The Economic Impacts of War: A Historical and Contemporary Analysis

War has always been a destructive force, leaving not just physical and human devastation in its wake but also severe economic consequences. From ancient conflicts to modern geopolitical tensions, wars have shaped economies—sometimes leading to growth in specific sectors but more often causing long-term setbacks. This blog delves into the multifaceted economic impacts of war, drawing from historical and current case studies.

I. Understanding War's Economic Dimensions

The economic impacts of war can be broadly categorised into:

1. Direct Costs: Military expenditures, infrastructure destruction, and loss of life and property.

2. Indirect Costs: Inflation, currency devaluation, displacement of labor, and loss of investor confidence.

3. Opportunity Costs: Resources diverted from social sectors like health and education.

4. Post-war Recovery Costs: Reconstruction and rehabilitation of the economy and displaced populations.

II. Historical Case Studies

1. World War I (1914–1918)

• Economic Impact:

  • European powers accumulated massive debt.

  • Infrastructure across Europe was decimated.

  • Wartime inflation and food shortages disrupted economies.

• Case in Point: Germany

  • Faced hyperinflation in the 1920s.

  • War reparations under the Treaty of Versailles led to economic collapse and social unrest.

2. World War II (1939–1945)

• Global Impact:

  • Over $1 trillion spent globally.

  • Destruction of infrastructure across Europe, Japan, and parts of Asia.

• Positive Outcome (in some regions):

  • The U.S. emerged as an economic superpower.

  • War mobilisation stimulated industrial growth and reduced unemployment.

• Case in Point: Japan

  • Post-war economic collapse followed by U.S.-funded reconstruction.

  • Led to rapid industrialisation and an economic boom in the 1950s–60s (the “Japanese Miracle”).

III. Contemporary Conflicts and Their Economic Impact

1. The Iraq War (2003–2011)

• U.S. Expenditures: Over $2 trillion.

• Impact on Iraq:

  • Destruction of oil infrastructure.

  • GDP contracted significantly during the conflict years.

  • Unemployment and poverty rates soared.

  • Economic dependence on oil increased, with limited diversification.

2. Syrian Civil War (2011–present)

• Human and Economic Toll:

  • Over 80% of Syrians live in poverty (World Bank).

  • GDP contracted by over 60% since 2011.

  • Infrastructure, healthcare, and education systems collapsed.

• Refugee Crisis:

  • Economic strains on host countries like Jordan, Lebanon, and Turkey.

3. Russia-Ukraine War (2022–present)

• Ukraine:

  • Massive infrastructure destruction.

  • Loss of agricultural exports and industrial output.

  • International aid has helped, but long-term recovery needs are massive.

• Russia:

  • Faced sanctions leading to restricted access to global markets.

  • Ruble volatility and inflation.

  • Reorientation toward Asian markets, especially China.

• Global Impact:

  • Energy prices surged due to disrupted oil and gas supplies.

  • Global food prices increased, especially in import-dependent countries in Africa and the Middle East.

  • Increased military spending across Europe.

IV. War and the Military-Industrial Complex

In some contexts, war can stimulate certain sectors:

• Defence Contractors and Arms Manufacturers: Benefit from increased military expenditure.

• Technology and Innovation: War often accelerates technological development (e.g., radar, jet engines, nuclear energy).

• Employment: Short-term job creation in manufacturing and services during wartime mobilisation.

However, these gains are often unevenly distributed and can exacerbate inequality.

V. The Economics of Post-War Reconstruction

• Marshall Plan (Post-WWII Europe):

  • U.S. aid helped rebuild Western Europe’s economies.

  • Led to stable democratic governance and long-term prosperity.

• Current Lessons:

  • Reconstruction requires not just funds but also stable governance, international cooperation, and social cohesion.

  • Public-private partnerships and transparent institutions are key to effective recovery.

VI. Conclusion: The Dual-Edged Sword of War

While some economic actors profit during wartime, the overall impact of war on national and global economies is overwhelmingly negative. War leads to:

• Destruction of physical and human capital.

• Disruption of trade and investment.

• Increased fiscal deficits and public debt.

• Long-term socio-economic instability.

In the modern interconnected global economy, the ripple effects of war transcend borders. From disrupted supply chains to rising commodity prices, conflicts in one part of the world can trigger inflation and slowdown elsewhere.

A peaceful global order isn’t just a moral imperative—it’s an economic necessity.

