Assume the economy is operating at the full-employment level of output.

1. The Federal Reserve decides to decrease the discount rate. Explain how each of the following is impacted as a result of the Fed's action:
2. Nominal interest rates
3. Aggregate demand
4. Price level
5. Assume the Fed's action is successful in changing the economy. Using a correctly drawn and labeled Phillips curve, show and explain how this policy will affect each of the following as the economy approaches a new equilibrium:
6. the Phillips curve
7. the natural rate of unemployment