In 2007, the United States spent over $650 billion on national defense. Even after adjusting for inflation, this was the largest annual amount since 1945, surpassing previous post-World War II peaks reached during the Korean, Vietnam, and Cold wars. Defense spending has risen steadily this decade, today accounting for nearly 5 percent of overall gross domestic product—about the same share as residential construction. ; National defense represents an even larger share of economic activity in the Tenth Federal Reserve District. The region is home to some of the country's largest military installations, a number of private defense contractors, and a disproportionately large number of reservists and National Guardsmen. ; Is the buildup in national defense stimulating the economies of the states in the Tenth District? Wilkerson and Williams find that, relative to the nation, increased defense spending is likely to help the region more in the long run than the short run. Since 2001, defense spending has risen more moderately in the district than the nation, due primarily to slower growth in the types of defense activities concentrated in the region. Still, the region is poised for an expansion of defense spending in the future. And the region benefits from a less cyclical defense sector than that of the nation.
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Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.
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