Question

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

                            Agriculture   Manufacturing   Energy    Services

Agriculture           1.30                0.40                  0.30          0.40

Manufacturing     0.40                 1.50                 0.40          0.40

Energy                  0.30                0.50                 1.20           0.60

Services                0.50                0.50                  0.60          1.20

1. If final demand (say exports) of energy products rises by $ 300 billion, what will be the increase in output in each industry? In GDP?

2. Calculate the GDEP multipliers for agriculture and manufacturing.

3. In using the input-output model, what did you assume about input and output prices

Answer 1

An economy has the following total transactions input-output matrix: Manufacturing Services Agriculture Energy Agriculture Manufacturing 0.30 1.30 0.40 0.40 1.50 0.40 0.40 0.40 0.50 0.30 Energy Services 1.20 0.60 0.50 0.50 0.60 1.20 1. The demand of energy products raises by $300 billion, then the increase in the total production in each industry Increase in production for agriculture = 300 x0.30 90 Increase in production for manufacturing = 300 x 0.40 = 120 Increase in production for energy = 300x0.60 = 180 Increase in production for service = 300x1.20 = 360 The production will increase equal to the sum of increase in all sector = 90+120+180+360 The production will increase equal to the sum of increase in all sector = 750 2. The GDEP multiplier for agriculture is computed by taking the ratio of change in the production of agriculture to the total change in the production. AAgri culture Production GDEP Agri ATotal Producti on 90 = 0.12 750 GDEP Agri AManufacturing Production GDEPanfactwring - ATotal Production 120 = 0.16 750 GDEPanfactieing 3. In using the input-output model, the assumption made about the input and output prices is that the prices are supposed to be given.