The Leontief Open Production Model or Input-Output Analysis
Wassily Leontief won a Nobel Prize in Economics in 1973 for him explanation of the economy using his input-output model. There are two application of the Leontief model:a closed model and an open model. A closed model deals only with the income of each industry whereas the open model finds the amount of production needed to satisfy an increase in demand. Example one will familiarize you with the terminology and what dierent vectors represent. Using the same vector names as in the example we run through the linear algebra. Then the technology matrix from 1992 will be used to analyze the interdependencies among the sectors. The most useful application of input-output analysis for the economist or a common broker is the ability to be able to see how the change in demand for one industry eects the entire economy. I will focus on showing that the same total increase of demand will have dierent eects on the Gross Domestic Product, when the demand is added to dierent industries.