Page 47 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.70, # 2, 2013, pp. 32-66

4. The Interpretations of the Macro-Fiscal Model’s Equations and Their Uses:

As it is a very well established economic fact that there would be quantitative development
consequences and impacts of the likely GDP growth rate on the budget structure and balances,

investment requirements and its saving balances/unbalances, balance of payments contents and
movements, employment and productivities, to mentioned but a few. It is therefore imperative

from economic equilibrium and development balancing and potentiality point of view to
determine, objectively, through a well-structured and economically balanced mechanism, the

growth rate of an economy rather than subjectively or politically predetermined rate. Accordingly,

and in this circumstance, this has been approached, in modelling sense, by modelling and
forecasting both; the production (the supply side) of the economy and the expenditure (the demand

side) in the national economy of Bangladesh [See Al-Ali, Hashim (2012). ibid].

Equations (1-5) specified the reality that product is a function of the productive capacity
available in the economy and productive capacity utilization rate. However, statistical data needs

to be examined to determine whether there is full capacity utilization in various sectors of the
economy. Results of less than full capacity utilization means that it is quite possible to increase

production at a given sector and hence at the economy as a whole, by increasing the rate of
capacity utilization, and without any additional increases in sectoral and/or total national

investment. Given the above, the structure of these equation has been formulated in such a way

to deriving and forecasting the product in the economy.
The Production capacity at any year, by and large, is equal to the total capital in the

previous year, divided by the average capital-output ratio. That said the average capital-output

ratio (αҡ), has been derived in Bangladesh economy and converged to be, almost, equivalent to
the incremental capital-output ration (ICOR) of the economy.

It is an economic and quantitative fact that the gross domestic product for an economy is

the sum of the national economy’s various sector component products. Accordingly, equations
(6-12) of the integrated model depicting these sectoral products relationship in the economy.

Hence, deriving the economy growth rate as the weighted average of the various sectors rates of
growth. By doing so the link between macroeconomic and sectoral activities and growth would

be established and quantified.
Furthermore, we have attempted to bring together the different components of the

production function: capital, labour and others. Equation (13) has defined such a production

46