Summary of Economic Impacts of Major Wars

War	Year(s)	Key Economic Impact	Region Affected
World War I	1914–1918	Hyperinflation, debt, infrastructure loss	Europe (esp. Germany)
World War II	1939–1945	Reconstruction, superpower emergence (USA)	Europe, Asia, USA
Iraq War	2003–2011	Oil sector damage, GDP contraction	Middle East (Iraq)
Syrian Civil War	2011–present	Infrastructure collapse, mass displacement	Syria, neighboring states
Russia-Ukraine War	2022–present	Sanctions, global energy & food price spikes	Eastern Europe, Global

Ugc net Economic-2012

2012 December UGC NET Solved Question Paper in Economics Paper 2

Q. Nos. 1-10: Read the following questions and choose the correct answer from the options given below these questions.

1. For downward movement along the iso-quant, MRTS of Labour per unit of capital (MRTSL,K) is given by

(A) – dK/dL

(B) dK/dL

(C) dL/dK

(D) – dL/dK

Answer: (A)

2. Charging a different price in different markets is called

(A) price discrimination

(B) second degree price discrimination

(C) third degree price discrimination

(D) perfect price discrimination

Answer: (A)

 

3. Which of the following is the most significant in stabilization policy ?

(A) Private investment

(B) Inventory investment

(C) Autonomous investment

(D) Public investment

Answer: (C)

 

4. The concept of vicious circle of poverty is associated with

(A) Kindleberger

(B) Schumpeter

(C) Ragnar Frish

(D) Gunnar Myrdal

Answer: (D)

 

5. Solow built his model as an alternative to

(A) Kaldor’s model of growth

(B) Ranis-Fei model of growth

(C) Harrod-Domar model of growth

(D) Meade’s model of growth

Answer: (C)

 

6. If interest payments are subtracted from gross fiscal deficit, the remainder will be

(A) revenue deficit

(B) gross primary deficit

(C) capital deficit

(D) budgetary deficit

Answer: (B)

 

7. Which of the following measures of central tendency will be the most appropriate to use if the data relate to rates, proportions and ratios ?

(A) Arithmetic mean

(B) Median

(C) Harmonic mean

(D) Geometric mean

Answer: (D)

 

8. Opportunity cost version of comparative cost advantage doctrine was introduced by

(A) J.M. Keynes

(B) Kindleberger

(C) Haberler

(D) Karl Marx

Answer: (C)

 

9. The most popular definition of sustainable development is given by

(A) World Development Report

(B) UNDP Report

(C) Brundtland

(D) IMF Report

Answer: (C)

 

10. During the planning period, highest growth rate was achieved during

(A) eighth plan

(B) tenth planwww.netugc.com

(C) ninth plan

(D) seventh plan

Answer: (B)

Q. Nos. 11-20 : Read the questions and select the correct option for the answer from the list given below :

 

11. Labour theory of value was propounded by

a. Adam Smith

b. David Ricardo

c. Ragnar Nurkse, Gunnar Myrdal, R.M. Solow

d. Fei-Rani’s, Ragnar Nurkse

Codes :

(A) a and b

(B) a and c

(C) a, b, c

(D) a, b, c, d

Answer: (A)

 

12. The features of the classical system are

a. Monetary factors determine output and employment.

b. Self adjusting mechanism of the economy.

c. State action to direct development.

d. Optimization through market in the absence of state control.

Codes :

(A) a and b

(B) a, b, c

(C) b and d

(D) a, b, d

Answer: (C)

 

13. Concepts of displacement and concentration effect in public expenditure are attributed to

a. A.C. Pigou and J.K. Mehta

b. Alan T. Peacock and Jack Wiseman

c. Kenneth Arrow and Paul A. Samuelson

d. A.R. Prest and I.M.D. Little

Codes :

(A) a and b

(B) b

(C) a, b, c

(D) a, b, c, d

Answer: (B)

 

14. Human Development Index (HDI) is constructed with reference to

a. Life expectancy at birth, real GDP per capita, gross enrolment ratio, adult literacy rate.

b. Life expectancy at birth, real GDP per capita, combined gross enrolment ratio, adult literacy rate.

c. Life expectancy, GDP per capita, infant mortality rate, literacy rate.

d. GDP per capita, infant mortality rate, literacy rate

Codes :

(A) a and b

(B) a and c

(C) c

(D) a, b, d

Answer: (C)

 

15. The unbalanced growth model was propounded first by

a. Albert O. Hirschman

b. H.S. Singer and Raul Prebisch

c. Kindelberger and Ragnar Nurkse

d. W.W. Rostow and Paul Streeten

Codes :

(A) a and b

(B) a and c

(C) a and d

(D) a

Answer: (A)

 

16. Harrod-Domar model of growth is based on the concepts of and their equality

a. Population and productivity growth.

b. Investment and average growth rate of income.

c. Actual, warranted and natural growth rate.

d. Productivity growth and investment growth.

