DEMIDRILLS ECONOMICS. the World Scholar s Cup EDITION. Economics of World War I ECONOMICS. EDITOR Josephine Richstad

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1 YE AR EDITION S DO ING OU RB ECONOMICS ECONOMICS Economics of World War I EST, SO DEMIDRILLS EDITOR Josephine Richstad the World Scholar s Cup ALPACA-IN-CHIEF Daniel Berdichevsky YO U CA N DO YO U RS

2 1.01 MATCHING ( ) WWI ECONOMICS DEMIDRILLS 1 IV. An Economic History of World War I This DemiDrills section covers pages in the official curriculum guide. It discusses the economic causes and consequences of World War I, including how the war was financed and postwar demobilization costs. Fundamental econonomic concepts are covered in a separate DemiDrills tutorial-style guide. Match me if you can. Match the letter of each country on the left with the appropriate fact on the right. Most letters will be used twice. a. Serbia b. Austria-Hungary c. Germany d. France e. Russia f. Great Britain g. Italy h. United States 1. Was economically underdeveloped at the start of war 2. Suffered about 114,000 fatal casualties during the war 3. Had a backward economy at the start of the war 4. Passed a selective service act in 1917 to mobilize men 5. Established a naval blockade of Germany almost immediately after the war started 6. Asked Mexico to declare war on the United States 7. Suffered military deaths equal to 5.7 percent of its population 8. Suffered the most extensive physical damage of any nation involved in the war 9. Saw the greatest gains in automotive manufacturing 10. Had substantial agricultural production capacity 11. Bore the greatest economic cost of any Allied nation involved in the war 12. Attacked the Lusitania and the Sussex 13. Made the declaration that started World War I 14. Devoted nearly 40 percent of its economic output to the war effort by 1917

3 1.02 FILL IN THE BLANK ( ) WWI ECONOMICS DEMIDRILLS 2 Bringing context to a theater near you. Below is a series of statements about early twentieth-century economics. Fill in each blank with the appropriate word. 1. In total, over million military personnel were involved in World War I, with approximately million dead before the official end of the war in declared war on on August 1, 1914, and declared war on on August The British naval blockade of Germany interrupted nearly all trade with the, including the transport of food. 4. The Germans used their new to isolate the British economy, thus beginning a new kind of warfare. 5. In England, output rose by 25 percent from 1913 to 1917, and the increase of production began in 1915; however, output decreased. 6. In August 1914, France began building an army of over million men, most of them coming from industry. 7. The greatest economic gains in Italy were observed in the and industries, as well as. 8. Russia s per capita national income was somewhere between and percent of the U.S. level at the beginning of the war. 9. One of Russia s biggest resources was its enormous ; unfortunately, it was forced to withdraw in defeat from the war in. 10. A German submarine attacked the Sussex because its crew believed it was a vessel; in reality, it was a French. 11. The Germans signed a pledge claiming that only ships were subject to attack; they soon violated the pledge, however, sinking American ships in March 1917 alone. 12. American men were drafted into the military through, or compulsory. 13. In order to get its soldiers to Europe, America needed a great transport fleet; overall, Britain supplied about half the vessels needed, with the rest coming from the. 14. The was established in July 1917 to coordinate the American government s of war products. 15. An independent committee used a system of pricing to set prices for warrelated material.

