USA HISTORY

Detailed explanation-1: -War bonds are debt securities, or loans to the government, that help finance a war effort. In both world wars, governments relied heavily on propaganda to help sell these bonds. Posters made sure every man, woman, and child knew it was part of their duty to buy war bonds.

Detailed explanation-2: -To help pay for the war, the government increased corporate and personal income taxes. The federal income tax entered the lives of many Americans. In 1939 fewer than 8 million people filed individual income tax returns. In 1945 nearly 50 million filed.

Detailed explanation-3: -For this war, the federal government relied on a mix of one-third new taxes and two-thirds borrowing from the general population. Very little new money was created. The borrowing effort was called the “Liberty Loan” and was made operational through the sale of Liberty Bonds.

Detailed explanation-4: -Mounting four Liberty Loans drives and one Victory Loan drive, the U.S. government raised $20 billion with nearly one third coming from people making less than $2, 000 annually. Celebrities exhorted citizens to buy bonds. Artists produced posters that were powerful tools in each of the separate bond drives.

Detailed explanation-5: -During World War II, U.S. war expenditures were financed primarily by issuing debt that allowed the gov-ernment to smooth tax distortions over time, which is consistent with the Barro model. In addition, fairly high wartime inflation resulted in war debt bearing a low ex post rate of return.