Final answer:
The U.S. Railway Administration was the federal agency that allowed for the nationalization of railroads during wartime, and it was planned that the railroad industry would be returned to the private sector after the war, making option B the correct answer.
Step-by-step explanation:
The new federal agency that allowed the government to nationalize the railroads to transition to a wartime economy was the U.S. Railway Administration. This nationalization was essential for transporting personnel and supplies efficiently during the war, and illustrated the shift of responsibilities and expansions of federal powers to manage and regulate the economy. Logistical challenges, such as those experienced with trains bound for the East Coast getting stranded, necessitated such federal intervention. The U.S. Railway Administration had the extraordinary war powers to control the entire railroad industry, including aspects like traffic, terminals, rates, and wages, which were all pivotal for the effective transition to a wartime economy.
After the war was over, the intention was that the control of the railroad industry would be returned to the private sector. This aligns with historical instances where the government expanded its control during times of crisis but typically sought to revert to prior economic structures post-crisis. Therefore, the correct answer to the student's question is B. U.S. Railway Administration; the government would return the railroad industry back to the private sector after the war.