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.