The Factor Analysis of Energy Efficiency in Taiwan's Service Sectors and Energy-saving Strategies

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1 The Factor Analyss of nergy ffcency n Tawan's Servce Sectors and nergy-savng Strateges Ch-Yuan Lang, Rue-He Jheng, Kyen-Lwan Yan, Po-Yao Kuo, Wen-Hsang Ln Abstract In order to fgure out the factors that affectng energy effcency of the servce sector, we frstly apply the method of decomposton analyss to analyze the electrcty effcency of servce sector from 1998 to Secondly, we use the producer s model of a dynamc general equlbrum model of Tawan (DGMT) to estmate the energy prce elastcty of demand n the servce sector for measurng the potental effect of energy-savng wth respect to energy prce changes. The major fndngs are 1) In , the overall electrcty ntensty of the servce sector showng frst ncreased and then dropped. The mprovement of electrcty effcency s very sgnfcantly after 2007 (mprovng 11.95%). The man reason s the effect of changes n total output electrcty ntensty mprovement; the rate of relatve contrbuton s %. 2) The energy elastcty of the whole servce sector s It means that the potental energy consumpton wll decrease % f the energy prce ncreases 1%. 3) nergy prce rsng can elevate ncentve of energy-savng and acceleratng ndustral structure change. The mprovement of electrcty effcency n the servce sector s very sgnfcantly durng , electrcty prce ncreasng 25.6% at mdyear of 2008 s one of the reasons that elevate the energy effcency of current and followng year. Keywords: lastcty of Demand, nergy ffcency, Servce Sector, Dynamc General qulbrum Model of Tawan JL Codes: Q01, Q41, Q43, Q48 The authors are cosepondng author: Yan, Kyen-Lwan, Assstant Research Fellow, Chung-Hua Insttuton for conomc Research, Tel: ext.6603, mal: madyyoung@cer.edu.tw. Ch-Yuan Lang, Charman,Chung-Hua Insttuton for conomc Research. Rue-He Jheng, Analyst,Chung-Hua Insttuton for conomc Research. Po-Yao Kuo, Assstant Research Fellow, Chung-Hua Insttuton for conomc Research. Wen-Hsang Ln,Senor Deputy Drector, Tawan Green Producton Foundaton. 1

2 1. Introducton Accordng to statstcs of the Bureau of nergy of Mnstry of conomc Affars, n , energy consumpton of the servce sector wth an average annual growth rate of 1.76%, t s hgher than the ndustral sector (1.66%), the resdental sector (1.05%) and the transport sector (0.48%). In recent years, n order to ratonalze the energy prces, the government announced that ncreasng the ol prce of 10.7% n At the same tme, the government also announced a tarff ratonalzaton scheme to adjust the electrcty prce at three steps. nergy prce adjustments wll nevtably affect ndustral costs, resultng n rsng products prce and slowng growth. Because electrcty s the man energy consumpton n the servce sector, the electrcty prce changes wll sgnfcantly mpact on the servce sector. It s necessary to carry out the energy conservaton measures and polces. The rest of the paper s organzed as follows. Secton 2 presents the theoretcal model. A bref descrpton of the data s gven n the secton 3. The emprcal results are reported and dscussed n secton 4. Fnally, secton 5 summarzes the study and offers some suggestons. 2. Theoretcal Model 2.1 Producer s Model of DGMT We assume that the sectoral cost functon s translog form wth homothetc weak separablty of energy and materal nputs. The model actually conssts of four sub-models (for each sector): an aggregate sub-model, an energy sub-model, a non-energy ntermedate nput sub-model, and an ol product sub-model. The aggregate sub-model ncludes one output prce equaton and fve equatons relatng to the cost shares of captal, labor, energy, non-energy ntermedate nputs and the rate of technologcal change. The energy sub-model has one prce (energy prce) equaton and four share equatons explanng the cost shares of coal, ol products, natural gas, and electrcty, respectvely. The non-energy ntermedate sub-model s composed of one prce (materal prce) equaton and fve equatons for the cost shares of agrcultural ntermedate nputs, ndustral ntermedate nputs, transportaton's ntermedate nputs, servce ntermedate nputs, and mported ntermedate nputs, respectvely. Smlarly, the ol product sub-model has one prce (ol prce) equaton and four share equatons explanng the cost shares of gasolne, desel, fuel ol and 2

