The purpose of this thesis is to build a macro-econometric model for Taiwan Economy and technology progress. After that we use it to predict economy in the future and perform scenario analysis when the unpredictable shocks happen. We generate the prediction of the economy from the fourth quarter in 2006 to the fourth quarter in 2009. Moreover, we conduct the scenario analysis concerning the variation of international circumstances, for example the fluctuation of oil price per barrel, China’s economic growth and fluctuation of R&D expenditure. In both cases, we also show their impact on the investment and technology level. The range of the GDP growth rate predicted from the fourth quarter in 2006 to the fourth quarter in 2009 in this macro-econometric model is between 1.5 % to 5.6%, and the predicted range of unemployment rate is between 4% to 4.5%. The trend of other financial variables ascends gradually and smoothly. Generally speaking, the model’s predictions perform normally and without any unexpected rising and falling. The results of scenario analysis demonstrate the R&D expenditure still influence domestic economy strongly. When the R&D expenditure rises up to 30% permanently, it makes technology level up, and then most price indexes and unemployment rates decrease quickly, with the other domestic economy variable present positive trend. The direction of future study and improvement are mentioned in the end of this paper.