This will be a graph shifting question, which asks about the intuition of both the AD-AS figures and the I-NS figures, specifically relating them to long-term 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 long-term growth, specifically 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 long-run? Explain your answer. [2 points] Now suppose that the Aggregate Demand (AD) remains fixed through this period, and that we begin in long-run equilibrium. Suppose that the government is concerned about stability in the price level and is concerned about the impact of this long-term growth on the long-run price level. a. What can the Government do to maintain stability in the price level? Explain your answer using the AD-AS model. [2 points] b. What would be the impact of your answer to the previous question on the government budget deficit? 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. c. What would be the impact of the change in Y* and the increase in the budget deficit on this economy's long-term interest rates? Explain your answer using the I-NS model. [3 points]