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Theoretically, the President of the United States is suggesting increased spending for a missile defense system. He is also proposing a major long-term tax cut. What are some predictions of possible outcomes for the federal budget categories, the economy and the relative importance of each outcome during the next 10 years.

Consider this from an immediate or short term outcome and then a longer outcome (10 years). What might be some practical problems or issues the country might face with this proposed plan?

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Solution Summary

This is a 725 word solution which explains the expected results of the hypothesized policy changes. The solution considers several additional "what if" scenarios and explains how a key economic concept can determine the outcome. Costs and benefits are considered both individually and in net terms, and potential problems of the policy changes are discussed.

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Actually this is in part reality as well as theory! Reagan's original anti-nuke program was informally called "Star Wars" but Congress didn't approve funding; now President Bush has been stepping up the allocations to our current scaled-back version of "Star Wars".

Alright, so let's first talk about the missile defense system. Increasing funding for this program would mean an increased allocation of funds to the National Defense and General Science categories of the federal budget. This would probably represent a large increase in the short-run federal budget and a moderate, consistent, increase for the long term. This is because it cost a lot of money up front to have the ground work laid out - new scientists hired, new offices, new materials bought, etc. Then there is the upkeep cost over the life of the program, which one would certainly expect to last at least 10 years (because the technology would take a long time to develop and refine, then would be actually put into operation). Congress can either ...

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