How can economic activities and policies be quantified and coupled to hydrological models
You may find some elements of response in this project and references it contains
NATIONAL WATER SECURITY | Jamel Chahed | Research Project (researchgate.net)
This primarily depends on the purpose of the hydrological model. For example, if you want to calculate the future effects of climate change on river flow, then you can integrate the impact of new policy activities that will reduce greenhouse gas emissions on river flow. Another example: In the future, flow regimes may increase depth erosion in riverbeds. You can also take this into account. In short, the question you are asking depends on the nature of the model.
LULC changes can reflect economic activities and policies through the SWAT model.