Final answer:
The formula for GDP is C + I + G + (X - M). To calculate NX (Net Exports), subtract imports from exports. To find equilibrium, solve for Y (output/income) by balancing the GDP equation. Use two methods to calculate the change in government spending needed to achieve a potential GDP of 3,500.
Step-by-step explanation:
The formula for GDP is GDP = C + I + G + (X - M), where C represents consumption, I represents investment, G represents government spending, X represents exports, and M represents imports. Given the values in the question, we can calculate NX (Net Exports) by subtracting imports from exports: 500 - 0.1(Y - T). To find the equilibrium for this economy, we need to calculate the value of Y (output/income) that satisfies the equation Y = C + I + G + NX. Once we have the equilibrium level of output/income, we can calculate the change in government spending needed to achieve the potential GDP of 3,500 using two methods: plugging in 3,500 into the equation and solving for G or calculating the multiplier and using that to determine the change in government spending needed.