The United States' economy is experiencing a recession, and Congress decides to act.

1. Should they pass a law giving businesses a tax credit on spending for machinery or increasing taxes on business profits? Explain why your choice would be the best thing for the economy.

1. Using a correctly labeled graph of the loanable funds market, show the effect of the business sector's response on the real interest rate. Explain what Congress expects to happen within the economy.

(c) How will this new law impact the overall economy? Using a correctly drawn and labeled graph of the AD/AS for the US, show what will happen as businesses respond to the new law in the short run.

(d) Given your answer to b, what will the overall impact of this long be in the long run? Draw and explain what will happen to the country's production possibilities curve in the long run.