Codes :

(A) a and c

(B) a and d

(C) c

(D) a, b, c

Answer: (C)

 

17. Factor endowment theory is also known as

a. Modern theory of international trade.

b. Classical theory of international trade.

c. Reciprocal demand theory.

d. Factor proportions theory of international trade.

Codes :

(A) a and b

(B) b and c

(C) a and d

(D) c and d

Answer: (C)

 

18. Most important theory of increasing public expenditure is associated with

a. Adolph Wagner’s hypothesis

b. Critical limit hypothesis

c. Administrative efficiency hypothesis

d. Stability of income hypothesis

Codes :

(A) a and b

(B) a and c

(C) a

(D) c and d

Answer: (C)

 

19. Under the Brettonwood system, the long term development assistance was to be provided by

a. IBRD

b. IDA

c. IMF

d. All the above

Codes :

(A) a and b

(B) a, b, c

(C) b and c

(D) d

Answer: (A)

 

20. The Planning Commission of India has recently announced the poverty line as

a. Rs. 42 per day per person for urban area.

b. Rs. 26 per person per day for rural areas.

c. Rs. 32 per person per day for urban areas.

d. Rs. 32 per day per person for rural areas.

Codes :

(A) a and b

(B) a and c

(C) b and c

(D) c and d

Answer: (B)

Q. Nos. 21-30 : Read the following questions and select the right combination of Assertion (A) and Reason (R) from the codes given below :

 

21. Assertion (A) : There is a natural tendency to collude under oligopoly.

Reason (R) : Inter-dependence of firms in oligopolistic markets.

Codes :

(A) Both (A) and (R) are correct, but (R) is not the correct explanation of (A).

(B) Both (A) and (R) are correct, and (R) is the correct explanation of (A).

(C) (A) is correct, but (R) is incorrect.

(D) (A) is incorrect, but (R) is correct.

Answer: (B)

 

22. Assertion (A) : In short run, the marginal cost of output is the cost of additional labour and materials used in production.

Reason (R) : Materials and labour used in production alone vary in short run.

Codes :www.netugc.com

(A) (A) is correct and (R) is incorrect.

(B) (A) is incorrect, but (R) is correct.

(C) Both (A) and (R) are correct and (R) is the correct explanation of (A).

(D) Both (A) and (R) are incorrect.

Answer: (C)

 

23. Assertion (A) : Post reform liberal trade policies have stimulated India’s growth.

Reason (R) : Private enterprise got opportunities to contribute to growth of Indian manufacturing industries.

Codes :

(A) Both (A) and (R) are correct, and (R) is the correct explanation of (A).

(B) Both (A) and (R) are correct, but (R) is not the correct explanation of (A).

(C) Both (A) and (R) are incorrect.

(D) (A) is incorrect, but (R) is correct.

Answer: (A)

 

24. Assertion (A) : Use of goods and services from which one can be excluded are pure private goods.

Reason (R) : Such goods and services are not provided free by the State.

Codes :

(A) Both (A) and (R) are correct and (R) is the correct explanation of (A).

(B) Both (A) and (R) are correct, but (R) is not the correct explanation of (A).

(C) (A) is correct, but (R) is incorrect.

(D) (A) is incorrect, but (R) is correct.

Answer: (A)

 

25. Assertion (A) : ‘A country is poor because it is poor’.

Reason (R) : Income of a poor country is low, so its savings and investment are low. Low investment limits its productive capacity which leads to low output and income.

Codes :

(A) Both (A) and (R) are correct, but (R) is not the correct explanation of (A).

(B) Both (A) and (R) are correct and (R) is the correct explanation of (A).

(C) (A) is correct, but (R) is incorrect.

(D) (A) is incorrect, but (R) is correct.

Answer: (B)

 

26. Assertion (A) : All historical events are the result of a continuous economic struggle between different classes and groups in a society.

Reason (R) : This struggle is because of the conflict between the mode of production and the value attached to the roles of different agents of production.

Codes :

(A) Both (A) and (R) are correct, but (R) is not the correct explanation of (A).

(B) Both (A) and (R) are correct and (R) is the correct explanation of (A).

(C) (A) is correct, but (R) is incorrect.

(D) (A) is incorrect, but (R) is correct.

Answer: (B)

 

27. Assertion (A) : K/L will adjust through time to the equilibrium value of the ratio.

Reason (R) : Technical coefficients of production are fixed.

Codes :

(A) Both (A) and (R) are correct, but (R) is not the correct explanation of (A).

(B) Both (A) and (R) are correct and (R) is the correct explanation of (A).

