Contrast and compare the neo-classical and Keynesian’s view on the economic impact of military expenditure.

Expert Solution

In the Neoclassical theory, military spending is considered as a public good. The government tries to maximize the welfare of the society by considering opportunity costs, security benefits and the tradeoff between military and civil spending. This theory is criticized by many economists because of its unrealistic assumptions.

In the Keynesian theory, military spending increases the output of a country, in case of ineffective aggregate demand. Military spending will help in increasing capacity utilization, increasing growth, profits and investment. This theory is often criticized because its main focus is demand side and supply and production side is ignored.

Rahul Sunny answered 1 year ago

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