An economy refers to a specific geological area of organization, administration

CHAPTER 1: LITERATURE REVIEW 1.1 Overview 1.1.1 Definition According to Merriam-Webster Dictionary an Economy could be defined as follows An Economy refers to a specific geological area of organization, administration of currency, industries and commerce, concerning about the distribution of scarce resources among members of society Furthermore the definitions of three major types of modern Economy are included Market Economy : an economic system in which prices are based on competition among private businesses and not controlled by a government Command Economy : an economic system in which activity is controlled by a central authority and the means of production are publicly owned Green Economy : an economic system which is both low-carbon, resource efficient, and socially inclusive 1.1.2 Types of Economic System Scarcity is the fundamental challenge confronting all individuals and nations We all face limitations so we all have to make choices We can't always get what we want How we deal with these limitations—that is, how we prioritize and allocate our limited income, time, and resources—is the basic economic challenge that has confronted individuals and nations throughout history But not every nation has addressed this challenge in the same way Societies have developed different broad economic approaches to manage their resources Economists generally recognize four basic types of economic systems—traditional, command, market, and mixed—but they don’t completely agree on the question of which system best addresses the challenge of scarcity According to According to Macroeconomics by Evgeniy Chernyshov, 2012, economic systems are explained 1.1.2.1 Traditional Economic System As closely as stated in the name, literally this is the most traditional and primal type of economy ever created by humankind Goods and services are produced according to demand patterns developed for a while among a society, normally related to customs, beliefs, geographical properties, etc It still survives in some part of the globe today in some second/third world countries, even though proves vulnerable against bigger economy due to underdevelopment of technology Production is performed under mostly the basic needs of a group of people, which mea1ns that trade only happens when producer has fulfilled his own demand As a result, changes are rare to happen From range of goods, demanding level, customers to quality, quantity, standard and price, both remain stable for a long period Unpredictable market fluctuation is also not expected among buyers and suppliers Therefore, Economic stability is guaranteed due to specific roles of individuals in the economy, resulting in social order and happiness Community power surpass individuality in means of each human living in a society has to contribute both labour and wealth in order to flourish such society Profit or surplus is unaffordable due to scarcity of resources, and even somehow it happens, later it will be distributed or paid to authority 1.1.2.2 Command Economic System The system is one step advance from the traditional one, with the government takes control of the economy in means of resources distribution The birth of the system demands a vast accumulation of wealth of the authority The government then has the decision over almost resources, including the roles of individuals, price and wages Which, how and how much of a field should be taken over is in the management of the government, which means some of the industries are completely under control of the government while some are free in the hand of the people such as agriculture in almost every nations under such system Provided that the government provides efficient policies, life standard of the people would improve significantly as the mechanism allows the selfsufficiency among the people, leading to zero competition while price is affordable according to the regulation of the government On the contrary, economy would fall into stagnancy if the government can not administrate and outside force has no power in the market 1.1.2.3 Market Economic System Economic decisions are in the hand of individual Resources, targets, production, distribution of goods, etc are determined by the organizations rather than the government The separation of market and government in Market/Pure Economy allows freedom and reduce the power of the government on the development of individuals Market under system similar to capitalism is highly safer than this system due to the regulation on fair trade, anti-trust, government programs; even though with the price of complete freedom The system only exist in a group of people with a specific interest 1.1.2.4 Mixed Economic System Mixed Economic System is a fusion of two Systems mentioned above: decisions by individuals ( Market Economic System ) and the government distributing resources ( Command Economic System ) The market is on a level under control of the government Particular sectors are dominated fully by the government of some nations such as education, medical healthcare, etc The power of the government never can be indicated precisely This has been proven by the present American economy in which the authority is interfering the market as the situation is getting out of hand 1.2 Government Administration in the Economy 1.2.1 The necessity of Government intervention in the Economy According to the theory of the market economy, the law of supply demand, competition law, law of value, etc