3 other ol products. Fgure 1 presents the ter structure of the sub-models n the producer's model. Wth the sole excepton of the ol sub-model, the explanatory varables consst of nput prces and tme as an ndex of the level of technology. As for the ol sub-model, the explanatory varable conssts of nput prces only. Wth the aggregate nput sub-model as an example, the output prce (P) equaton s 1 ln P 0 TT ln P j ln P ln Pj 2 j 1 2 T ln PT TTT,, j K, L,, M, 2 where, j=k, L,, M,C,O,N,e denotes captal, labor, energy, ntermedate nputs, coal, ol, natural gas, and electrc, respectvely. T denotes tme as an ndex of the level of technology. The nput cost share equatons are 1 (1) S j ln P TT,, j K, L,, M, C, O, N, e (2) Accordng to Berndt and Wood (1975),we can calculate the elastcty of translog cost functon as follows 2 S S, = K, L,, M, C, O, N, e, (3a) S S s the cost share of factor, hence (Allen Partal lastcty of Substtuton) s wll change followng S. Besdes, the AS j ( S ) S, K, L,, M, C, O, N, e, (3b) 2 2 ( S) j SS. j,, j K, L,, M, C, O, N, e, (3c) SS j We know that = but the value sn t constant. They wll change followng j j cost share. The tradtonal cross- elastcty s defned ln Q ln P and the j j 1 Based on Shephard s lemma, the nput cost share equaton (S ) can be derved by dfferentatng quaton (1) wth the logarthmc form of the prce of nput (P ). 3

4 relaton between AS and j as follows S. j j j S. j j 4

5 Aggregate Sub-model (Prce, Share quaton) Captal Labor nergy Intermedate Inputs Techncal Change nergy Sub-model (Prce, Shares) Intermedate Sub-model (Prce, Share) Coal Ol Natural Gas lectrcty Agrcultural Intermedate Input Industral Intermedate Input Transport Intermedate Input Servce Intermedate Input Imported Intermedate Input Ol Sub-model (Prce, Shares) Coal Desel Fuel Ol Others Fgure 1. Ter Structure of the Producer s Sub-model n the DGMT Model 5

6 2.2 Factor Decomposton Method We use a decomposton analyss method to decompose the energy effcency of the servce sector. Accordng to Patterson (1996), the energy effcency s defned by the relaton between nput and output useful output of a process energy effcency= energy nput n a process In ths artcle, we use the value-added and the total output to calculate the energy ntensty of the servce sector. The formulas of energy ntensty of value-added and total output are as follows, energy consumpton of ndustry energy ntensty of value-added= value-added of ndustry (constant prce) energy consumpton of ndustry energy ntensty of total output= total output of ndustry (constant prce) Accordng to the formula, the numerator of these formulas s the energy consumpton, but denomnator are value-add and total output, respectvely. Because the total output ncludes value-added and ntermedate nputs (energy ntermedate nputs and non- energy ntermedate nputs), the relatonshp between value-added and ntermedate nputs may exst substtute or complement. Because of the total value wll take the relatonshp between the value added and the ntermedate nputs nto account, n theory, t s better than the energy ntensty of value-added. However, n order to understand the effect of ndvdual ndustry of energy ntensty to the whole ndustry s energy ntensty, we can only estmate t from the energy ntensty of value-added. To sum up, these two formulas have ther own sgnfcance, we wll calculate both of them smultaneously. Let be the energy consumpton of the whole ndustry and GDP be Y. Then value-added energy ntensty of the whole ndustry (I) can be shown as 6

7 Q Y I I V S Y Q Y Y n Q 1 (11) 1 In the equaton (11), I Q, V Q Q Q Y, Y Y S., Q, I, 1 1 V denotes energy consumpton of the ndustry, total output of the ndustry, energy ntensty of total output of the ndustry, and nverse rato of value-added of the ndustry, respectvely. S denotes the share of the ndustry. We adopt partal dfferental equaton (11) by tme (t), we can receve I t I Q t V V S 1 1 Q Q 1 S I S I V t t Then dvde both sdes of the above equaton wth I, then I Q 1 t InI InV InS ( ) ( ) ( ) ( ) ( ) ( ) I t t t (12) Furthermore, we assume a translog functon that possesses the character of the second dfferental approxmate. In the dscrete seres case, we can rewrte the equaton (12): (13) InI - InI W ( InI - InI ) - W ( InV - InV ) W ( InS - InS ) Q Q t t-1 t t-1 t t-1 t t-1 and InIt InIt 1, where W 1 2( W W ) 1 2 ( ) ( ) t t-1 t t t-1 t-1 Q Q W ( ) InI t InI t1, W ( InVt InVt 1), W ( InSt InSt 1) denotes the energy ntensty changng rate of value-added, the energy ntensty changng rate of total output, the changng rate of value-added, and the changng rate of ndustral structure. In a word, we can decompose factors that affect the energy ntensty of value-added be three tems: 1) energy ntensty changng effect of total output, 2) changng effect of value-added and 3) changng effect of ndustral structure. 7

