Economic Impact Analysis

BENEFIT­COST ANALYSIS Financial and Economic Appraisal using Spreadsheets Ch 13: Economic Impact Analysis © Harry Campbell & Richard Brown School of Economics The University of Queensland What is the difference between Net Present Value and Economic Impact? Keynes gives the example of land, labour and capital used in two alternative ways: 1. To dig a hole in the ground; 2. To build a hospital. The two projects have the same economic impact, in terms of generating income for factors of production and inducing additional expenditures, but the hospital has a higher net present value than the hole in the ground. The Circular Flow of National Income Figure 13.1 The Circular Flow of Income HOUSEHOLDS $ GOODS GOVERNMENT FACTORS $ FIRMS The National Income Multiplier Consider three models which can be used to derive the national income multiplier: 1. A closed economy, no taxes; 2. A closed economy, with exogenous taxes; 3. An open economy, with endogenous taxes. Symbols: Y = national income; S = Savings; T = tax revenues; X = value of exports; C = consumption expenditure; I = investment expenditure; G = government expenditure; M = value of imports Model 1: Closed economy, no taxes Y = C + I + G C = A* + bY, where A* is autonomous consumption expenditure, and investment and government expenditure are exogenous. Substitute to get: Y = A* + bY + I* + G* where “ * ” indicates a variable which is exogenous to the model (i.e. is assumed to be constant). Solve to get: Y = (1/(1-b))(A* + I* +G*), where (1/(1-b) is the national income multiplier. Now dY = (1/(1-b) dG* ... - tailieumienphi.vn