must be respected by the State Thus the market economy is capable of balancing supply - demand; and labor markets, capital or land only operated in accordance with the law of value as it eliminates the interference of the State The above reasoning is stated in almost every present economics books, and is said to be the obvious, undeniable However, can popularity satisfy righteousness? The history of more than two recent centuries of capitalism has never witnessed a pure market economy, which is not subjected to regulation, under this form or another, of the State Take a look at the financial and credit markets of which characteristics leave a profound mark on the financial and credit market of America, associations, bankers and financial firms are urging the US government to publish stricter market management laws in order to restore the confidence of the trade and prevent the collapse of the whole banking and finance sector History has proved that the most successful market economies cannot developed spontaneously without the intervention and support of the State The primal market economy operated on simple production and exchange can work effectively without a Government However, as the external influence increasingly growing complex, State intervention appears as an indispensable for the effective operation of the market economy In the developed market economy, the State has three distinct economic functions : intervention, management and regulation of welfare Although certain restrictions still exist, regulation by the Authority remains one of the activities of the market economy Accordingly, the free market with its own rights can not exist, except in the economic theory However, while confirming the importance of the Government in the Market, pros-cons must be taken into thorough consideration The workaround is not to leave the market, but to improve the efficiency of such intervention The State has a legitimate role in the modern economy, which particularly expresses the determination of "the rules of the game" to intervene in the regions that flaws in the market economy, to ensure the capability of the economy and to provide welfare services The Government plays a huge role in creating the economic conditions for the private sector in order to boost their operational efficiency One of these conditions is to create and maintain a stable currency market, that is widely accepted and capable of removing cumbersome, inefficient trading system, and at the same time maintaining monetary value through policies to limit inflation Historically, the market economy has always been threatened by sudden currency appreciation, rising unemployment rate, or inflation History has yet to forget the severe period of hyperinflation in Germany in the 1920s, the Great Depression the world economy in the 30s of the twentieth century, when the whole world fall into unemployment Financial policies indicates tax and spending policies of the State budget in order to regulate the economic cycle, ensuring employment, price stability and continuous growth of the economy During periods of economic downturn, fiscal policy works as stimulus to demand and production by increasing government spending, tax cuts, thus generating national income And in times of economic "overheating", the government practises the contrary To rebalance the intentional fiscal measures, the State created the socalled stabilization mechanism, such as the progressive income tax and unemployment Fiscal policy running independently with the monetary policy is a policy to regulate economic activity by controlling the money supply The Government and Central Bank have two important tools for economic management namely fiscal policy and monetary policy If used properly, both tools can bring about the same results in stimulating the economy and slow economic growth when hot According to Macroeconomics by Evgeniy Chernyshov, 2012, Fiscal and Monetary Policies are defined as below 1.2.2 Fiscal Policies Definition : Systems of government policies on finance, is often planned and performed completely in a fiscal year in order to influence the development of economy through adjusting government spending and budget revenues policies (mostly tax revenues) Fiscal policies can be roughly divided into Balanced fiscal policies, Expansionary fiscal policies and Tight fiscal policies Balanced fiscal policies is fiscal policy under which the Government's total expenditure in balance with revenues from taxes, charges, fees and other revenues that are not debt Expansionary fiscal policies (also known as the Reflationary fiscal policies) is made to strengthen the government's spending compared to revenues through three solutions Increase the level of government spending without increasing revenues or Reduce tax revenues without reducing spending or Increase the level of government spending and reduce tax revenues Expansionary fiscal policies works as to stimulate economic growth, create jobs However, expansionary fiscal policy often lead to the government having to borrow to offset the budget deficit Tight fiscal policies (also called Contractionary fiscal policies) are the policies limiting government spending compared to revenues by three ways : Reduce government spending without increasing revenues or Increase tax revenues without reducing spending or Increase tax revenues and reduce spending The main functions of Fiscal Policies in market management: Allocation : The first major function of fiscal policy is to determine exactly how funds