Final answer:
The student's question involves calculating the equilibrium level of national income using the aggregate expenditure model and determining the adjustment in government spending required to achieve a potential GDP target.
Step-by-step explanation:
Calculation of Equilibrium and Government Spending Adjustment
The question is related to the calculation of the equilibrium level of national income (Y) for an economy and how changes in government spending (G) can achieve a target level of potential GDP. The aggregate expenditure function AE is given by C + I + G + X - M, in which C represents consumption, I stands for investment, G for government spending, X for exports, and M for imports.
Firstly, we need to plug the value of the potential GDP into the equations provided and solve for G. Secondly, we can calculate the multiplier using the marginal propensity to consume and the marginal tax rate, and use it to find the necessary change in G.
For these types of problems, understanding concepts like the marginal propensity to consume, tax multiplier, and the simple expenditure multiplier is essential to solve for equilibrium and make policy decisions based on adjustments in government spending or taxes.