Question

What is the opportunity cost (in civilian output) of a defense buildup that raises military spending from 5 to 5.4 percent of a(n) $3 trillion economy?

Answer 1

Answer:

Today SIPRI estimated that global military expenditure in 2015 was $1676 billion, about 2.3% of the world’s total Gross Domestic Product (GDP). Such high levels of spending frequently raise concerns as to the ‘opportunity cost’ involved in military spending—the potential civilian uses of such resources that are lost.

Answer 2

Given:

Military spending = 5%

Rise in military spending = 5.4%

Value of economy = $3 trillion

To Find:

Opportunity cost of a defense buildup

Solution:

Percentage change in military spending =

Rise in spending - Original spending

= 5.4 - 5

= 0.4%

Now,

Value of economy = $3 trillion

Opportunity cost = Economy value x military spending

= $3 trillion x 0.4

= 1.2

Answer: The opportunity cost of a defense buildup is  $1.2 trillion