Final answer:
The equilibrium level of output in a Keynesian model is determined by equating aggregate demand with national income, using the formula Y = C + I + G + (X - M). To adjust for target GDP, changes in government spending can be calculated using the Keynesian multiplier, considering the marginal propensity to consume and tax rate.
Step-by-step explanation:
To find the equilibrium level of output in Keynesian models of economics, one needs to equal aggregate demand with aggregate supply (or national income Y). Given the information provided for various parameters of government spending, taxes, consumption (C), investments (I), exports (X), and imports (M), we can calculate the equilibrium output using the formula Y = C + I + G + (X - M).
In the scenario where the Marginal Propensity to Consume (MPC) out of the after-tax income is 0.8, the tax rate is 0.4 of national income, investment is $2,000, government spending is $1,000, exports are $2,000 and imports are 0.05 of after-tax income, we can plug these values into the formula to calculate for the equilibrium level of national income (Y). If we have an aim to adjust Y such as to match potential GDP, changes in G (or alternatively T) will be necessary.
To solve for government spending adjustments, we first identify the multiplier, which is 1 / (1 - MPC * (1 - tax rate)). Then, to achieve a specific target for potential GDP, we can apply this multiplier to the required change in output to find the necessary change in government spending.