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U.S. MILITARY SPENDING
Transcript of U.S. MILITARY SPENDING
Government expenditures on war is believed to be helping the economy......
Military spending creates employment
and GDP growth in short run
but in the long run there are more...
Public debt and levels of
ECONOMIC CONSEQUENCES OF WAR
Consumption fell from 67% to 46%
Investment fell from 11% to 3%
Financed primarily through debt and higher taxes
Unemployment fell from 14.6% in 1941
to 1.9% in 1945
30% of GDP
preferred war to be
financed by higher tax rates
than borrowing from the public
Revenue Act of 1950:
boosted taxes by 1.3% of GDP
consumption stayed stalled
GDP growth of over 11% in 1951
Inflation increased to 5.3% in 1951
Less expensive because military buildup remained constant
Inflation led to stagflation from 1973 oil
Financed by increases in tax rates & expansionary monetary policy
GDP growth of over 7% in 1966
Unemployment rose to 10.8% by 1983
emphasized higher military spending & lower taxes
also increased budget deficits
Debt driven consumption boom
-> higher interest rates -> trade deficits
All wars have impacted economy by:
-Constraining private sector consumption and investment
-Creating inflationary pressure due to
larger budget deficits & higher taxes
Overall macroeconomic effect
on economy tends to be
during war times
U.S. methods to finance wartime:
government borrowing from public through bonds
"About Us." Institute for Economics and Peace. N.p., n.d. Web.
04 June 2014.
"Macroeconomic Impact of Military Spending | Costs of War."
Macroeconomic impact of Military Spending | Costs of War. N.p., n.d. Web. 08 June 2014.
Mankiw, N. Gregory. Principles of Economics, Volume 1.
Cengage Learning, 2006. Print.
"Sky-High U.S. Military Spending: What's The Trade Off?"
Sky-High U.S. Military Spending: What's The Trade Off? N.p., n.d. Web. 08 June 2014.
World War II
-Reduction in consumption / investment
Is government spending on military outlays MORE beneficial to our economy or will using that money on nonmilitary outlays will become MORE beneficial to our economy in the long run?
using that money on nonmilitary outlays will become MORE beneficial to our economy in the long run
Military spending can:
boost economic demand during low times
lead to new technologies, generate new industries, and create jobs
U.S. vs Soviet