Is there an optimal debt policy in the US? What is the impact of increasing leverage regarding the market value of the firm? Please discuss the debt theories of Ezra Solomon, the traditional approach to the WACC, and Modigliani and Miller? Mr. X states that growth US economy is driven by equity, because retained earnings are the most important source of funds, whereas capital expenditures are the most important use of funds. Ms Y states that the growth in the US economy is financed by debt, because the issuance of debt has exceeded the issuance of equity in the 1950-2003 period by about 7:1; furthermore equity repurchases have grown relative to dividend payments, as a use of funds, during the 1987-2003 period. Please discuss the statements of Mr. X and Ms Y.