Suppose the government increases spending on the war on drugs by one-half a percent of GDP.
(A)Suppose no other policy accompanies this increase in spending.Describe this policy's effect on interest rates and on consumption,investment,and net exports as a share of GDP.
(B)Suppose,because of a balanced budget agreement,the funds for this policy must come from funds initially earmarked for other spending programs.Describe this policy's effect on interest rates and on consumption,investment,and net exports as a share of GDP.
(C)Suppose the government decides to adopt a national sales tax to pay for the higher government spending.Describe this policy's effect on interest rates and on the four shares of GDP.

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The Answer of Suppose the government increases spending on the war on drugs by one-half a percent of GDP.
(A)Suppose no other policy accompanies this increase in spending.Describe this policy's effect on interest rates and on consumption,investment,and net exports as a share of GDP.
(B)Suppose,because of a balanced budget agreement,the funds for this policy must come from funds initially earmarked for other spending programs.Describe this policy's effect on interest rates and on consumption,investment,and net exports as a share of GDP.
(C)Suppose the government decides to adopt a national sales tax to pay for the higher government spending.Describe this policy's effect on interest rates and on the four shares of GDP.

Suppose the Government Increases Spending on the War on Drugs