropped to 3.3% and unemployment peaked to 6.8%

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Unemployment and Inflation Graph ▪ 1950, the unemployment rate was 3.3% because of the ending of

World war II. ▪ In 1954 unemployment increased to 5.6% because of the

recession and change in interest rates. This also affected the GDP. ▪ In 1958, the GDP decreased because unemployment had increased

to 6.2%.

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Impact of Recession in 1954 1958


•Reduction of GDP to 2.2% and the decrease in the unemployment rate.

•The inflation rate increased after the Korean war as a lot of money was allocated to national security. The Federal Reserve placed tightened monetary policy to stop inflation and this led to the change in interest rates. This, in turn, decreased aggregate demand.

•In 1958 inflation continued to rise since prices of commodities were very high and this was because of low foreign trade. This led to a GDP decline of 3.3% and an unemployment rate of 6.2%.

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Interest Rate


In the 1950s there were various changes in interest rates because of:

• Increase in consumerism

• Private and government investments.

• Increase in foreign trade

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Impact of Interest Rates Flactuations

• From the early 1950s, there was a gradual increase in interest rates. This led to a decrease in inflation and an increase in GDP.

• This, therefore, led to a high employment rate and people were consuming a lot of goods and taking debts.

• Â The U.S economy prospered in the 1950s and there was a boom and this led to the rise of the American middle class.

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Foreign Trade: Imports and Exports

• In the 1950s the United States currency had gained great value and the dollar was worth a lot in the foreign market. This was because of the recession the country's economy had gone through.

• The increase in dollar value meant that the country could increase its import of foreign products and services.

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Foreign Trade: Imports and Exports

• The United States imports rose fast this also increased the gross national product. On the other hand, in 1955, exports rose considerably faster.

• An increase in imports affected exchange rates by increasing the dollar value while exports reduced.

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Foreign Trade: Models • After World War II, American

leaders wanted to establish international trade rules that would increase more trade so that they could after the war and Great depression.

• In 1954 and 1958 the recessions boosted aggregate demand and this shifts the demand curve to the right since the expansionary fiscal policy is used.

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1950-1960 Fiscal Policies

In 1950 the country was just coming from the end of World War II and it was characterized by the following: • GDP growth rate of -0.6% in 1949, and keeping a high GDP growth

rate of 8.7% in 1950. • The current employment was 3.3% which was low from 6.1% due to

the ending of the second world war. • Labor productivity was at an all-time high of 9.69% at the end of 1950. • The beginning of the decade began with a deflation but at the end of

1950, the inflation rate was over 8% due to the ending of World War II. 


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Fiscal Policy Actions • In the 1950s Eisenhower signed legislation that expanded Social

Security and offered increased minimum wage and low-income houses. • In 1956, Eisenhower created the Interstate Highway Program. • In 1961 the Congress increased government spending which had

increased from 31% to 49% and this was a substantial amount and this was despite the president's wish of the government spending less money.

• Despite recessions in 1953 and 1957, the economy still expanded with a low unemployment rate and an inflation rate of 2% or less. Personal income increased by 45% and this increased people's purchasing power hence an increase in the GDP.

• In 1954, Eisenhower called for sharp military cutbacks on the Korean articles.

• In 1955 the country moved out of a recession from the previous years increasing the Gross National Product by 7.6% and this led the budget surplus being estimated to be 4.1 million dollars in surplus.

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Fiscal Policy Actions

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Fiscal Policy Impact

•Gross domestic product increased by 150% between 1945 and 1960.

•Increase in housing supply by 27% thus increasing the people's quality of life and standard of living.

•Recession in 1954 that increased the unemployment rate to over 6%.

•Increase in Gross National Product after getting out of recession in 1955 at a rate of 7.6%

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Monetary Policy

In 1950 the country was just coming from the end of World War II and it was characterized by the following monetary policies:

• Increased Reserve Bank discount rate. • Taking part in open market sales. • Later in the year, the Fed bought back the government

securities. • Increase in reserve requirements.

