Question

The large amounts of government spending on the Vietnam War and the Great Society led to inflation for American citizens. Inflation is a situation where money loses some of its purchasing power. The United States government uses an economic measurement known as the Consumer Price Index to measure changes in prices for common consumer products. Consider the following table that highlights changes in prices during the 1960s: Inflation During the Vietnam War Period, 1960 to 1971 Year Change in Consumer Price Index, December to December, Unadjusted Change in CPI, Year-to-Year, Adjusted Change in Producer Price Index, December to December, Unadjusted Change in PPI, Year-to-Year, Adjusted Annual Change in GNP Implicit Price Deflator 1960 1.5 1.6 1.8 0.8 1.6 1961 0.7 1.0 −0.5 0.0 0.9 1962 1.2 1.1 0.1 0.3 1.8 1963 1.6 1.2 −0.2 −0.3 1.5 1964 1.2 1.3 0.5 0.4 1.5 1965 1.9 1.7 3.3 1.7 2.2 1966 3.4 2.9 2.2 3.2 3.2 1967 3.0 2.9 1.6 1.2 3.0 1968 4.7 4.2 3.1 2.8 4.4 1969 6.1 5.4 4.8 3.7 5.1 1970 5.5 5.9 2.2 3.5 5.4 1971 3.4 4.3 3.2 3.1 5.0 Source: Economic Report of the President, 1982: 237, 295, 302 Answer the following questions. Use the chart if needed. What year saw the greatest increase in the adjusted CPI? What might account for the greater increases in adjusted CPI in the late 1960s compared to the mid-1960s? Why might inflation be bad for American consumers?

Answer 1

1970

Increased involvement in the Vietnam War, Great Society programs fully in effect.

Consumers lose purchasing power with inflation forcing them to buy less.

Answer 2

1. What year saw the greatest increase in the adjusted CPI?

The adjusted CPI had its largest increase in 1973, having an 11.04% rate of inflation.

2. What might account for the greater increases in adjusted CPI in the late 1960s compared to the mid-1960s?

The late 1960's increase in inflation was due to the increase of taxes, increase the issuance of currency and cutting public expenditures, in the Lyndon B Johnson government, in order they could meet the military expenses they where having at that moment thanks to the Vietnam war.

3 - Why might inflation be bad for American consumers?

If there is an increase in inflation but not in salary, the amount of earnings will not be powerful enough overtime, which means American consumers would be needing more money to satisfy their daily requirements.