Question

Short Assume that the Economy of a Province in China can be modelled according to the Leontief Input-Output equations shown below Assume, Y = amount of production in the agricultural sector, X-amount of production in the industrial sector (1) x 0.5x + 0.3Y 12 (2) Y = 0.4X + 0.2Y + 8 a. Calculate the amount of X and Y that this province should produce to avoid shortages and surpluses. b. Briefly explain the problems that policymakers c. What other can encounter when planning an economy with this type of approach. method or mechanism a government can use for the allocation of production?

Answer 1

Griven To caleudate X and fom Leontief model 0.4 o.2 To obtain solution 5 -1 5.5 o.3 12 -1 12 -0.4 O.8 03)0 0.3 .12 03 O.5 )(9 ) 28(30 50 , g 12 8o 5-7 27.ly

b. Policy makers face certain problems as :

1. In the dynamic society, the assumption of constant returns to scale is impractical.

2. It only deals with linear equations.

3. The possibility of factor substitution is ignored with the assumption of fixed coefficients of technology.

4. It does not takes into account price changes or increasing costs.

c. The alternative approach for allocation of production is:

1. The dynamic input-output system.