Most American history books point to World War II as a clear-cut example of beneficial expansionary fiscal policy in action. The U.S. economy was pulled out of the Great Depression by enormous governmental outlays for the war effort – or so the story goes. The actual situation was that the U.S. economy’s growth rate from 1933 to 1941 was already higher than any other recorded peacetime period of the same length. Moreover, the increase in military expenditures during World War II was not matched by a similar increase in total output. In fact, it looks as if the crowding-out effect was relatively large, at least larger than history books indicate. This can be readily observed by the drop in personal consumption expenditures by 3.5 percent in real terms from 1941 and 1942 with no rebound to 1941 levels until after 1944. In other words, the average American saw no real increase in living standards during the war, in spite of massive military expenditures.

Given the information presented here, what could you say about the government’s spending multiplier during World War II?