Recall the PAE model you studied in class, where 

The unlabelled diagram below presents the initial equilibrium in Country X. Initially, government budget is at balance.

Assume that the government of Country X has increased its expenditures (G) but did not change the taxes (T0), such that the government budget is now in a deficit. Which diagram below is the best representation of this change?

1. 

2.

3.

4. 

5.