8 3. Data Descrpton Ths paper uses the annual data spannng the perod from 1982 to In the producer s model of DGMT model, we decomposed the whole economy nto twenty nght sectors:, ncludng eght man sectors, ffteen manufacturng sectors, and sx servce sectors. It has to be noted that the government servce sector s excluded from the whole economy, because the proft maxmzng rule s not applcable to the government servce sector. In addton, n the Natonal Income Account, the output of the government servce sector s dentcal wth ts labor compensaton. Ths s unque. 3.1 Captal Input The captal nput s decomposed nto sx categores. There are constructon (K 1 ), other constructon (K 2 ), transportaton equpment (K 3 ), machneres (K 4 ), nventory (K 5 ), and land (K 6 ). The tme seres captal stocks data are compled by the perpetual nventory approach. xcept for the land, the tme seres captal stock n s calculated by addng up the net captal formaton, whch s the dfference between the gross captal formaton and the deprecaton, startng from the begnnng year of the Natonal Income Account n Tawan. The gross captal formaton durng comes from the DGBAS; the types of deprecaton are compled by employng the constant rate deprecaton method and the years of deprecaton lsted n the Natonal Wealth Census. Ths method mplctly assumes that no net captal stock exsted before The tme-seres land data come from the Industral and Commercal Census n every fve-year by applyng nterpolaton/extrapolaton methods. 3.2 Labor Input 72 categores of labor for each ndustry are classfed on the bass of: a. Gender (a) Male (b) Female b. mployment status (a) mployed (b) Self-employed and/or unpad famly worker c. Ages (a) (b) (c)

9 (d) (e) (f) over 65 d. ducatonal level (a) Junor hgh school graduate or less (b) Senor or vocatonal hgh school graduate (c) College graduate and above Wages and labor nputs on the bass of 72 categores for each sector durng are compled from the magnetc tape of the Manpower Utlzaton Survey, DGBAS. 3.3 nergy Input and Intermedate Input The energy nput data are derved from nergy Statstcal Yearbook, nergy Balance Sheet, MOA, Tapower Statstcal Yearbook, and Chna Natonal Petroleum Corporaton (CNPC). Intermedate Input s compled from Input-Output Table, DGBAS. 3.4 Real Value Added The constant prces (at 2006 level) GDP and value-added data, manly taken from the DGBAS s Domestc Producton Index and Prce Deflator for the years were used for the analyss carred out n ths paper. 4 mprcal Results Ths secton starts wth an applcaton of an aggregate sub-model to estmate the prce elastcty of demand and cross elastcty of demand of factors. And followed by employng the factor decomposton method to analyss the factors of energy effcency changed of the servce sector. 4.1 Prce lastcty and Cross lastcty of Demand The prce and cross-prce elastctes are calculated based on the expressons mentoned n the methodology secton. The elastctes are calculated for the whole servce sector as well as for dfferent sub-sectors. The sgns of all the prce elastctes are negatve, whch s n lne wth the The law of demand. 9

