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Input-Output Model
The IO model is centered on the idea of interindustry
transactions:
– Industries use the products of other industries to produce
their own products.
– For example - automobile producers use steel, glass,
rubber, and plastic products to produce automobiles.
– Outputs from one industry become inputs to another.
– When you buy a car, you affect the demand for glass,
plastic, steel, etc.
Examples of Interrelationships Between
Sectors
$ Basi Products
c
Industr
Overview of y
Community
$ $
Economic Labor Inputs
System Goods &
Services
Households $ Services
$ $
Input-Output analysis creates a picture of
a regional economy describing flows to
and from industries and institutions
What Input-Output Analysis Can Do:
• Transactions Table
• Direct Requirements Table
• Total Requirements Table
Transactions Table
Purchasing Sectors ($
million)
Agriculture Health Services Final Total
Demands Output
Selling Sectors
($ million)
Agriculture 10 6 2 18 36
Health 4 4 3 26 37
Services 6 2 1 35 44
Final 16 25 38 0 79
Payments
Automobile Factory
From the Tire Individual
Producer’s Consumers
Perspective FINAL
School
Districts DEMAND
FOR TIRES
Tire Factory Trucking
Companies
INTER-
Automobile
MEDIATE
Factory DEMAND
FOR
TIRES
Simplified Circular Flow View of The
Economy
$$ Consumption Spending (Yi)
1. Output
2. Employment
3. Income
Three levels of Multipliers
Type I Multipliers
Type II Multipliers
Type III Multipliers
Type I Multipliers
Ag 10 6 2 2 16 36
Health 4 4 3 10 16 37
Services 6 2 1 7 28 44
Households 3 6 10 0 0 19
Final 13 19 28 0 0 60
Payments
Total = 2.25
Example –
Type I Income Multiplier
Total = $2.50
Caution When Using Multipliers