(C) (A) is correct, but (R) is incorrect.

(D) (A) is incorrect, but (R) is correct.

Answer: (B)

 

28. Assertion (A) : Investment has a demand effect.

Reason (R) : Investment augments the productivity and income in the economy.

Codes :

(A) Both (A) and (R) are correct and (R) is the correct explanation of (A).

(B) Both (A) and (R) are correct, but (R) is not the correct explanation of (A).

(C) (A) is correct, and (R) is not correct.

(D) (A) is incorrect and (R) is correct.

Answer: (A)

 

29. Assertion (A) : Agriculture is the main source of livelihood of people in

India.

Reason (R) : Measures for agricultural development should be undertaken.

Codes :

(A) Both (A) and (R) are correct and (R) is the correct explanation of (A).

(B) Both (A) and (R) are correct, but (R) is incorrect explanation of (A).

(C) (A) is correct, but (R) is incorrect.

(D) (A) is incorrect and (R) is correct.

Answer: (A)

 

30. Assertion (A) : In the following regression equation Y = a + bX, 'a' shows the autonomous value of Y.

Reason (R) : If X = 0, Y = a holds.

Hence, a is the minimum value of Y which is independent of any influence of X on Y.

Codes :

(A) Both (A) and (R) are correct and (R) is the true explanation of (A).

(B) (A) is correct, but (R) is not the correct explanation of (A).

(C) (A) is correct, but (R) is not correct.

(D) (A) is incorrect, but (R) is correct.

Answer: (A)

 

Q. Nos. 31-40 : Read the questions and select the correct sequence from the codes given below :

31. Identify the order of chronological development of the theory of demand.

a. Marshall’s theory of demand

b. Indifference curves

c. Revealed preference theory

d. Weak Preference ordering theory of demand.

Codes :

(A) a, c, d, b

(B) d, b, a, c

(C) a, c, b, d

(D) a, b, c, d

Answer: (D)

 

32. Identify the correct chronological order of the following theories :

a. Cambridge version of quantity theory of money.

b. Fisher’s version of quantity theory of money.

c. Tobin’s theory of demand for money.

d. Baumol’s theory of demand for inventory.

Codes :

(A) c, d, a, b

(B) b, a, d, c

(C) d, a, b, c

(D) a, b, c, d

Answer: (B)

 

33. Identify the correct chronological order of the following :

a. Keynes’ consumption function

b. Life Cycle hypothesis

c. Relative income hypothesis

d. Friedman’s permanent income hypothesis

Codes :

(A) d, b, a, c

(B) b, a, c, d

(C) a, c, d, b

(D) c, d, b, a

Answer: (C)

 

34. Identify the correct chronology of stages of Marxian model of economic development.

a. Capitalist crisis

b. Capital accumulation

c. Surplus value

d. Materialistic interpretation of history

Codes :

(A) b, a, c, d

(B) c, d, b, a

(C) d, c, b, a

(D) c, b, a, d

Answer: (D)

 

35. The sequencing process of Harrod’s model of development is

a. Natural growth rate

b. Warranted growth rate

c. Actual growth rate

d. Divergence

Codes :

(A) d, c, b, a

(B) c, b, a, d

(C) b, a, d, c

(D) a, d, c, b

Answer: (B)

 

36. Arrange the following summits of SAARC members in order in which these were organized :

a. New Delhi

b. Bangalore

c. Islamabad

d. Kathmandu

Codes :

(A) a, c, d, b

(B) a, b, c, d

(C) b, d, c, a

(D) c, b, a, d

Answer: (C)

 

37. Arrange the structure of balance of payments accounts in which these items appear :

a. Capital account

b. Errors and omissions

c. Current account

d. Official settlements account

Codes :

(A) a, b, c, d

(B) c, a, d, b

(C) d, c, b, a

(D) c, d, a, b

Answer: (B)

 

38. State the order of the appointment of the following as chairman of Finance Commission :

a. K.C. Neogy

b. K. Brahamanand Reddy

c. N.K.P. Salve

d. A.K. Chanda

Codes :

(A) a, c, b, d

(B) a, d, b, c

(C) a, c, d, b

(D) a, b, d, c

Answer: (B)

 

39. Indicate the sequence of the following in terms of the implementation.

a. Income Tax

b. Expenditure Tax

c. Value Added Tax

d. Fringe Benefits Tax

Codes :

(A) a, c, b, d

(B) a, b, c, d

(C) b, c, d, a

(D) c, d, a, b

Answer: (D)

 

40. Determine the order in which the following were developed

a. Fisher’s F test of significance of differences between the means of more than two samples.

b. Gosset’s t-test of difference between the means of two samples.

c. Pearson’s correlation coefficient.

d. Spearman’s rank correlation coefficient.