10 4.1.1 Prce lastcty s the prce elastcty of energy demand, represents the percentage change of energy demand wth the energy prces change. Column 3 of Table 1 presents the estmated value of each ndustry, n the case of 2012, the prce elastcty of energy demand of Transportaton, Warehouse and Communcatons Sector s-0.827, and the whole servce sector s Among sub-sectors, besdes other servce sector (the energy s prce elastc wth a value of ), the energy s also prce elastc for Socal and Personal Servce Sector (wth the value of ). The rest of the sectors, such as Busness Sector (-0.988), Accommodaton and Caterng Servces Sector (-0.980), Wholesale and Retalng (-0.968) and Fnance, Insurance and Real state sector (-0.729). The energy prce elastcty of demand shows that the servce sectors have the absolute value of the prce elastcty s greater than 0.5, means that when the energy prces ncrease, whch can effectvely reduce the amount of energy use n all sectors. And Socal and Personal Servce Sector and Other Servce Sector are more senstve to the prce than other sectors (the absolute value of prce elastcty s greater than 1). Therefore, to reduce the quantty of energy consumpton n varous sectors to acheve energy savngs target, through prce adjustment s a feasble way Cross Prce lastctes When there s a substtute or complementary relatonshp between the two elements, that s the prce of one element changes would cross-mpact of another element s demand. Cross elastcty of demand s used to measure ths relatonshp. When the cross-prce elastcty s postve ( 0 ), t means that two elements and j j are substtutes, the greater value represents the stronger substtute between two elements. j 0 represents element and j element are complementary goods and the greater the value means the stronger the complementary between two elements. To show the cross correlaton between energy and other elements, we wll analyss how the dfferent elements wll respond to the energy prce change. The cross-prce elastctes are reported n Table 2. The sgns of K are all postve n , ndcatng that the energy prce ncreases wll result n a reducton of energy consumpton and ncrease the captal nstead for each sector. Moreover, the sgns of L are all postve from 2002 to 2012, ndcatng for each sector, when the energy 10

11 prces ncrease the ndustres wll replace energy by labor and the energy consumpton wll decrease. Because the relatonshp between energy and labor, energy and captal are substtutes, keepng the total output level unchanged, the energy prce ncrease wll gve the ndustres ncentves to nvest n energy-savng equpment or hrng professonal workers to assst ndustres to save energy, reduce energy consumpton cost. 11

12 Sectors Source: Authors estmatons. Table 1 Own-Prce lastctes Table 2 Cross-Prce lastctes K L M Sectors %change of captal demand/%change of %change of labor demand/%change of the %change of ntermedate demand/%change the energy prce energy prce of the energy prce Transportaton,Warehouse and Communcatons Sector Whole Servce Sector Wholesale and Retalng Accommodaton and Caterng Busness Sector Fnance, Insurance and Real state Socal and Personal Servce Other Servce Source: Authors estmatons. KK LL MM %change of captal demand %change of labor %change of energy %change of ntermedate /%change of the captal prce demand/%change of the labor demand/%change of the energy demand/%change of the prce prce ntermedate prce Transportaton,Warehouse and Communcatons Sector Whole Servce Sector Wholesale and Retalng Accommodaton and Caterng Busness Sector Fnance, Insurance and Real state Socal and Personal Servce Other Servce

13 4.2 nergy (lectrcty) ffcency Changng Factors Changes n the conomc Sde of lectrcty Intensty and Varable Factor Analyss-Whole Servce Sector The electrcty-ntensty trend of the servce sectors s shown n Fgure 3. Most of the sectors showed a clear electrcty ntensty downward trend after As the electrcty ntensty s calculated from the electrcty consumpton dvded by GDP. It can be seen from GDP data, the GDP of every servce sector shows a constant rsng trend, whle electrcty consumpton rose all the way up to the hghest pont n 2006, and reversed the downward trend after Therefore, t can be concluded that the reasons of energy ntensty reversed n 2006 should be related to lower tarffs several tmes from 1983 to The electrcty s prce began to rse untl July 1, 2006, the prce ncrease wll cause electrcty consumpton fell, thereby mprovng the electrcty effcent. In , the electrcty effcency mprovement sectors are as follows: Wholesale and Retalng Sector, Accommodaton and Caterng Sector, Communcatons, Fnance and Insurance Sector and Real Property Servce Sector. The average growth rates of the economc sde electrcty-ntensty were -1.68%, -1.29%, 5.40% and -1.65%, respectvely. The deteroraton of the electrcal effcency of the sectors ncludes Transportaton and Warehouse Servce Sector, Busness Servce Sector, the average growth rate of the economc sde electrcty-ntensty are 1.81% and 3.75%, respectvely. The rest of the sectors such as Socal and Personal Servce Sector and Other Servce Sector showed the mprovement of the electrcty effcency but t s not obvous. 13

14 Sources: Authors calculatons. Fgure 3 The conomc Sde of lectrcty-ntensty of Servce Sectors By applyng the factor decomposton method, we can decompose the nfluencng element of energy (electrcty) effcency change contaned the total output electrcty ntensty fluctuaton effects, the changng rate of value added effects and ndustral structure Change effects. We descrbe the nfluencng element of energy (electrcty) effcency changng as follows: (1) In 2007, the economc sde electrcty-ntensty of the whole servce sector ncreased by 6.95 % compared to The man cause of the deteroraton of electrcty effcency due to the deteroraton of electrcty-ntensty of total output, the changng rate was 9.45% (the relatve contrbuton rate of %). The 14

