created wlthout an offsetting increase in inurediately consunable output or in productive capacity to meet future consumption requirements. This e:{cess detnand creates an uprrard pressure on prices throughout the econony. where military expenditure contributes to the creation of money for deficit financing of central governtnent expenditure, inflationary Pressures are generated by the resultant increase in the stock of money. SimiJ-arly, if military activities contribute to the energence of deficits in the balance of payments in reserve-cur rency countries, then the stock of money and, thus, inflationary pressures grow ln other countries. Second, tbere are reasons to believe that tlte arns industry offers less reslStance to irrcreases in the cost of labour and of the other factors of production than do rEst other industries partly because of its highly capltal- and cechnology- intensive character, and partly because cost increases in this sector can nore readily be passed on to the custoners, whicht in almost all the cases, are Governnents. These increases ln the cost of the other factors of production then spread to other gectors of the econony ' including sectors uhere the rate of growth ffii{il' Annex Page 47 of productiviqy is lorrer, forcing up lheir prices as r.rell. !.inally, and nore generally, th! diversion of substantlal capital and R and D resources away from the civilian sector impedes the long-terrn growth of productivity and thereby renders the economy inore vulnerable to inflationary pressures. $/ 96. Altogether it is clear that sorne of the najor econonic Problems of recent years - rapid inflation, trade inbalances and the disequillbria ln lnternational payments - have been aggravated by the rnaintenance of large rnilitary efforts, evenlf the contribution of the arms race to these problerns cannot be indicated in guantitative terms. fn particular, there can be little doubt that the effects of sustaining large nilitary expenditures over a long period has contributed to
**Analysis**
The text discusses the relationship between military expenditure and economic issues such as inflation, trade imbalances, and international payments. It highlights the negative effects of large military expenditures on the economy, including the diversion of resources away from civilian sectors and the resulting inflationary pressures. The text does not mention any specific industries or sectors, but rather focuses on the macroeconomic implications of military spending.

**Category**
Economic development, International trade