Codes :

(A) a, b, c, d

(B) b, a, c, d

(C) c, b, a, d

(D) d, a, b, c

Answer: (B)

 

Q. Nos. 41-50 : Read the following questions and match the correct pair from List – I and II. Use the codes given below for answering:

 

41. List – I List – II

a. Kinked demand curve hypothesis 1. William Baumol

b. Sales maximization model of oligopoly 2. Paul Sweezy

c. Social Welfare Criterion 3. Adam Smith

d. Law of Invisible hand 4. Bergson

Codes :

      a b c d

(A) 4 3 1 2

(B) 2 1 4 3

(C) 2 3 1 4

(D) 1 4 3 2

Answer: (B)

 

42. List – I List – II

a. Psychological Law of Consumption 1. Irving Fisher

b. Time preference theory of interest 2. J.M. Keynes

c. Public Choice View 3. Mundell and Fleming

d. Open Economy IS-LM model 4. Gorden Tullock

Codes :

      a b c d

(A) 3 2 4 1

(B) 4 1 3 2

(C) 2 1 4 3

(D) 1 3 4 2

Answer: (C)

 

43. List – I List – II

a. Mid-day meal scheme 1. 2006

b. Implementation of M-NREGA 2. 1995

c. Cash Reserve Ratio 3. Finance Commission

d. Divisible Taxes 4. Reserve Bank of India

Codes :

       a b c d

(A) 1 2 3 4

(B) 2 1 4 3

(C) 4 2 3 1

(D) 3 4 1 2

Answer: (B)

 

44. List – I List – II

a. Monetary Policy 1. Tax Rate

b. Trade Policy 2. Margin Money

c. Credit Policy 3. Imports and Exports

d. Fiscal Policy 4. Bank Rate

Codes :

      a b c d

(A) 4 3 2 1

(B) 4 2 3 1

(C) 3 2 1 4

(D) 2 1 4 3

Answer: (A)

 

45. List – I List – II

a. J.M. Buchanan 1. Canons of Public Expenditure

b. Findlay Shirras 2. Functional Finance

c. R.N. Bhargava 3. Public-Choice Theory

d. A.P. Lerner 4. Federal Finance

Codes :

      a b c d

(A) 3 2 1 4

(B) 3 1 4 2

(C) 2 3 1 4

(D) 1 4 3 2

Answer: (B)

 

46. List – I List – II

a. Organic Composition of Capital 1. Hirschman

b. Doctrine of Natural Law 2. Schumpeter

c. Innovation 3. Marx

d. Doctrine of Unbalanced Growth 4. Adam Smithwww.netugc.com

Codes :

      a b c d

(A) 3 4 2 1

(B) 4 3 1 2

(C) 2 1 3 4

(D) 1 2 4 3

Answer: (A)

 

47. List – I List – II

a. Low Income Equilibrium Trap 1. Karl Marx

b. Poverty Measurement 2. Adam Smith

c. Laissezfair 3. Nelson

d. Industrial Reserve Army 4. Suresh Tendulkar

Codes :

       a b c d

(A) 1 2 4 3

(B) 3 4 2 1

(C) 4 3 1 2

(D) 2 1 3 4

Answer: (B)

 

48. List – I List – II

a. Law of Absolute Cost Advantage 1. Haberler

b. Doctrine of Comparative Cost Advantage 2. Hescher-Ohlin

c. Modern Theory of International Trade 3. Adam Smith

d. Opportunity Cost Principle 4. Ricardo

Codes :

       a b c d

(A) 4 2 1 3

(B) 3 4 2 1

(C) 2 3 4 1

(D) 1 4 3 2

Answer: (B)

 

49. List – I List – II

a. Monetarism 1. R.F. Kahn

b. Employment multiplier 2. T. Havelmo

c. Multiplier effect of balanced budget 3. John Muth

d. Rational expectation hypothesis 4. Milton Friedman

Codes :

       a b c d

(A) 2 4 3 1

(B) 4 1 2 3

(C) 1 3 4 2

(D) 3 2 1 4

Answer: (B)

 

50. List – I List – II

a. Theory of Probability 1. Single value to represent distribution

b. Mean 2. Uncertain events

c. Normal Distribution 3. Mini replica of population

d. Sample 4. Symmetrical with almost total area with in M(mean) +–30(sig, ma)

Codes :

      a b c d

(A) 1 2 3 4

(B) 4 3 2 1

(C) 2 1 4 3

(D) 4 1 2 3

Answer: (C)