2. In 2016, Obama's administration presented a new budget plan. It proposed an increase in the budget control act (BCA)'s cap for defense spending by $ 54 billion in 2018 (more than a 10% raise in the defense spending compare to previous budget). Determine the effects of the policy on Keynesian Cross (AD) and loanable funds market. Explain, use graphs and math.

3. Let's assume that parameter b in the investment function is small.

a. How an increase in the rental price (or interest rate) will affect the level of investment in the economy? Why? Explain and use the models and graphs.

b. How an investment tax break will affect overall investment and the level of investment in the economy? Use model graph and explain