Forecast the general economic activity of the us

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Macrosoft, Inc., based in Seattle, Washington, manufactures a wide range of parts for the aircraft, automotive, and agricultural equipment industries. The company is currently evaluating the merits of building a new plant in order to fulfill a new contract with the federal government. The alternative to expansion is to use additional overtime, reduce other production, or a combination of both. The company will add new capacity only if the economy appears to be expanding. Forecasting the general economic activity of the United States is therefore 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 = $3,000 billion

Annual consumption expenditures C = $800 billion + 0.75Y + u

Annual investment expenditures I = $1,520 billion + 0.9Pt-1

Annual tax receipts T = 0.2 GDP

National income Y = GDP - T

Gross domestic product GDP = C + I + G

A. Forecast each of the above variables through the simultaneous relations expressed in the multiple equation system. Assume that all random disturbances average out to zero.

Reference no: EM13198695

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