will be allocated This is closely related to the issues of taxation and spending, because the allocation of funds depends upon the collection of taxes and the government using that revenue for specific purposes The national budget determines how funds are allocated This means that a specific amount of funds is set aside for purposes specifically laid out by the government This has a direct economic impact on the country Distribution : Whereas allocation determines how much will be set aside and for what purpose, the distribution function of fiscal policy is to determine more specifically how those funds will be distributed throughout each segment of the economy For instance, the government might allocate $1 billion toward social welfare programs, but $100 million could be distributed to food stamp programs, while another $250 million is distributed among lowcost housing authority agencies Distribution provides the specific explanation of what allocation was intended for in the first place Stabilization : Stabilization is another important function of fiscal policy in that the purpose of budgeting is to provide stable economic growth Without some restraints on spending, the economic growth of the nation could become unstable, resulting in periods of unrestrained growth and contraction While many might frown upon governmental restraint of growth, the stock market crash of 1929 made it clear that unfettered growth could have serious consequences The cyclical nature of the market means that unrestrained growth cannot continue for an indefinite period When growth periods end, they are followed by contraction in the form of recessions or prolonged recessions known as depressions Fiscal policy is designed to anticipate and mitigate the effects of such economic lulls Development : The fourth major function of fiscal policy is that of development Development seems to indicate economic growth, and that is, in fact, its overall purpose However, fiscal policy is far more complicated than determining how much the government will tax citizens one year and then determining how that money will be spent True economic growth occurs when various projects are financed and carried out using borrowed funds This stems from the the belief that the private sector cannot grow the economy by itself Instead, some government input and influence are needed Borrowing funds for this economic growth is one way in which the government brings about development This economic model developed by John Maynard Keynes has been adopted in various forms since the World War II era 1.2.3 Monetary Policies Definition : process of management of money supply of the monetary authorities (probably central bank), usually towards a desired interest rate to achieve stability purposes and economic growth - such as controlling inflation, maintaining stable exchange rates, achieve full employment or economic growth Monetary Policies use mainly three tools in administrating the flow of money in market: Open market operations involve the buying and selling of government securities The term “open market” means that the Fed doesn’t decide on its own which securities dealers it will business with on a particular day Rather, the choice emerges from an “open market” in which the various securities dealers that the Fed does business with – the primary dealers – compete on the basis of price Open market operations are flexible, and thus, the most frequently used tool of monetary policy The discount rate is the interest rate charged by Federal Reserve Banks to depository institutions on short-term loans Reserve requirements are the portions of deposits that banks must maintain either in their vaults or on deposit at a Federal Reserve Bank With the three tools, the functions of Monetary Fiscal Policies serve the functions to develop economy, namely economy stabilization and exchangerate intervention 1.2.4 Fiscal Policies and Monetary Policies Interaction In his speech in Mexico Nov 14 2005, Otmar Ising stated that: How should fiscal and monetary authorities co-ordinate their policies to stabilise the economy? To avoid being vague and too general, let me take again the case of EMU as an example With an independent central bank and its stability-oriented strategy, the euro area has a highly predictable monetary policy There is no ambiguity as to how monetary policy will respond to economic, including fiscal developments: it will respond to the extent that they pose risks to price stability The principle of central bank independence and the overriding focus of the single monetary policy on the objective of price stability are two cornerstones of the economic policy constitution enshrined in the Maastricht Treaty They reflect the underlying economic logic that a clear division of responsibilities between the ECB and other economic policy actors is the institutional arrangement most conducive to the attainment of the wider objectives of the European Union Naturally, fiscal policies and structural reforms have monetary policy implications if such reforms affect price developments Therefore, a stability oriented monetary policy will take fiscal policy measures into account in its analysis Yet, there cannot be a commitment to an automatic or even ex-ante monetary policy reaction in response to fiscal consolidation policies or structural reforms Given the absence of credible enforcement mechanisms, ex-ante coordination between monetary and fiscal policies are unlikely to be successful, as I have argued elsewhere in detail In addition, ex-ante