Assume the economy is operating below the full employment level of output:

1. Congress votes to decrease business taxes on all small businesses in the United States. Using a correctly drawn AD/AS graph, show and explain how this change will affect each of the following in the short-run:
2. Output
3. Price level

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:

1. the Phillips curve
2. the natural rate of unemployment