Suppose the Government Increases Spending on the War on Drugs

Essay

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.