coordination tends to blur the fundamental responsibilities for the respective economic actors and may even increase uncertainty about the general policy framework A clear division of responsibilities between monetary and fiscal actors is consistent with implicit policy co-ordination between authorities A single monetary policy that is committed to maintaining price stability in the euro area will by itself facilitate “appropriate” economic outcomes in the Member States If national fiscal authorities correctly perceive the behaviour of the during the first year of the new president proved insufficient in the long run to bring back order to the world economy FDR determined to stabilize the economy on full scale which required farming to be prosperous again By the time the United States sank into the Great Depression, the country had already seen seventy years of nearly constant agitation for federal action in favor of farmers The legislation of the Civil War era—principally the Homestead Act, the Pacific Railroad Act, Managing Farm and Factory the Morrill Land Grant Act— encouraged Americans to go West in the belief they would there find land on which they could settle into single-family farming The Reconstruction of the South after the war had, albeit briefly, encouraged similar hopes of establishing more singlefamily farms there But small-time farmers in America came soon to grief, suffering various combinations of aridity, debt, infestation, and the consolidation of farmland in fewer, larger holdings Roosevelt was keenly interested in farm issues and believed that true prosperity would not return until farming was prosperous Many different programs were directed at farmers The first 100 days produced the Farm Security Act to raise farm incomes by raising the prices farmers received, which was achieved by reducing total farm output The Agricultural Adjustment Act created the Agricultural Adjustment Administration (AAA) in May 1933 The act reflected the demands of leaders of major farm organizations, especially the Farm Bureau, and reflected debates among Roosevelt's farm advisers such as Secretary of Agriculture Henry A Wallace, M.L Wilson, Rexford Tugwell, and George Peek The AAA aimed to raise prices for commodities through artificial scarcity The AAA used a system of domestic allotments, setting total output of corn, cotton, dairy products, hogs, rice, tobacco, and wheat The farmers themselves had a voice in the process of using government to benefit their incomes The AAA paid land owners subsidies for leaving some of their land idling with funds provided by a new tax on food processing To force up farm prices to the point of "parity," 10 million acres (40,000 km2) of growing cotton was plowed up, bountiful crops were left to rot, and six million piglets were killed and discarded The idea was to give farmers a "fair exchange value" for their products in relation to the general economy ("parity level") Farm incomes and the income for the general population recovered fast since the Beginning of 1933 Still, food prices remained well below the 1929 peak and gap between consuming and production remained large The Farm Tenancy Act in 1937 was the last major New Deal legislation that concerned farming It, in turn, created the Farm Security Administration (FSA), which replaced the Resettlement Administration The Food Stamp Plan—a major new welfare program for urban poor—was established in 1939 to provide stamps to poor people who could use them to purchase food at retail outlets Labor Force : The National Labor Relations Act of 1935, also known as the Wagner Act, finally guaranteed workers the rights to collective bargaining through unions of their own choice The Act also established the National Labor Relations Board (NLRB) to facilitate wage agreements and to suppress the repeated labor disturbances The Wagner Act did not compel employers to reach agreement with their employees, but it opened possibilities for American labor The result was a tremendous growth of membership in the labor unions, especially in the massproduction sector, composing the American Federation of Labor Labor thus became a major component of the New Deal political coalition The Fair Labor Standards Act of 1938 set maximum hours (44 per week) and minimum wages (25 cents per hour) for most categories of workers Child labour of children under the age of 16 was forbidden, children under 18 years were forbidden to work in hazardous employment As a result, the wages of 300,000 people were increased and the hours of 1.3 million were reduced It was the last major New Deal legislation that Roosevelt succeeded in enacting into law before the Conservative Coalition of Republicans and conservative Democrats won control of Congress that year While he could usually use the veto to restrain Congress, it could block any Roosevelt legislation it disliked The policies were made in the attempts to recover the finance, in particularly money, and improve living standard, one step at a time, from the bottom were well paid From the beginning of FDR administration to the early start of the war in 1939, with the interruption of recession in 1937-1938, the economy growth enjoyed a stable rate of growth at - 10 percent annually Unemployment rate plummeted from the seemingly-desperate peak in 1932 Despite failures, especially in the attempt to recover agriculture, which resulted poorly due to mis- centralization of resources, and a huge debt generated after massive expenditures, New Deal proved efficient and powerful in the war