May 2007, Dean Baker

In order to get an approximation of the economic impact of the increase in U.S. military spending associated with the wars in Iraq and Afghanistan, CEPR commissioned the economic forecasting company Global Insight to run a simulation with its macroeconomic model. It produced a simulation of the impact of an increase in annual U.S. military spending equal to 1 percent of GDP, approximately the actual increase in spending compared with the pre-war budget. Global Insight's simulation shows higher military spending raises interest rates, which reduces net exports, housing construction and car sales, thereby slowing the economy and job creation.

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