1. Boeing Company has two main product lines: military aircraft and commercial airplanes. The military aircraft product line has basically one buyer, the US government. The commercial airplanes product line has two markets: domestic and foreign airlines. The Company needs to plan and invest well before a product is ready to be delivered to customers. For this reason, it needs to assess the macroeconomic conditions for its sales in different markets over the next several years. Boeing's business and economic experts argue that the demand for commercial aircrafts is closely linked to the total investment demand in the US and abroad and Boeing's shares of aircraft sales in both markets are likely to be steady. The purchases of military aircraft are also likely to be directly connected with the total government expenditure on goods and services. The experts note that the US is running a huge trade deficit and conclude that there is a significant chance that that trade deficit will have to be reduced over the next several years as other countries scale back their lending to the US and find opportunities for investment elsewhere. The experts forecast that because of this, the US trade deficit will have to be cut by two-thirds over the next several years. They also forecast that private savings, government expenditure, net taxes, and the export opportunities for all US products, including aircrafts, will remain unchanged. They believe that the adjustment in the trade deficit will come entirely through import reduction.

(a) What is the implication of the experts' forecast for the total investment in the US over the next several years?

(b) Under the above assumptions, what is the implication of the experts' forecast for Boeing's military and commercial aircraft sales over the next several years?

(c) If the government wants to keep investment constant by adjusting its expenditure and deficit (without any changes in net taxes and other things remaining the same), what should happen to the budget deficit?

(d) Assuming that the government adjusts its expenditure to keep investment constant as described in part (c) and if all other assumptions of Boeing experts apply, how should the Company plan its investments over the next few years? For each of the two product lines (military aircraft and commercial airplanes), should it consider reducing its investment, increase it, or maintain it at the current levels?