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Linear Algebra : Leontief Input-Output Model and Real-World Applications

1. Why did Leontief use linear algebra techniques to create his model? Can you think of alternative methods?
2. What are the main strengths of his model?
3. Does it have any limitations (that you can think of)?
4. How might the Input-Output model be useful in the real world? (In other words, would anyone except an Economist be interested in the results?)

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1. Why did Leontief use linear algebra techniques to create his model? Can you think of alternative methods?
The elementary multiplier concept claims only to explain how an increase in final demand, such as a step up in the level of government spending on goods and services, will affect the level of aggregate Gross Domestic Product. The multiplier neglects the obvious limitations involved in working with such national income aggregates as GDP and government spending without regard to the composition of government spending and output. For example, the multiplier will not tell us what will happen if the government shifts $50 billion from military spending to the construction of urban transportation networks or to public housing. Such a shift would obviously stimulate the housing industry. It might be bad for electronics. But would it cause an increase or a decrease in the demand for steel? Nobel Laureate Wassily Leontief in the 1930's, developed the model to analyze the effects of shifts in the composition of government spending on the output of different industries. This procedure for addressing ...

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The Leontief Input-Output Model and Real-World Applications are investigated. The solution is detailed and well presented. The response received a rating of "5/5" from the student who originally posted the question.

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