Question

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Answer 1

Answer: There was a two-year post–World War I recession immediately following the end of the war, complicating the absorption of millions of veterans into the economy. The economy started to grow, but it had not yet completed all the adjustments in shifting from a wartime to a peacetime economy. Factors identified as contributing to the downturn include returning troops, which created a surge in the civilian labor force and problems in absorbing the veterans; a decline in labor union strife; changes in fiscal and monetary policy; and changes in price expectations. The recession lasted from January 1920 to July 1921, or 18 months, according to the National Bureau of Economic Research. This was longer than most post–World War I recessions, but was shorter than recessions of 1910–12 and 1913–1914 (24 and 23 months respectively). It was significantly shorter than the Great Depression (132 months). Estimates for the decline in Gross National Product also vary. The U.S. Department of Commerce estimates that GNP declined 6.9%, Nathan Balke and Robert J. Gordon estimate a decline of 3.5%, and Christina Romer estimates a decline of 2.4%. There is no formal definition of economic depression, but two informal rules are a 10% decline in GDP or a recession lasting more than three years, and the unemployment rate climbing above 10%.