against the Great Depression Millions of jobs were created, the economy slowly paced in the track and a bright future for the Americans to believe in 3.2 Huge Profit Made by the War 3.2.1 Lend-Lease Programs Lend-Lease programs, formally titled "An Act to Promote the Defense of the United States" were signed on March 1941, serving the purpose of aid to countries in Alliance with supplies, weapons and ammunitions during WWII of the US However, the aids to nations were not at all charity The US received a huge amount of payment after the war had ended 3.2.1.1 Background Following the defeat of France in June 1930, Britain had no other choice but to declare war on Germany Soon enough they found themselves at trouble as 11 destroyers were wiped out in only one month since, and later on arms, money and supplies were running out The Prime Minister of the time, Winston Churchill, turned to the US for help Roosevelt responded with a contract that sent 50 destroyers over the Atlantic Ocean for 99-year leases on British bases in the Caribbean and Newfoundland A debate broke out immediately, questioning the US position in the war, as the contradiction to the "Neutrality Act" signed in 1930 President Roosevelt himself, also stated clearly in the election of 1940, that "I have said this before, but I shall say it again and again and again; your boys are not going to be sent into any foreign wars." Nevertheless, he wanted the US to be a "Great Arsenal of Democracy" as in means of supporting the Britain Churchill required nothing but the support of materialism An aggressive way of opposition erupted, strongly denied the president proposal in the logic that WWII was an inevitable war in Europe and the US did not have any duty to intervene In time, the grudge weakened, replaced by the vision of profitability of the war, the government then tried to show the war against Nazi was the war against evil, a necessary war to defend the peace and democracy In January 1941, FDR proposed a new military aid bills to the Congress In support of the bill, Secretary of War Henry L Stimson told the Senate Foreign Relations Committee during the debate over lend-lease, "We are buying not lending We are buying our own security while we prepare By our delay during the past six years, while Germany was preparing, we find ourselves unprepared and unarmed, facing a thoroughly prepared and armed potential enemy."Though still faced opposition on large, a majority of the Senates and Representatives agreed that involvement in the war was vital Thus on March 1941, the Lend-Lease Bills was signed by FDR after the permission by the Congress, which granted him the privilege to "sell, transfer title to, exchange, lease, lend, or otherwise dispose of, to any such government [whose defense the President deems vital to the defense of the United States] any defense article." President Roosevelt then constructed the Office of Lend-Lease Administration in 1941, steel executive Edward R Stettinius was appointed as head, who later in September 1943, was promoted to Undersecretary of State, and Leo Crowley was assigned as head of the Foreign Economic Administration, the office responsible for Lend-Lease 3.2.2 Amount of Aid to each nation Nation Britain Soviet Union France China Netherlands Belgium Greece Norway Turkey Yugoslavia Saudi Arabia Poland Liberia Iran Ethiopia Iceland Iraq Czechoslovakia Total Amount (million dollars) 31 3871 10 982.1 223.9 627.0 251.1 159.5 81.5 47.0 42.9 32.2 19.0 12.5 11.6 Natio Amount (million dollars) n Brazil Mexico Chile Peru Columbia Ecuador Uruguay Cuba Bolivia Venezuela Guatemala Paraguay Dominican 372.0 39.2 21.6 18.9 8.3 7.8 7.1 6.6 5.5 4.5 2.6 2.0 1.6 5.3 5.3 4.4 Republic Haiti Nicaragua El 2.6 0.9 0.9 0.9 0.6 Salvador Honduras Costa Rica 0.4 0.2 48 395.4 Table : Specific amount of money in aiding nations during WWII 3.2.3 Reverse Lend-Lease While the support from the US to the others was undoubtedly enormous, it was wrong to think the aid is one way The first perception of the programs was that US was providing help out of kindness However this is just a limited point of view that restricted us from seeing the whole picture An agreement of terms including to supplies and some privilege was secretly set up before Lend-Lease had power in any nation Countries would repay the favor of the US under a program named Reverse Lend-Lease Britain and South Asia support against Germany and Japan war The British carried their payment before the war even finished First of all, when the US decided to enter the war their ships had been the courier of American troops moving to the Europe battlefield, where the bases of the Alliance provided shelter for the soldiers They also equipped thirty one percent of all supplies and tools required for the US army there from June 1, 1942 to June 30, 1944 The British had built hundreds of airfields, barracks, hospitals for the US troops, supply roads, depots, and other facilities All the costs of transportation and supplies were responsible by the Brit within the British Isles Most American soldiers stationed in England have received supplemental food rations from British stocks Almost all the bread eaten by our troops while training in Britain was baked with flour furnished under reverse lend-lease Moreover, vehicles for medic were also part of their property In the war against Japan, the Australians and New Zealanders have supplied hundreds of millions of dollars of reverse lend-lease aid to the United States Australia provided US forces with over a million and a quarter