By summarizing the main arguments of the case study: Wars and Interest Rates in the United Kingdom - Essay Example

Case Study: Wars and Interest Rates in the U. K During war, the overall expenditure of the government usually rises. The government spends heavily on items such as firearms, soldiers’ maintenance, supply of basic commodities for the affected populations and post-war rebuilding. This was the case of the United Kingdom in the period of 1730 to 1920 during when it was involved in wars (Mankiw, 73). It is a common concept that during wars and conflicts, government’s fiscal policies do emanate from responses and reactions to the economic state at hand.

Formulation policies may be actions to implement rejoinders to counter the devastating impacts of war-torn economy of a country. The sudden rise in military expenditures provoked the economic stability of the U.K. forcing the then government system to design fiscal policies. High and fluctuating interests’ rates added onto the instability of the economy (Mankiw, 73). Recession rarely misses out in play in such situations. It brings about hiked commodity prices in the market at the expense of the civilian.

Tax and revenue rates escalate significantly raising the cost of living for the basic compatriot. Based on the model, investments are endogenous due to heavy reliance on interest rates. However, there are possibilities of exogenous changes in demand investments experiencing (Mankiw, 73). It points out to the likelihood of firms tempting to invest in capital goods owing to rise in technological inventions and innovations. Governments may alter tax laws thereby influencing firms to increase their investments.

While these strategies may help contain the effects of war, it still stands out that war of whatever nature affects the economic sustainability of any nation.Work citedMankiw, Gregory. Case Study: Wars and Interest Rates in the United Kingdom, 1730–1920. New York. Worth Publishers. 2013. Print.