4 1.03 EITHER OR ( ) WWI ECONOMICS DEMIDRILLS 3 Coffee or tea? Each of these statements about wartime economics needs to be finished. Circle the one that best completes the sentence. An example is provided. Example Scrambled eggs with ketchup are (DELICIOUS, HORRIFIC). 1. In a bulk-line pricing strategy, the intersection of the (VERTICAL, HORIZONTAL) bulk-line and the (PROFIT, COST CURVE) determines the cost per unit to obtain the required output. 2. During World War I, the United States Price Fixing Committee determined that (100, 80) percent of the total industry output would be necessary to sustain war efforts, an estimation that resulted in (SHORTAGES, SURPLUSES) of goods. 3. The U.S. Food Administration, created in 1917, was led by (WOODROW WILSON, HERBERT HOOVER) and relied on (COOPERATION, RATIONING) for success. 4. The Railroad Administration was created to deal with (THEFT, CONGESTION) that prevented (SUPPLIES, SOLDIERS) from being transported. 5. President Wilson created the Fuel Administration to set the price of (GASOLINE, COAL); it remained a part of the government for (FIVE, TWO) years. 6. The loans provided by wealthier members of the Allied and Central powers must be (ADDED TO, SUBTRACTED FROM) the (NET, GROSS) costs of the war to yield the (NET, GROSS) costs. 7. In total, the (INDIRECT, DIRECT) net costs of the war equaled approximately ($152B, $338B). 8. The (AMERICANS, BRITISH) had the highest per capita gross and net costs among the Allies, while the (AUSTRO-HUNGARIANS, GERMANS) had the highest per capita gross and net costs among the Central Powers. 9. Lost production and the capitalized value of lives lost reflect (DIRECT, OPPORTUNITY) costs. 10. In 2005, economists estimated that about (TEN, ONE) percent of the total population of the involved countries had been lost to war; nearly (THREE, SIX) percent of the Central Powers population was lost. 11. Human loss during World War I implies a significant reduction of human (CAPITAL, PRODUCTIVITY) in the various economies involved. 12. Economists have pointed out the technical problems with the direct and indirect costs calculated for World War I by (BOGART, BROADBERRY AND HARRISON), revealing that (BRITAIN, FRANCE) bore the largest costs among the Allied countries.

5 1.04 THE BIG PICTURE (111) WWI ECONOMICS DEMIDRILLS 4 Let slip the costs of war. All the countries involved in World War I paid a steep price in both people and goods. The figures below are based on Figure 60 in the curriculum guide. Refer to the Nation Bank below to complete the chart detailing national expenditures. Caution: The Allies and Central Powers are not separated in this chart, so be sure to look at the big picture when ranking the countries. NATION BANK Germany Italy Turkey & Bulgaria France British Empire Russia Austria-Hungary Other Allies United States NATION GROSS COST ($MIL) NET COST ($MIL) 1. 48,523 39, ,150 37, ,813 24, ,594 22, ,623 20, ,314 12, ,080 22, ,964 3, ,245 2,245

6 1.05 TRUE OR FALSE ( ) WWI ECONOMICS DEMIDRILLS 5 Cross my heart and hope to score 10,000. Some of the statements below are true. Others are false. If it s false, make it true and explain why the statement was wrong. An example has been provided. T F Example: World War Z was about vampires of unusual haste. zombies T F 1. The indirect costs of World War I were minimal for most of the nations involved. T F 2. Most of America s wartime spending was financed by private industry. T F 3. American income tax rates were higher after the war than before it. T F 4. Tax revenue generated about 35% of total American war spending. T F 5. The Federal Reserve financed some of the war by printing $4.4 billion. T F 6. During the war, the British cost of living sharply decreased. T F 7. Debt financing was the most important means of raising war funds in Britain. T F 8. The French financed the early part of the war through long-term debt. T F 9. Prior to World War I, France had debt levels around 30% of GDP. T F 10. In 1916, France passed a new tax on extraordinary war profits. T F 11. The German government used debt to finance 81% of its war expenditures. T F 12. The hyperinflation experienced in Germany helped pave the way for the Nazis.

7 1.06 DEFINITIONS ( ) WWI ECONOMICS DEMIDRILLS 6 Forget your abs for a minute. World War I introduced into the economic conversation some interesting new concepts. Some terms related to this history are listed below. Define each term carefully. Example: trend A prevailing tendency, as when we decided the 1980s were cool again 1. Zimmerman telegram 2. Lever Food and Fuel Act 3. indirect cost 4. human capital 5. Liberty Bonds 6. excise tax 7. inflation tax 8. Gross Domestic Product 9. expenditure approach 10. inflation-adjusted level 11. durable goods 12. Treaty of Versailles

8 1.07 ANSWER ME THIS ( ) WWI ECONOMICS DEMIDRILLS 7 One alpaca-sized duck or a hundred duck-sized alpacas? Answer equally confounding questions about the economic history of World War I below. Example Which superhero can leap tall buildings in a single bound? Superman 1. Besides the expenditure approach, what is another way to measure Gross Domestic Product? 2. When the expenditure approach is used to measure GDP, what four categories are considered in the calculation? 3. What created a sustained economic boom for the United States that outlasted America s direct involvement in the war? 4. What happened to the German and Austrian economies during the war? 5. About how many soldiers returned to the American labor market by mid-1920? 6. What domestic element contributed most to the American post-war economic boom? 7. What approximate percentage of its 1913 inflation-adjusted national income level did Germany reach by 1919? 8. On what grounds did Germany lodge complaints against the Allies regarding the Treaty of Versailles? 9. What book did John Maynard Keynes publish criticizing the Treaty of Versailles?

