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Suppose the government provides incentives (e.g. lower company tax) to firms that engage in high levels of research and development.
a How would this affect firms' allocation between different types of investment? Explain.
b How would this affect the interest rate? Explain.
c What happens to the quantity of investment overall? Explain.
d What happens to the short-run aggregate supply curve? Explain.
e What happens to the long-run aggregate supply curve? Explain.
f What happens to the value of the dollar? Explain.
g What happens to the quantity of net exports demanded? Explain.
h What happens to aggregate demand? Explain.
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