15 mprovement of the rate of ndustral value added fluctuaton effects and ndustral structure change effects wll help to mprove the economc sde of the electrcty effcency of the servce sector, however, the effect of ts mpact s lmted. It can t be explaned by the above three factors s resduals (only -0.06%, the relatve contrbuton rate of -0.88%). (See Table 3 column 3) (2) In 2012, the economc sde electrcty-ntensty of the whole servce sector decreased by % compared to Among them, the effect of total output electrcty ntensty mproved the most, the changng rate was % (relatve contrbuton rate of %), followed by the ndustral structure change effects (fluctuaton rate of 1.77%, the relatve contrbuton rate of %). It can t be explaned be the above three factors s resduals (only 0.00%, the relatve contrbuton rate of 0.02%). (See Table column 4) Table 3 The Changng Rate of lectrcty Intensty of the Overall Servce Sector Unt:% Items The changng rate of economc sde Fluctuaton rate lectrcty-ntensty Relatve contrbuton rate % The changng rate of Total Fluctuaton rate Output Value electrcty ntensty Relatve contrbuton rate The changng rate of Value Fluctuaton rate Added ffects *(-1) Relatve contrbuton rate Industral structure Fluctuaton rate Change ffects Relatve contrbuton rate Resdual Fluctuaton rate Relatve contrbuton rate Sources: Authors estmatons lectrcty ffcency Changng Factors of Sub-Sectors n Servce Sectors The factors nfluence the electrcty ntensty of all servce sectors as shown n Table 4 and Table 5. In terms of the sub-sectors, 2007 compared to 1998, the ndustres wth decreased economc sde electrcty ntensty were Accommodaton and Caterng Servces Sector, Communcatons Sector and Fnance, Insurance and Real state Servce Sector, the change rate of ntensty were % % and %, respectvely. Among them, the common factor of the electrcty effcency 15

16 mproved n the Communcatons Servce Sector and Fnance, Insurance and Real state Servce Sector s the mprovement of the total output electrcty ntensty and the changng rate of value added. And the mprovement of the changng rate of value added s the man factor for Accommodaton and Caterng Sector s lectrcty effcency mproved. The rest of the sectors, such as Wholesale and Retalng Sector, Transportaton and Warehousng Servce Sector, Busness Servce Sector and Socal and Personal Servce Sector showed a rse n electrcty ntensty of 2.33%, 18.79%, % and 15.64% respectvely,. (See Table 4) Table 4 The Change of conomy Sde lectrcty-intensty and Fluctuaton Factor n Sectors Servce Sectors ( ) (1) The changng rate The of economc contrbuton sde rate(economc electrcty-nte sde) nsty Weghts (3) The changng rate of Total output electrcty ntensty The contrbuton rate(total output) Unt:% (4) The changng rate of value added (5) The changng rate of ndustral structure change Wholesale and Retalng Accommodaton and Caterng Transportaton and Warehouse Communcatons sector Fnance, Insurance and Real state Busness Sector Socal and Personal Servce Other Servce Whole Servce Sector Sources: Authors estmatons. In , n addton to Transportaton and Warehouse Servce Sector face a rse of the economc sde of electrcty ntensty, the rest of sectors show a fall economc sde of electrcty-ntensty. Among them, the largest declne n Communcatons Servce Sector (-32.32%), followed by Wholesale and Retalng Sector (-26.03%). The common factor of mprovement for these sectors s total output electrcty ntensty mproved sgnfcantly. (See Table 5.) 16

