Question

Spending on wars is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

Answer 1

With the spending on wars, the aggregate demand falls and the curve will shift towards the left because the production of other goods will reduce in the economy.

Explanation:

When the government of a country spends on the war or the making of the weapons for the war, then the overall working of the economy is affected because the production of goods and services reduces compared to the normal production of goods and services.

With the fall in the production of the goods and the services, the demand also reduces because the overall income of the economy falls. The resources are used to produce war weapons and not consumer goods thus leading to fall in employment, income and so on. Thus the demand curve will shift to the left.