3. Simultaneous Equations.Gates Equipment, Inc., manufactures a wide range of parts for the agricultural equipment industry. The company is currently evaluating the merits of building a new plant in order to fulfill a new contract with a large export concern. The alternative to expansion is to use additional overtime, reduce other production, or a combination of both.
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The company will add new capacity only if the regional 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:Pt-1 = $1,400 billionG = $2,800 billionC = $800 billion + 0.8Y + uI = $950 billion + 0.75Pt-1 Annual tax receipts: T = 0.25 GDP National income Y = GDP – T Gross domestic product GDP = C + I + GForecast each of the above variables through the simultaneous relations expressed in the multiple equation system. Assume that all random disturbances average out to zero. Get Economics homework help today
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