1 An economy has the following total transactions inputoutpu

1.     An economy has the following total transactions input-output matrix:

                  Agriculture        Manufacturing    Energy     Services

Agric.              1.40                   0.30                0.30             0.40

Manuf.            0.40                   1.60                0.50             0.50

Energy            0.30                   0.50                1.30             0.50

Services          0.40                   0.50                0.50            1.20

(a)   If manufacturing final demand increases by $ 300 billion, what will be the increase in total production in each industry? In GDP?

(b) Calculate the industry multipliers for agriculture and services.

(c)   In forecasting with an input-output matrix, what do you assume about input and output prices?

Solution

The industrial Multiplier of energy is : Total effect divided by the Initial effect

thus, Total effect = 2.5(.40+.50+1.20+.40)

Initia effect is 1.20 Thus, 2.5/1.20= 2.0833333