pounds of food, as well as blankets, socks, shoes, and other articles of GI clothing New Zealand has made available to our military personnel almost 580,000,000 pounds of food, as well as camps, warehouses, hospitals, small ships, and other equipment USSR (Soviet Union) Other nations began sending Washington essential raw materials valued at nearly 20% of the materials and weapons the US had shipped overseas Specifically, the USSR provided 32,000 tons of manganese and 300,000 tons of chrome ore, which were highly prized by the military industry Suffice it to say that when German industry was deprived of the manganese from the rich deposits in Nikopol as a result of the Soviet Nikopol–Krivoi Rog Offensive in February 1944, the 150-mm frontal armor on the German “Royal Tiger” tanks turned to be much more vulnerable to Soviet artillery shells than the 100-mm armor plate previously found on the ordinary Tiger tanks In addition, the USSR paid for the Allied shipments with gold In fact, one British cruiser, the HMS Edinburgh, was carrying 5.5 tons of that precious metal when it was sunk by German submarines in May 1942 The Soviet Union also returned much of the weaponry and military equipment after the war, as stipulated under the lend-lease agreement In exchange they were issued an invoice for $1,300 million Given the fact that lend-lease debts to other nations had been written off, this seemed like highway robbery, and Stalin demanded that the “Allied debt” be recalculated Subsequently the Americans were forced to admit their error, but they inflated the interest owed in the grand total, and the final amount, including that interest, came to $722 million, a figure that was accepted by the USSR and the US under a settlement agreement signed in Washington in 1972 Of this amount, $48 million was paid to the US in three equal installments in 1973, but subsequent payments were cut off when the US introduced discriminatory practices in their trade with the USSR (in particular, the notorious Jackson-Vanik Amendment) US President Franklin D Roosevelt explicitly stated that aid to Russia was money well spent, and his successor in the White House, Harry Truman, was quoted in the pages of New York Times in June 1941 as saying, “If we see that Germany is winning the war, we ought to help Russia; and if that Russia is winning, we ought to help Germany, and in that way let them kill as many as possible …” Though appeared to be an act of kindness, the Program did not cost the US anything, in fact it was profitable Almost the amount originally contributed to the war of the Alliance has been paid through agreement to supply the US troops in Europe and Asia, plus the return of the American equipments, tools and weapons after the war The Russian burdened an imprecise but surely huge debt, even after paying the US a considerable amount of supplies in exchange for the aid from the “so-concerned” friend Indeed, as clearly meant by Studs Terkel, in The Good War 3.2.2 Other Sources of Income 3.2.2.1 Taxes The Department of the Treasury was remarkably successful at generating money to pay for the war, including the first general income tax in American history and the famous “war bonds” sold to the public Beginning in 1940, the government extended the income tax to virtually all Americans and began collecting the tax via the now-familiar method of continuous withholdings from paychecks (rather than lump-sum payments after the fact) The number of Americans required to pay federal taxes rose from million in 1939 to 43 million in 1945 With such a large pool of taxpayers, the American government took in $45 billion in 1945, an enormous increase over the $8.7 billion collected in 1941 but still far short of the $83 billion spent on the war in 1945 Over that same period, federal tax revenue grew from about percent of GDP to more than 20 percent Americans, who earned as little as $500 per year paid income tax at a 23 percent rate, while those who earned more than $1 million per year paid a 94 percent rate The average income tax rate peaked in 1944 at 20.9 percent 3.2.2.2 War Bonds All told, taxes provided about $136.8 billion of the war’s total cost of $304 billion (Kennedy, 625) To cover the other $167.2 billion, the Treasury Department also expanded its bond program, creating the famous “war bonds” hawked by celebrities and purchased in vast numbers and enormous values by Americans The first war bond was purchased by President Roosevelt on May 1, 1941 (“Introduction to Savings Bonds”) Though the bonds returned only 2.9 percent annual interest after a 10-year maturity, they nonetheless served as a valuable source of revenue for the federal government and an extremely important investment for many Americans Bonds served as a way for citizens to make an economic contribution to the war effort, but because interest on them accumulated slower than consumer prices rose, they could not completely preserve income which could not be readily spent during the war By the time war-bond sales ended in 1946, 85 million Americans had purchased more than $185 billion worth of the securities, often through automatic deductions from their paychecks (“Brief History of World War Two Advertising Campaigns: War Loans and Bonds”) Commercial institutions like banks also bought billions of dollars of bonds and other treasury paper, holding more than $24 billion at the war’s end 3.2.2.3 Anglo-American Loan The Anglo-American Loan Agreement was a post World War II loan made to the United Kingdom by the United States on 15 July 