9 WWI ECONOMICS DEMIDRILLS NAME THAT GENIUS ( ) Smart economists are in limited supply. Economics wouldn t be the same without the efforts of some smart cookies. Match each person below to his accomplishment. Example: Khan Noonian Singh 1. Wesley Mitchell 2. Alan Peacock & Jack Wiseman 3. Robert Higgs 4. Peter Lindert 5. Stephen Broadberry & Mark Harrison 6. John Maynard Keynes 7. J.A. Salter 8. Ernest Bogart Wrathful genetically engineered genius with a passing resemblance to Sherlock Holmes; possessed of magical blood; habitually causes the reversible deaths of key Enterprise crew members. a. Countered the ratchet effect theory by claiming that the increasing role of government had been well established prior to the war b. Wrote that World War I was a war of competing blockades [and] competing armies c. Felt the terms of the Treaty of Versailles prevented an integrated and unified Europe d. Developed technically flawed estimates of the direct and indirect costs of World War I e. Said that the semblance of a cyclical expansion worn by wartime prosperity cloaks profound changes in economic organization. f. Claimed that the ratchet effect only reflected debt service payments g. Argued that the ratchet effect laid the groundwork for government expansion during the New Deal h. Argued that World War I had a ratchet effect on government spending

10 WWI ECONOMICS DEMIDRILLS FILL IN THE BLANK ( ) Blank on it. Below is a series of statements about early twentieth-century economics. Fill in each blank with the appropriate word. 1. The most important consequence of World War I may have been the groundwork the laid for the. 2. According to John Maynard Keynes, the terms of the Versailles Treaty an integrated and unified Europe, which he thought was important to European. 3. Keynes also believed that the Treaty s terms were with those laid out in President Wilson s. 4. Wilson s proposal forced Germans to pay for damage to territory, but not for losses at, from sea, or damage from. 5. Keynes claimed that the generality of one phrase from the treaty gave an enormous amount of work to the and the. 6. In total, the Treaty of Versailles required the Germans to pay $ billion at a rate of $ million per year until 1925 and $ million per year in interest afterwards. 7. Keynes argued that $ billion was a more reasonable sum to expect for damages to the. 8. Keynes also predicted that the perils of the future lay [ ] in,, and. 9. Some historians have argued that the Germans were to pay their debts, but were to do so. 10. These historians have pointed out that the German reparations were less than those imposed by on after the. 11. Germany s final reparations payment was made in of. 12. advances made World War I especially compared to previous conflicts. 13. The newly developed inflicted large casualties on both sides during warfare. 14. The development of, attack, and weaponized was also significant. 15. Many historians believe really predicted the of World War I.

11 1.10 TIMELINE (121) WWI ECONOMICS DEMIDRILLS 10 At least until J.J. Abrams gets involved. Draw lines connecting information in the event bank to the appropriate spots in the timeline below. Each year (or span of years) corresponds to an event in the bank. Years along the timeline are not distributed to scale. EVENT BANK Germany declares unrestricted submarine warfare Germany declares war on Russia Peace negotiations between Russia and Germany begin Italy declares war on Austria- Hungary Germany declares war on Belgium; England declares war on Germany Zimmerman telegram is sent from Germany to Mexico A Bosnian-Serb terrorist assassinates Archduke Franz Ferdinand The Lusitania is torpedoed by a German U-boat and sinks Austria-Hungary declares war on Serbia Germany declares war on France The US declares war on Germany Armistice between Germany and the Allies July 28, 1914 May 7, 1915 Apr. 6, 1917 Nov. 11, 1918 Aug. 3, 1914 Jan. 16, 1917 Aug. 1, 1914 Feb. 1, 1917 June 28, 1914 Aug. 4, 1914 May 23, 1915 Dec. 22, 1917

