This article studies the impact on aggregate economic activity of increases in defense purchases which are unrelated to other developments in the economy. The authors use empirical evidence to evaluate the predictions of several prominent models.

This paper investigates the consequences of an exogenous increase in U.S. government purchase. We find the in response to such a shock, employment, output, and nonresidential investment rise, while real wages, residential investment and consumption expenditures fall. The paper argues that a...