Which economic lesson did the United States learn from the Vietnam War during the 1970s?

• A. Military conflicts always result in economic growth and prosperity.
• B. Trade deficits are eliminated during wartime.
• C. Large government spending without corresponding revenue can lead to inflation.
• D. Unemployment rates decrease automatically during periods of war.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the context of the Vietnam War in the 1970s and its economic impact on the United States, focusing on government spending and macroeconomic outcomes.
2. Step 2: Recognize that large government spending, especially on military efforts, increases aggregate demand in the economy, which can put upward pressure on prices if the economy is near full capacity.
3. Step 3: Recall the macroeconomic principle that when government spending is not matched by increased revenue (such as higher taxes), it often leads to budget deficits that may be financed by borrowing or money creation.
4. Step 4: Connect this increased spending and deficit financing to inflationary pressures, as more money chases the same amount of goods and services, leading to rising prices.
5. Step 5: Conclude that the key economic lesson learned was that large government spending without corresponding revenue can lead to inflation, rather than automatic economic growth, elimination of trade deficits, or guaranteed decreases in unemployment.