Final answer:
World War II supports both Keynesian and monetarist theories on the resolution of the Great Depression. Keynesianism is evidenced by wartime deficit spending which led to economic recovery, while monetarism is represented by the increased money supply velocity. The war itself changed fiscal and monetary policies, prompting a consideration of alternative peacetime economic solutions.
Step-by-step explanation:
World War II serves as an illustrative event that supports both Keynesian and monetarist arguments regarding the causes and solutions to the Great Depression. From a Keynesian perspective, the war necessitated deficit spending to an extent that had not been seen during the peace time of the 1930s. This aligns with Keynesian economics, which advocates for increased government spending to boost economic activity, especially during times of recession. The demand for American grain and manufactured goods by European governments after the invasion of Poland manifested the kind of spending Keynesians recommended to revitalize the economy. This spending led to economic growth and recovery but at the cost of significant deficits and postwar debt.
On the other hand, monetarists argue that it was not simply deficit spending that ended the Great Depression, but the change in the monetary policy that came with the funding of the war. The increased demand for goods and services led to a higher velocity of money, which, according to monetarist theory, helped bring the economy out of its slump. This view implies that it is a government’s manipulation of the money supply that can lead to recovery, a belief central to monetarist economics.
These arguments highlight that while U.S. involvement in World War II was not the sole factor in ending the depression, the war economy contributed significantly. Yet, it also raises the question of whether similar levels of peacetime government spending could have ended the Great Depression without the social and political consequences that a massive military conflict entails.