Effectiveness and ineffectiveness of CGE 3 points each
Effectiveness of CGE (3 points):
1. Helps to analyze the impact of policy changes: CGE models are used to evaluate policy changes and their impact on the economy. These models provide a framework to simulate how an economy will react to a particular policy, such as changes in trade tariffs or taxation. By having a clear understanding of the potential outcomes of policy changes, policymakers can make informed decisions that will benefit the economy.
2. Provides a comprehensive view of the economy: CGE models are designed to be comprehensive and inclusive of all economic sectors. This approach allows economists to understand how changes in one sector can impact all other sectors in the economy. This is important as the economy is a complex system, and changes in one area can quickly spread to other areas.
3. Supports economic forecasting: CGE models are useful for making predictions about the future of the economy. By inputting different assumptions into the model, it is possible to predict how the economy will perform in the future. This is valuable information for businesses and policymakers as it allows them to make informed decisions about economic strategy.
Ineffectiveness of CGE (3 points):
1. Limited accuracy: CGE models are based on a number of assumptions, which can limit their accuracy. For example, they may only be able to predict the behaviour of certain sectors or types of consumers, meaning that the overall accuracy of the model may be limited.
2. Difficulty in capturing all relevant factors: The real-world economy is a complex system, with many different factors impacting economic outcomes. It can be difficult to capture all of these factors accurately in a CGE model, which can limit the usefulness of the model in certain situations.
3. Limited flexibility: CGE models can be time-consuming and costly to create, which means that they may not be suitable for quickly assessing the impact of short-term policy changes. Additionally, once the model has been created, it may not be easy to modify or adapt to new situations, which can limit its usefulness in a rapidly changing economic environment.