Problem 1: Long-Term Growth In the All-AS Model [1!] Points] This will be a graph shifting question, which asks about the intuition of both the ADAS gures and the INS gures, specically relating them to longterm growth. Suppose that the economy uses [only] two major inputs in its production: capital {K} and labour [L]. Suppose also that we are thinking about longterm growth, specically through productivity growth. 1. Suppose that there is an increase in the productivity of input in this economy. What would we expect to happen to Y\" in the longrun? Explain your answer. [2 points] Now suppose that the Aggregate Demand {AD} remains xed through this period, and that we begin in longrun equilibrium. 2. If AD remains fixed, and the growth in the economy's productivity occurs, then what would happen to {i} the price level {p}, [ii] Real GDP ['1'], and {iii} the price ofinputs [L E: K] in the economy? Explain your answer using the ADAS model. [2 points] Suppose that the government is concerned about stability in the price level and is concerned about the impact of this longterm growth on the long-run price level. 3. What can the Government do to maintain stability in the price level? Explain your answer using the ADAS model. [2 points] 4. What would be the impact of your answer to the previous question on the government budget decit? What would need to be true for this to have a negative effect on the deficit? [1 point] Assume that the budget deficit here increases. 5. What would be the impact of the change in Y\" and the increase in the budget decit on this economfs longterm interest rates? Explain your answer using the INS model. [3 points]