Military spending or defence budget represents half of all discretionary government spending in U.S.?

Military spending or defence budget represents half of all discretionary government spending in U.S. The total size of America’s defence budget is currently at around $700 billion a year, including war expenditures. While it is less than 5% of U.S. GDP, this amount is as big as the sum of those of the world’s next twenty highest military spending countries.

In face of the growing government debt, Robert Gates, the defence secretary started a series of “efficiency savings” actions to reduce military spending. In early January, Mr. Gates announced to further $78 billion worth of cuts over the next five years, which is a politically controversial issue.

a. According to the 2010 fourth-quarter output, the American economy is running a full $800 billion (5.7%) below its potential GDP and the unemployment rate is above 9%. Use the AD-AS model to discuss the impact of the defense budget cut on U.S. economy. (5 marks)

b. What may the Fed do to lessen the impact of the defense budget cut on employment and real GDP? What might be the potential obstacle? (5 marks)

2 Answers

  • 1 decade ago
    Favorite Answer

    Defense spending is historically low, and probably lower than it should be considering our present and complicated situations around the world. The bigger problems are obvious if you take look at the budget as a whole and consider the future directions. The source below gives really good graphs to help you understand.

    First graph is for the history of military spending.

    Take a look at this one:

    Source(s): Source: White House Office of Management and Budget.
  • 4 years ago

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