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Lecture

Economics 3220 Lecture Notes - Macroeconomic Model


Department
Economics
Course Code
Economics 3220
Professor
Ali Kamar

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Chapter 8-2
Multiple sector regulation
If the regulation targets multiple sectors of the economic then estimation
costs at a national level are more appropriate
Any economy has fixed amount of resources- land labor , capital, natural and
environmental resources- to produce output
So, economic outputs are likely to fall, at least in short run
But increased demand for pollution control equipment in energy- intensive
sectors may expand outputs in those sectors that produces this equipment
Also , prices of some items increases => qty demanded decreases => outputs
decrease => production cost decreases
Reduced output in polluting sectors => employment decreases but increased
demand for polluting control goods => employment increase
As the economy is interrelated, a complex macro-economic model is needed
to estimate the compliance costs in this case
One such modeling approach is called the Input-Output (IO) analysis
o It uses input-output table with values indicating transactions among
different sectors
o A set of equations connects those transactions
o It is estimated with a software package
The idea is that a change in expenditure in one sector has direct and indirect
effect s
These effects cause a second or third round direct and indirect effects, and so
on.
Adding up all these multi-level effects provide the economy-wide total effect
of the original change
S-1
s-2
HH
Exports
Total
outputs
S1
S2
HH
Import
Total
Input
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