Macroeconomic Activity Module
The Macroeconomic Activity Module (MAM) represents the interaction between
the U.S. economy as a whole and energy markets. The rate of growth
of the economy, measured by the growth in gross domestic product
(GDP) is a key determinant of the growth in demand for energy. Associated
economic factors, such as interest rates and disposable income, strongly
influence various elements of the supply and demand for energy. At the
same time, reactions to energy markets by the aggregate economy, such as
a slowdown in economic growth resulting from increasing energy prices,
are also reflected in this module. A detailed description of the MAM
is provided in the EIA publication, Model Documentation Report: Macroeconomic Activity Module (MAM) of the National Energy Modeling System,
DOE/EIA-M065(2007), (Washington, DC, January 2007).
Key Assumptions
The output of the U.S. economy, measured by GDP, is expected to increase
by 2.4 percent between 2006 and 2030 in the reference case. Two key factors
help explain the growth in GDP: the growth rate of nonfarm employment
and the rate of productivity change associated with employment. As Table
3 indicates, for the Reference Case GDP growth slows from 2.5 percent between
2010 and 2020, to 2.4 percent between 2020 and 2030. In the near term
from 2006 through 2010, the growth in nonfarm employment is low at 1.1
percent compared with 2.4 percent in the second half of the 1990s, while
the economy is expected to experiencing productivity growth of 1.7 percent.
Over the projection period, nonfarm employment is expected to grow by
0.9 percent per year. Nonfarm employment, a measure of demand for nonfarm
labor, is generally more volatile than the labor force, a measure of labor
supply. The latter depends upon the projection of population and labor
force participation rate. The Census Bureaus middle series population
projection is used as a basis for population growth for the
AEO2008. Total population is expected to grow by 0.8 percent per year
between 2006 and 2030, and the share of population over 65 is expected
to increase over time. However, the share of the labor force in the population
over 65 is also projected to increase in the projection period.
To achieve the reference cases long-run 2.4 percent economic growth, there
is an anticipated steady growth in labor productivity. The improvement
in labor productivity reflects the positive effects of a growing capital
stock as well as technological change over time. Nonfarm labor productivity
is expected to remain between 1.9 and 2.0 percent for the remainder of
the projection period from 2006 through 2030. Business fixed investment
as a share of nominal GDP is expected to grow over the last 10 years of
the projection. The resulting growth in the capital stock and the technology
base of that capital stock helps to sustain productivity growth of 1.9
percent from the 2005 to 2030.
To reflect the uncertainty in projection of economic growth, the AEO2007 uses high and low economic growth cases along with the reference case
to project the possible impacts on energy markets. The high economic growth
case incorporates higher population, labor force and productivity growth
rates than the reference case. Due to the higher productivity gains, inflation
and interest rates are lower compared to the reference case. Investment,
disposable income, and industrial production are increased. Economic output
is projected to increase by 3.0 percent per year between 2006 and 2030.
The low economic growth case assumes lower population, labor force, and
productivity gains, with resulting higher prices and interest rates and
lower industrial output growth. In the low economic growth case, economic
output is expected to increase by 1.8 percent per year over the projection
horizon. |