The simultaneous high inflation and high unemployment shown above ("stagflation") most directly challenged which prevailing economic theory?

Answer: Keynesian demand management, which assumed inflation and unemployment moved inversely The Phillips Curve underlying postwar Keynesianism predicted a tradeoff between inflation and unemployment. The 1970s' simultaneous rise in both broke that model and opened space for monetarism and supply-side economics.

The GI Bill (1944, expanded postwar)

Answer: Provided returning veterans with education benefits, low-interest home loans, and unemployment insurance Expanded the middle class significantly, though benefits were unevenly distributed by race.

Answer: Was the unusual combination of high inflation and high unemployment Challenged Keynesian economic assumptions; led to monetarist responses.

AP US History · Topic 8.4

Economy after 1945 Practice

Part of Period 8: 1945–1980.

Practice questions

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Sample questions

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Sample 1difficulty 4/5
$The simultaneous high inflation and high unemployment shown above ("stagflation") most directly challenged which prevailing economic theory?$
- A
  $Adam Smith's classical free-market economics$
- B
  $Keynesian demand management, which assumed inflation and unemployment moved inversely$
  check_circle
- C
  $Mercantilist trade-balance theory$
- D
  $Marxist labor theory of value$
Why
$The Phillips Curve underlying postwar Keynesianism predicted a tradeoff between inflation and unemployment. The 1970s' simultaneous rise in both broke that model and opened space for monetarism and supply-side economics.$
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Sample 2difficulty 4/5
$The GI Bill (1944, expanded postwar)$
- A
  $Provided returning veterans with education benefits, low-interest home loans, and unemployment insurance$
  check_circle
- B
  $Was a major tax law that raised income taxes on returning veterans to fund postwar reconstruction in Europe$
- C
  $Was a proposed veterans benefits program that Congress rejected, leaving WWII veterans without federal assistance$
- D
  $Was a benefits package available to all civilians regardless of military service, funded through new payroll taxes$
Why
$Expanded the middle class significantly, though benefits were unevenly distributed by race.$
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Sample 3difficulty 4/5
$Stagflation (1970s)$
- A
  $Was an economic crisis confined to Western Europe with no real U.S. effect$
- B
  $Was a deflationary collapse in prices and wages much like the early 1930s$
- C
  $Was a period of rapid economic growth with low inflation and falling joblessness$
- D
  $Was the unusual combination of high inflation and high unemployment$
  check_circle
Why
$Challenged Keynesian economic assumptions; led to monetarist responses.$
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Sample 4difficulty 4/5
$The 1973 Oil Crisis$
- A
  $Was a purely domestic dispute over Texas oil prices that had no link to OPEC, the Middle East, or foreign policy$
- B
  $Was an OPEC oil embargo against Western support of Israel; caused fuel shortages, inflation, and economic stagnation$
  check_circle
- C
  $Increased the global oil supply and caused gasoline prices to fall sharply throughout the United States and Europe$
- D
  $Was a brief, minor disruption that lasted only a few days and had no significant impact on inflation or the economy$
Why
$Began an era of stagflation and energy concerns.$
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