Supersonic Industries, based in Seattle, Washington, manufactures a wide range of parts for aircraft manufacturers. The company is currently evaluating the merits of building a new plant to fulfill a new contract with the federal government. The alternatives to expansion are to use additional overtime, to reduce other production, or both. The company will add new capacity only if the economy appears to be expanding. Therefore, forecasting the general pace of economic activity for the United States is an important input to the decision-making process. The firm has collected data and estimated the following relations for the U.S. economy:
Last year's total profits (all corporations) Pt-1=$1,200 billion
This year's government expenditures G=$2,500 billion
Annual consumption expenditures C=$900 billion + 0.75Y
Annual investment expenditures I=$920 billion + 0.9Pt1
Annual tax receipts T=0.16GDP
Net Exports X=0.03GDP
National income Y=GDP - T
Gross domestic product (GDP) =C + I + G - X
Forecast each of the preceding variables through the simultaneous relations expressed in the multiple equation system. Assume that all random disturbances average out to zero.

  • CreatedFebruary 13, 2015
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