A Study of the National, Regional and Industrial Economic Impacts Resulting from Reductions in the Defense Budget of the United States
Bray, John Anthony
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A theoretical economic model of the u.s. economy will be developed. First, a simple two sector economy will be introduced which only included the consumption and investment sectors. Then the introduction of the consumption function will demonstrate the simple multiplier and the explanation of its meaning to the economy. The next step presents the investment function and its inclusion into the multiplier equation. Additional sections will include the government sector, taxes and the tax function with its effect on the multiplier and the economy, and finally, the economy will be completed by including the import and export sectors. Numerical examples, corresponding to different policy decisions such as tax reduction, cuts in government spending, or combinations of both, will also be given to demonstrate their effect on the economy. More advanced models as developed by Daniel B. Suits and others are also presented with the results calculated for them. One of the difficult questions the models will attempt to answer is whether or not the drop in defense could be absorbed by other sectors.