1946, and paid off in 2006 The loan was negotiated by John Maynard Keynes The loan was for $3.75 billion (US$57 billion in 2015) at a low 2% interest rate; Canada loaned an additional US$1.19 billion The loan was made primarily to support British overseas expenditure in the immediate post-war years and not to implement the Labour government's welfare reforms British treasury officials believed they could implement the Labour government's domestic reforms without the loan if Britain withdrew from all major overseas commitments Additionally, Britain's lend-lease balance was written off for $650 million (US$8,544 million in 2016).The British economy had been heavily geared towards war production (around 55% GDP) and had drastically reduced its exports The UK therefore relied on Lend-Lease imports to obtain essential consumer commodities such as food while it could no longer afford to pay for these items using export profits The end of lend-lease thus came as a great economic shock Britain needed to retain some of this equipment in the immediate post war period As a result, the Anglo-American loan came about Lend- lease items retained were sold to Britain at the knockdown price of about 10 cents on the dollar giving an initial value of £1,075 million America offered $US 3.75bn (US$57 billion in 2016) and Canada contributed another US$1.19 bn (US$16 billion in 2016), both at the rate of 2% annual interest [8] The total amount repaid, including interest, was $7.5bn (£3.8bn) to the US and US$2 bn (£1bn) to Canada The last payment was made on 29 December 2006 for the sum of about $83m (£45.5m), the 29th being the last working day of the year All of these profits were smart moves of the US government First of all, with the incoming huge amount of war spending, the head of the States knew for sure, sufficient revenue did not come from any sources that were not generated by the people Clearly as seen there was a critical implementation of taxation that targeted mostly at the rich, who at the time had both reason-to help the nation at war, and resources in the much recovered economy The war bonds came out as success, in consideration of the propaganda made by the government, which regarded the war as a battle against the evil and drove people into thinking they were contributing the righteous Both, as a result, covered pretty much the entire war spending Secondly, with the loan to the British, the US did not only turn themselves into the owner of a huge money, but rather a kind friend who shows a hand in the hard time, as the Prime Minister of the Great Britain, thanked them when they finally paid off the debt in 2006 3.3 War Productivity Despite the almost-continual crises of the civilian war agencies, the American economy expanded at an unprecedented (and unduplicated) rate between 1941 and 1945 The gross national product of the U.S., as measured in constant dollars, grew from $88.6 billion in 1939 — while the country was still suffering from the depression — to $135 billion in 1944 War-related production skyrocketed from just two percent of GNP to 40 percent in 1943 The table below presents the sectors that had magnificent growth throughout the period of 1939-1945 Table : US Head Manufacturing from 1940 to 1944 3.4 Political advantage with two A-bombs in Japan Two A-Bombs Were Dropped On High-Density Civilian Populations In Japan To Make A Political Statement, according to John Hershey in Hiroshima (1989) When Japanese ready to surrender, the showed no hesitation to dropped A- Aircraft Munitions Shipbuilding Aluminum Rubber Steel 1940 245 140 159 126 109 131 1941 630 423 375 189 144 171 1942 1706 2167 1091 318 152 190 1943 2842 3803 1815 561 202 202 1944 2805 2033 1710 474 206 197 the were US bombs to two of the most populated cities of Japan Getting Japan to surrender was the pretext The bombs were dropped to make a point There were political reasons for nuking those two high-density civilian populations, and the United States was not going to let Japan interfere with its political agenda by way of an untimely surrender The dropping of the second bomb on Nagasaki was part of a political maneuver that had already been decided upon — a one-two punch stratagem designed to strike fear into post-war Russia (our ally in the war against Germany) and convince them to accept their subordinate position on the postwar world stage It was not the intention of the scientists who developed the bombs In fact, two of the head scientists sent a letter trying to dissuade the Secretary of Defense to use the bombs However, President Truman decided it was necessary to present the US's possession and demonstration of the bomb in order to make the Russians more manageable in Europe The first reason was clearly : limit the power of the Soviet Union in Europe It had been agreed at a conference in Yalta in February 1945 that the Soviet Union would join the U.S in its war against Japan three months after the Germans were defeated in Europe At the Potsdam conference between Britain, the U.S., and the Soviet Union in July this was reaffirmed Germany had surrendered on May 8, and so the Russian army would be marching into Manchuria on August 9, 1945, and soon thereafter on into the Japanese mainland Truman welcomed Russia as an ally in the war against Japan, but felt that the agreements hammered out at the Potsdam conference had given far too much ground to the Soviets, with several Sovietoccupied countries annexed as Soviet Socialist Republics, and a number of East European countries becoming Soviet Satellite