2. In 2016 Obama's administration presented a new budget plan. It proposed an increase in BCA cap for defense spending by $54 billion in 2018 (more than a 10% rise in defense spending compared to the previous budget): a. Determine the effects of the policy on the Keynesian cross and loanable funds market. Explain, use graphs and math. b. What would be the effect on national income and interest rate in the short run. Use IS-LM, graph, math, and explain. c. What might happen with the level of prices? Use the AD-AS model and use the graph. d. Taking into account what happened to prices and what you answered in question c above, please explain how the Fed might react to this policy. Use graphs and explain.

ENGR.ECONOMIC ANALYSIS
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2. In 2016 Obama's administration presented a new budget plan. It proposed an increase in BCA
cap for defense spending by $54 billion in 2018 (more than a 10% rise in defense spending
compared to the previous budget):
a. Determine the effects of the policy on the Keynesian cross and loanable funds market.
Explain, use graphs and math.
b. What would be the effect on national income and interest rate in the short run. Use IS-LM,
graph, math, and explain.
c. What might happen with the level of prices? Use the AD-AS model and use the graph.
d. Taking into account what happened to prices and what you answered in question c above,
please explain how the Fed might react to this policy. Use graphs and explain.
Transcribed Image Text:2. In 2016 Obama's administration presented a new budget plan. It proposed an increase in BCA cap for defense spending by $54 billion in 2018 (more than a 10% rise in defense spending compared to the previous budget): a. Determine the effects of the policy on the Keynesian cross and loanable funds market. Explain, use graphs and math. b. What would be the effect on national income and interest rate in the short run. Use IS-LM, graph, math, and explain. c. What might happen with the level of prices? Use the AD-AS model and use the graph. d. Taking into account what happened to prices and what you answered in question c above, please explain how the Fed might react to this policy. Use graphs and explain.
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