Suppose the country of Mahoroba is initially in a long run equilibrium with a small budget deficit. Then the government increased spending on Mahoroba's education system, increasing the productivity of its workers, and increasing government outlays

a) Use Mahoroba's Labour Market and aggregate production diagrams to show and explain the effects of their education improvement. (draw two graph and explain).

b) Show graphically, and explain, the long run impact on Mahoroba's economy using the AS-AD diagram. State whether each of real GDP, consumption, investment, and real wages, will be higher, lower, the same or ambiguously changed in this new long run. (Assume that Mahoroba's increased government spending was just high enough that it prevented any deflation.)

c) If no other changes are made, explain what you would expect to happen to Mahoroba's budget deficit in the new long run equilibrium. (increase, decrease, on change, or ambiguous)

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