Let C be an n × n consumption matrix whose column sums are less than 1. Let x be the production vector that satisfies a final demand d, and let Δx be a production vector that satisfies a different final demand Δd.
a. Show that if the final demand changes from d to d + Δd, then the new production level must be x + Δx. Thus Δx gives the amounts by which production must change in order to accommodate the change Δd in demand.
b. Let Δd be the vector in Rn with 1 as the first entry and 0’s elsewhere. Explain why the corresponding production Δx is the first column of (I – C)–1. This shows that the first column of (I – C)–1 gives the amounts the various sectors must produce to satisfy an increase of 1 unit in the final demand for output from sector 1.
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