Final answer:
In the Keynesian model, full-employment output is determined by the equilibrium point where aggregate demand equals aggregate supply. Adjusting government spending and tax rates can help achieve this balance at a full employment level of national income, which in the scenario given would be Y = 3,500.
Step-by-step explanation:
The full-employment output, Y, in the Keynesian model with efficiency wages, is determined by the level of national income at which the aggregate demand equals aggregate supply. This equilibrium marks the point where the economy is considered to be at full employment. In a policy context, adjusting government spending levels and tax rates are crucial to achieving an equilibrium level of output that corresponds to the full employment level. Given the economic parameters, we can calculate this by setting Y equal to the full employment level of 3,500 and then solving for G (government spending) after calculating consumption (C) and taxes (T).
Aggregate demand (AD) and aggregate supply (AS) functions are used to determine the equilibrium point. For instance, if the aggregate demand function intersects with the aggregate supply at potential GDP (Yp), then the economy is operating at full employment. If the equilibrium national income (Y) is below this potential GDP, it indicates that the economy might be in a recession and not at full employment. To illustrate, we plug in Y = 3,500 into the equations: Taxes (T = 0.3Y), Consumption (C = 200 + 0.9(Y - T)), and the given Investment (I = 600) to find out what level of government spending (G) will bring the economy to its full employment output.