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Doing so may take a blend of economic theory, physical and institutional realities, and mathematical sophistication, but once done, the result would be a mathematical or "quantitative economic model," which is but one important step away from an econometric model.The equation for clothing purchases, C = .12W, asserts that 12 percent of household income is spent on clothing.Similarly, the model requires an assumption about the monetary policy that will be pursued by the central bank (the Federal Reserve System in the United States), and assumptions about many other such "outside of the model" (or exogenous) variables in order to forecast all the "inside of the model" (or endogenous) variables.The need for the econometrician to use the best available economic judgment about "outside" factors is inherent in economic forecasting.

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The single equation C = .059W, for example, predicts C if the value of W is known.If the model is to forecast economic activity several years into the future, anticipated future tax rates must be made a part of the model's information base.That requires an assumption about whether the government will change future income tax rates and, if so, when and by how much.n econometric model is one of the tools that economists use to forecast future developments in the economy.In the simplest terms, econometricians measure past relationships between variables such as consumer spending and gross national product, and then try to forecast how changes in some variables will affect the future course of others.

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