1. Consumption tax is a tax levied on purchases of consumption goods and services.

a. Is a permanent decrease in consumption tax a demand shock or a supply shock? Explain your reasoning. b. Use the AD-AS model to discuss the effect of a permanent decrease in consumption tax on output and inflation, both in the short run and in the long run. c. Use the MP curve or the IS curve to discuss the effect of a permanent decrease in consumption tax on the real interest rate, both in the short run and in the long run. d. Display the short-run and long-run Phillips curves that are consistent with your answer in Parts (a) and (b). Explain your reasoning.