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Macroeconomic equilibrium with a real gdp

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Reference no: EM132422403

Problem: Very recently, Amazon selected Long Island (really NYC) and Alexandria, VA (really Washington DC) as the new location(s) for their HQ2 headquarters. These were selected out of 238 cities who applied and even sent some crazy gifts to entice Amazon. Let's say the MPC for both of those places is 0.8.

Required:

Question 1: Let's say pre-Amazon NYC is in macroeconomic equilibrium with a real GDP of $10 billion. Illustrate this in the Aggregate Expenditure model. Be sure to label everything properly!

Question 2: First off, the HQ2 headquarter has to be built. Let's say it takes a 1 time $100 billion investment in 2019 to build the place. Illustrate both the short run & long run impact of this in the Aggregate Expenditure graph above. Calculate the final long run economic impact of this construction and label that appropriately on the graph. Be sure to show your work!

Question 3: Some have estimated that the HQ2 headquarter will bring an extra $5 billion in business investment over the next 10 years. Let's say that occurs in $500 million increments each year (so 2019, investment goes up by $500 million, 2020, investment goes up by $500 million etc. etc.). Including the construction in 2019 as well, illustrate this in an Aggregate Expenditure model framework. Be sure to label everything!

Question 4: Based on the above two changes in investment, what is the expected long run impact of the Amazon HQ2 in Long Island in $ terms. Be sure to show your work! Label these points on the graph above as well.

Question 5: However, those aren't the only things. That increased investment is expected to create 101,000 jobs and $7.7 billion in increased wages over those 10 years (let's assume that's $770 million per year). Now let's be simple and assume income is taxed at a flat 20%. Let's say the government spends this money in the economy right way. So the total effect is the construction investment, Amazon investments each year and the government spending change each year. Illustrate the impact of all 3 pieces in the Aggregate Expenditure model here and be sure to label everything properly.

Question 6: And calculate the long run economic impact when all 3 pieces of the Amazon move are accounted for. Be sure to show your work! Label these points on the graph above.

Question 7: NYC ponied up $1.5 billion a year in subsidies to get Amazon to come. Does that seem like way too much $ for them to be paying? Why or why not?

Reference no: EM132422403

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