12 1.01 MATCHING 1. G 2. H 3. E 4. H 5. F 6. C 7. A 8. D 9. G 10. E WWI ECONOMICS DEMIDRILLS 11 Answer Key 11. D 12. C 13. B 14. F 1.02 FILL IN THE BLANK 1. 70, Germany, Russia, England, Germany 3. American, Central Powers 4. U-boats (or submarines), economic 5. steel, munitions, coal 6. 5, private 7. mechanical, engineering, hydroelectricity 8. 11, EITHER OR 1. vertical, cost curve 2. 80, shortages 3. Herbert Hoover, cooperation 4. congestion, supplies 5. coal, two 6. subtracted from, gross, net 1.04 THE BIG PICTURE 1. British Empire 2. Germany 3. France 4. Russia 5. Austria-Hungary 1.05 TRUE OR FALSE 1. False minimal, substantial 2. False private industry, government borrowing 3. True 4. False 35%, 25% 5. True 6. False decreased, increased 9. population, mine-laying, ferry 11. merchant, conscription, enlistment 13. trans-atlantic, Emergency Fleet Corporation 14. War Industries Board (WIB), procurement 15. bulk-line 7. indirect, $152B 8. British, Germans 9. opportunity 10. one, three 11. capital 12. Bogart, France 6. Italy 7. United States 8. Other Allies 9. Turkey & Bulgaria 7. True 8. False long-term, short-term 9. False 30%, 65% 10. True 11. True 12. True 1.06 DEFINITIONS 1. a telegram in which the Germans asked Mexico to declare war on the United States; was intercepted and decoded by the British 2. a U.S. law passed in 1917 that created the Food, Railroad, and Fuel Administrations to manage resources for the war effort 3. spending and resources contributed to a cause outside the direct costs; in the war, these included property losses, shipping and cargo losses, lost production, war relief, and capitalized value of civilian and soldier deaths 4. the overall stock of skill and knowledge present among a group of people 5. bonds purchased by Americans who wanted to contribute to the war effort; interest rates ranged from 3.5 to 4.25 percent; four different issues of the bond occurred from 1917 to a direct tax levied on specific (but not all) goods; during the war, Britain levied these taxes on alcohol, tobacco, tea, automobiles, and musical instruments 7. a situation occurring when prices and the overall supply of money inflate at a similar rate, decreasing the average person s purchasing power 8. the dollar value of all goods and services produced in an economy in a given year 9. a method of measuring GDP in which the total value of final goods and services is calculated by adding up the total spending of different sectors in the economy 10. a level of GDP in which the price level is held constant so that any changes in GDP reflect actual changes in production 11. goods expected to last an average of at least three years (for example, automobiles or appliances) 12. a treaty signed by the Allies in 1919 that put an end to the war and made significant economic demands on Germany

13 WWI ECONOMICS DEMIDRILLS ANSWER ME THIS 1. the income approach 2. private households, business firms, governments, and foreign buyers 3. European purchases of American goods 4. They contracted sharply. 5. four million 6. spending by business on plants and equipment % 8. They claimed it amounted to signing its own death warrant. 9. The Economic Consequences of the Peace (1919) 1.08 NAME THAT GENIUS 1. e 2. h 3. g 4. a 1.09 FILL IN THE BLANK 1. peace, Second World War 2. prevented, stability 3. inconsistent, Fourteen Points 4. invaded, sea, bombardments, air raids 5. sophists, lawyers 6. 33, 375, , Allied countries (or Allies) 8. food, coal, transport 5. f 6. c 7. b 8. d 9. able, unwilling 10. Germany, France, Franco-Prussian War 11. October, Technological, lethal 13. machine guns, trench 14. tanks, aircraft, poison gas 15. economics, outcome 1.10 TIMELINE June 28, 1914: Bosnian-Serb terrorist assassinates Austrian Archduke Franz Ferdinand July 28, 1914: Austria-Hungary declares war on Serbia Aug. 1, 1914: Germany declares war on Russia Aug. 3, 1914: Germany declares war on France Aug. 4, 1914: Germany declares war on Belgium; England declares war on Germany May 7, 1915: The Lusitania is torpedoed by a German U-boat and sinks May 23, 1915: Italy declares war on Austria-Hungary Jan. 16, 1917: Zimmerman telegram is sent from Germany to Mexico Feb. 1, 1917: Germany declares unrestricted submarine warfare Apr. 6, 1917: U.S. declares war on Germany Dec. 22, 1917: Peace negotiations between Russia and Germany begin Nov. 11, 1918: Armistice between Germany and the Allies