Rising demand and printing money When a country rearms and fights a war, inflation can also rise in the whole economy for the same reason, that is, demand rises in relation to supply. A sharp increase in public expenditure as a result of rearmament or war effort increases capacity utilisation in the economy and can therefore lead to higher inflation. In connection with the Second World War, the US economy approached full capacity utilisation, which contributed to a rise in inflation. Some economists argue that it was the US rearmament in connection with the war that finally put an end to the 1930s depression.3 The way in which a rearmament or war is financed is also of great importance to the way in which inflation develops. The financing can entail increasing taxes or decreasing expenditures other than military, by raising loans or by making the central bank print more money. If a war is financed by increasing taxes or decreasing other expenditure, public purchasing power will be reduced. This counteracts  1 Goldstein (2003). 2 Englund (1993). 3  See, for example, Vernon (1994). However, others, such as DeLong and Summers (1988), instead argue that the recovery was essentially completed even before the war. 2 [14]  the inflationary effect of increased public expenditure.
2 2 See Alternative Reference Rates Committee, Second Report, March 2018 3 3 See remarks by William C. Dudley, Restoring Confidence in Reference Rates, October 2, 2014 4 4 See remarks by William C. Dudley, The Importance of Incentives in Ensuring a Resilient and Robust Financial  System, March 26, 2018 5 5 See, for example: 6 William C. Dudley, Enhancing Financial Stability by Improving Culture in the Financial Services Industry, October  20, 2014 7 William C. Dudley, Opening Remarks at Reforming Culture and Behavior in the Financial Services Industry:  Expanding the Dialogue, October 20, 2016 8 William C. Dudley, Remarks at the Culture Imperative – An Interbank Symposium, January 11, 2017 9 William C. Dudley, Reforming Culture for the Long Term, March 21, 2017 10 Michael Held, Reforming Culture and Conduct in the Financial Services Industry: How Can Lawyers Help?,  March 8, 2017 11 Kevin J. Stiroh, Misconduct Risk, Culture and Supervision, December 7, 2017 12 6 See remarks by William C. Dudley, Lessons from the Financial Crisis, November 6, 2017 13 7 See Alternative Reference Rates Committee, Second Report, March 2018 14 8 The U.K. Wheatley Review led to changes in many areas of LIBOR, including statutory regulation of LIBOR,  selection of a new administrator, new governance and oversight regimes, and a code of conduct for submitters.