negative trade balances should exert a sobering influence on the policies of viesing arms transfers as an outlet for the rectification of trade irnbalances. 94. Problems such as inflation and unernploymehb, discussed in detail in the 1977 report, are not only closely related but also have rnore serious social consequences in the sense that they affect the common nan in a direct day-to-day fashion. Poticy decisions pertaining to each reflect a basic judgenent on their social ranking wbereby it can be concluded that, historicallyl out of inflation and unemployment, the former has soflEtimes been considered a lesser social evil than the .Latter. But, ln a situation of stagflationr that is, simultaneous unenployment and inflation, the latter cannot be exPlained away entirely as a deliberate Policy option of choosing the lesser of social evils. societies are tIpre or less vulnerable to inflationary Pressurea' dePending on their control over the price mechanisn or their capability to exPand their supplies to meet their demands. Military outlayE generate price increases to the er(tent that they diminish the Productive capacity for civilian goods without affecting the denand for them. They al6o exert an utrndatd pressure on prices by aggravating the suPply-side constraints when restralnts on the costs of their inputs are less severe than in other sectora of the econony. when the inflationary pressures enanating from nilitary outlays are related to the phencmenon of international trade contacts' it can be easily seen that even econonies controlling the price nechanisn of their dornestic products renaLn vulnerable to the global consequences of a phenolenon extraneous to their indigenous environrnent. 95. High mllltary expenditures sustained over a 1on9 period of bine are likely to aggravate upnard pressures on the price level in several ways. First, military expenditures are inflationary in tbat purchasing power and effective denand is
**Analysis**
The text discusses the impact of military expenditures on the economy, specifically highlighting the inflationary pressures and trade imbalances that can result from high military spending. The author also mentions the relationship between inflation, unemployment, and economic policies, suggesting that the text is primarily concerned with macroeconomic issues.

**Category**
Economic development, International trade