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Monetary Policy Actions • Treasury Accord reached in 1951 allowed the Federal

Reserve to resume an active independent monetary policy.

• In 1951 the wan an increase in Reserve requirements and credit controls so that private credit could increase and maintain treasury credit costs so that they can control inflation.

• In 1954 the Fed cut down on the reserve requirements • In 1958 the Fed reduced the Federal Reserve Bank

discount rates by more than 2% and also took part in the open market worth $2 billion.

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Monetary Policy Impact

• Gross domestic product increased by 150% between 1945 and 1960.

• Increase in housing supply by 27% thus increasing the people's quality of life and standard of living.

• Recession in 1954 that increased the unemployment rate to over 6%.

• Stable and minimal inflation in the 1950s. • The overall unemployment rate was very low and stable for

the majority of the time except in 1954 and 1958 when the recessions occurred.

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Monetary Policy Impact

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Conclusions

• During 1950 and 1960 the United States had great economic growth and prosperity. The country was able to produce more than half of the world's manufactured products this increasing it’s Gross Domestic Product by 150% during the decade. Americans were able to enjoy their life without the worry of way and they were able to buy goods and services and were able to get their hands on the first television and many other benefits that come with the booming economy.

• The booming economy also resulted in Americans and televisions and this led to the creation of a mass market. This led to marketers to advertise their products and services through television and radios. People also moved from the suburbs to urban areas.

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“Agree/Disagree”

• I agree with President Eisenhower's actions to reduce government spending and using contractionary monetary policy as the Gross domestic product increased by 150% between 1945 and 1960. In addition to that, the increase in housing supply by 27% increased the people's quality of life and standard of living.

• The Federal Reserve placed tightened monetary policy to stop inflation after the recession period and I agree with this monetary policy because it led to a moderate level of inflation when compared to other decades.

• In 1954, Eisenhower called for sharp military cutbacks on the Korean articles. I agree with this monetary policy since it helped the country after the recession to increase the Gross National Product by 7.6% and this led the budget surplus being estimated to be 4.1 million dollars in surplus.

•

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References

• Board of Governors of the Federal Reserve System (US). (n.d). Effective Federal Funds Rate [DFF], retrieved from: https://fred.stlouisfed.org/series/ DFF

• Carlson, M.A., & Wheelock, D.C. (2014).Navigating Constraints: The Evolution of Federal Reserve Monetary Policy, 1935-59. Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute. Working Paper No. 205 http://www.dallasfed.org/assets/documents/institute/wpapers/ 2014/0205.pdf

• CEIC Data. (n.d). United States Labour Productivity Growth, Retrieved from: https://www.ceicdata.com/en/indicator/united-states/labour-productivity- growth

• Infation Data. (2015). Average Annual Inflation by Decade [Image File]. Retrieved from: https://inflationdata.com/articles/inflation-cpi-consumer- price-index-1950-1959/

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References

• Khan Academy. (2017). The Eisenhower Era. Retrieved from: https:// www.khanacademy.org/humanities/us-history/postwarera/1950s-america/a/the- eisenhower-era

• Mitchell, D.J. (2017). The 1950s Economic Golden Age Is a Myth. Retrieved from: https://fee.org/articles/the-1950s-economic-golden-age-is-a-myth/

• Pach, C.J. (2017). Dwight D. Eisenhower: Domestic Affairs. [online] Retrieved from: https://millercenter.org/president/eisenhower/

• domestic-affairs • U.S. Bureau of Economic Analysis.(2020). Real Gross Domestic Product

(DISCONTINUED) [GDPC96]. Retrieved from https://fred.stlouisfed.org/series/ GDPC96, January 19, 2020.

• U.S. Bureau of Labor Statistics. Consumer Price Index for All Urban Consumers: All Items in U.S. City Average. Retrieved from: https://fred.stlouisfed.org/series/ CPIAUCS

• Roser, M.(2020). -Economic Growth. Our World in Data.Retrieved from:https:// ourworldindata.org/economic-growth