17 Sectors Table 5 The Changng rate of lectrcty Intensty of the Overall Servce Sector (1) The changng rate The of economc contrbuton sde rate(economc electrcty-nte sde) nsty Weghts (3) The changng rate of Total output electrcty ntensty The contrbuton rate(total output) (4) The changng rate of value added Unt:% (5) The changng rate of ndustral structure change Wholesale and Retalng Accommodaton and Caterng Transportaton and Warehouse Communcatons sector Fnance, Insurance and Real state Busness Sector Socal and Personal Servce Other Servce Whole Servce Sector Sources: Authors estmatons The Industral Value Added Fluctuaton ffects and Industral Structure Change ffects. Structural changes n the servce sectors mean that wth the development of the ndustry, the share of each ndustry wll consequent changes. The hgher share of ndustry the hgher nfluence of ndustry s n the whole servce sector. The ndustral value added rate s the GDP dvded by the total output of ndustry (total output contans GDP, energy nputs and non-energy ntermedate nputs). The hgher the value added the greater the postve contrbutons to the electrcty ntensty of ndustry. And f the value-added rate of each ndustry s mprovng, t wll be helpful for mprovng the electrcty effcency of the overall servce sector. The changng rate of value added and the ndustral structure change of servce sectors are reported n Table 6. The rate of value added of each sector has shown a slght fluctuaton. Because the Wholesale and Retalng Sector and Fnance, Insurance and Real state Servce Sector accounted for 60% of the overall Servce Sector, the change of the value-added rate of these sectors s mportant. Observng the rate of the value added change of each sector from 1998 to 2012, Wholesale and Retalng and Fnance, Insurance and Real state Sector ncreased, rsng from 69.11% and 74.74% by 1998 to 70.44% and 76.14% n 2012, respectvely. 17

18 Comparng the changng rate of value added and the ndustral structure change of these sectors durng the same perod, we can fnd that both the ndustral structure change and the changng rate of value added of Wholesale and Retalng Sector as a percentage of the whole servce sector s are an upward trend. Whch wll accelerate to mprove the overall servce sector s electrcty effcency. Durng the same perod, the Fnance, Insurance and Real state Sector accounted for the whole servce sector decreases wth the passage of tme, whle the changng rate of value added ncreased wth tme passng. The opposte trend change of them wll slow down the mprovement of the electrcty effcency of the whole servce sector. When the effect of these two ndustres offset each other, resultng n a slght postve mpact on the overall servce sector s electrcty effcency n the same perod. Table 6 The Structure Change and The changng rate of the Value Added Change of Servce Sectors Sectors Structure change Unt:% The changng rate of the value added Wholesale and Retalng Accommodaton and Caterng Transportaton and Warehouse Communcatons Sector Fnance, Insurance and Real state Busness Sector Socal and Personal Servce Other Servce Whole Servce Sector Sources: Authors estmatons. 5.Conclusons and Suggestons The objectve of ths paper s (1) to analyze the changes n the energy effcency of Tawan s servce sector durng 1982 to 2012 by factor decomposton method. (2) to estmate the prce elastcty of demand for energy for evaluatng the potental effect of energy conservaton through energy prcng polcy on the servce sector. The major fndngs are 1) In , the overall electrcty ntensty of the servce sector s 18

19 showng a trend from rse to declne. The mprovement of electrcty effcency s very sgnfcant after 2007 (the mprovement rate s 11.95%). The man reason of the mprovement of electrcty effcency s due to the changes n total output electrcty ntensty mprovement (the relatve contrbuton rate s %). However, the effects of changes n the ndustral structure and the value-added rate have negatve effects on electrcty effcency. 2) The energy elastcty of the whole servce sector s It means that the potental energy consumpton wll decrease % f the energy prce ncreases 1%. It can be sad that ncreasng the energy prce s a useful tool to nduce energy-savng. 3) nergy prce rsng can stmulate the ncentve of energy-savng and acceleratng ndustral structure change. The mprovement of electrcty effcency n the servce sector s very sgnfcant durng , the electrcty prce ncreasng 25.6% n the md-2008 should be an mportant reason. Accordng to the results, we make some suggeston as: 1) energy prce ratonalzaton s helpful for energy-usng structure adjustment and reallocaton of producton nputs. It s also helpful to adjust the structure of energy nputs and makes the relatonshp of substtuton or complement between energy nputs more flexble, then enhance the response ablty of energy prce fluctuaton. 2) Implementng the energy savng measures, such as the tax credt, can reduce the nput prce of energy-savng captal or labor. Thereby, nducng ndustry to ncrease energy-savng nvestment and employee nstead of energy consumpton. 3) By provdng energy-savng nformaton, technology assstng and audtng to releve the fluctuaton of energy prce and the shock of energy cost surge the ndustry faced wth. References 1. Berndt,. R. and D. O. Wood (1975), Technology, Prces, and the Derved Demand for nergy, Revew of conomcs and Statstcs, 57:3, Patterson, M. G. (1996), What s energy effcency? Concepts, Indcators and Methodologcal Issues, nergy Polcy, 24: 5,

Answer: A). There is a flatter IS curve in the high MPC economy. Original LM LM after increase in M. IS curve for low MPC economy

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