Florida Teacher Certification Examinations (FTCE) Social Science Practice Test

Prices tend to be inflated during wartime because:

1. Guns cost more than butter

2. There is competition for fully employed resources

3. The Consumer Price Index is calculated differently in wartime

4. The cost of government is not included in the CPI

The correct answer is: There is competition for fully employed resources

Prices tend to be inflated during wartime primarily because there is competition for fully employed resources. During a war, resources such as labor, materials, and capital are often redirected towards military production, leading to increased demand for these limited resources. As the government mobilizes the economy for war efforts, many sectors experience heightened competition for access to supplies, skilled workers, and manufacturing capabilities. This competition can drive up prices, as businesses and the government bid for the same limited resources, ultimately leading to inflation. In contrast, options like the notion of a higher cost for guns compared to butter simplify a more complex economic situation and do not directly address the broader impact of resource allocation. The distinction in calculations of the Consumer Price Index during wartime or exclusions related to government costs are also not the primary reasons for overall price inflation; they may affect specific price measures, but the fundamental issue lies in the competition for fully employed resources as the demand for goods and services surges.