states Secondly, there was not enough time Not until July 16 did the US successfully created the bomb, but the deadline of the USSR was August Any test would have been impossible if the purpose was to knock Japan out before Russia came in – or at least before Russia could make anything other than a token of participation prior to a Japanese collapse Finally, the true purpose of the bombs, was to eliminate the control of the USSR on Japan If the purpose in dropping the bombs, whether on human populations or on a forest, was to effect a Japanese surrender prior to Russia’s entry into the war, the bombs were completely unnecessary There was no need for the atomic bombing of Hiroshima and Nagasaki, nor was there even need of a demonstration of any kind If the purpose of the bombs, was to effect a Japanese surrender prior to Russia’s entry into the war, this surrender was obtainable three weeks earlier without recourse to the bomb simply by accepting Japan’s July 22 nd peace offering In conclusion, under the FDR administration and with the broke out of WW2, the American found themselves out of the worst recession of the history after almost two decades FDR, with the famous New Deal, achieved massive success in bringing the US economy back at a level, despite some troubles emerged next to existing ones Not only after the enrolment of American intervention in the WWII did the economy completely recover, and shortly become the strongest in the world Seizing the opportunity, America, as the only continent free from the effect of the war, turned the war into a profitable event The aid to the nations in the battle field was not merely an act of kindness In fact, in exchange of the favor, countries had had secret agreements with the US, including supplies and infrastructure, gold and money which entitled America with both prosperity and good reputation Moreover, the war cost was covered much on the power of the people, through taxation and war bonds, so the government had no worry but to maintain the profitability of the war Later on, in order to make more profit and acquire a robust global political position, they targeted the rising power of Soviet Union, charged them with huge amount of money, during and even after the war Two bombs dropped on Japan were part of such plan, which served to limit the power of the Communism on the Pacific So after all, when nations were struggling in the post-war, America rose and became the most powerful nation in the world CONCLUSION The study aims at the understandings of the infamous Great Depression taking place in 1930s and the American recovery of the Great Depression through the administration of FDR and the World War II Main methods carried out the study were analysis and comparison The study was based mostly on the collection of information from sources so practical experience was not presented Even though the process of collection was performed in large scale with thorough selection of reliable sources, most of the data are only part of historical records Moreover, the study requires large coverage of the examination and evaluation of information relating to economic, socialism and politics, thus the research done could not fully reflect the core study originally aimed from a detailed and sufficient perspective More advisory from experts as well as further researches of the same topic are necessary if the study was to be fully complete in the future Many successes and failures of the US in attempt to recover the economy are the main features, clearly examined of the study, which could prove useful in the macroeconomic management, providing the same situation under circumstances Moreover, information serving research purposes may have been accumulated in the study Hopefully, the study may contribute to the researches or findings in the future While the study covered a large area of the field dedicated to the title, each part could still be approached from other angles, using different methods such as mathematics to explore varied problems, solutions in order to put the study in a complete and thorough comprehension REFERENCES Charles E Persons, 1930, “Credit Expansion, 1920 to 1929, and Its Lessons”, page 45 to 74 John Maynard Keynes, 1936, “The General Theory of Employment, Interest and Money” Milton Friedman and Anna J Schwartz, 1963, “A Monetary History of the United States 1867–1960” Eric Rauchway, 2008, “The Great Depression and the New Deal: A Very Short Introduction”, chapter 3,4,5 Studs Terkel, 1984, “ A Good War”, Book and Otmar Issing, March 14 2005, [speech] Conference “Stability and Economic Growth: The Role of the Central Bank” Evgeniy Chernyshov, 2012, “Macroeconomics” Chapter and Merriam-Webster’s Learner’s Dictionary [internet], available from http://www.merriamwebster.com/dictionary/economy The Great Depression in Global Perspective [Internet] http://www.digitalhistory.uh.edu/disp_textbook.cfm?smtID=2&psid=3433 available from ... or another, of the State Take a look at the financial and credit markets of which characteristics leave a profound mark on the financial and credit market of America, associations, bankers and... changes, for example the standardization of processes and parts and the contraction of styles and designs, boosted productivity of both capital and labour Also, the mechanization in American manufacturing... decided to ban gold standard is dedicated to the recovery of such The Great Britain and Scandinavian, who pioneered in gold standard abolishment in 1931, got back in pace sooner than France and Belgium,