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Jacinda is the queen of Dreamland. The economy of Dreamland is initially described by the following equations: C=150+0.6 YD I=250 G=200 T=200

Jacinda wants to increase GDP by 120. She hopes that by doing a government transfer to the people of Dreamland of an amount of "x" she can reach her goal. You are her economic advisor. Calculate the amount "x" so that Jacinda reaches her goal. Show your derivations.

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The consumption function for Dreamland is given by C=150+0.6YD. The equation shows that consumption is a function of disposable income, which is YD. In this equation, 150 is the autonomous consumption and 0.6 is the marginal propensity to consume. Hence, every extra dollar of disposable income leads to an increase in consumption by 0.6 dollars. In the equation, I=250, I stands for investment, which is independent of income, and thus, it is treated as an autonomous variable. Similarly, G=200, is the government spending, which is autonomous, and T=200, is the taxes, which are fixed and do not vary with income. Let us use the aggregate expenditure model, which states that: AE=C+I+G+NX, where AE is the total spending in an economy, C is consumption, I is investment, G is government spending, and NX is net exports. In the case of Dreamland, NX=0, because it is an imaginary country. Hence, AE=C+I+G. Now, GDP is equal to the total spending in an economy or aggregate expenditure. Therefore, we can write: Y=GDP=AE=C+I+G Substituting the values in the equation, we get: Y = (150+0.6YD) + 250 + 200 + 0 (since NX = 0)Simplifying, we get: Y = 600 + 0.6YDThe government transfer amount x will increase the disposable income, and hence, consumption will increase by 0.6x. So, the change in GDP due to the government transfer will be the change in consumption multiplied by the marginal propensity to consume (0.6).Change in GDP = 0.6xTo increase the GDP by 120, we need:0.6x = 120Solving for x, we get: x = 200So, the government transfer amount should be $200 to achieve the goal of increasing GDP by $120. Therefore, the amount "x" so that Jacinda reaches her goal is $200.

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