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MA 102 Project
Frames
Dip—Rohit—Rajas—Ojas—Gaurav
IIT Gandhinagar
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Consumption matrix
c11 ... c1j ... c1n
C = ci1 ... cij
... cin
cn1 ... cnj ... cnn
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c11 x1 + ..... + c1n xn Dem.fromsec.1toproducex
.
.
.
.
Cx =
ci1 x1 + ...... + cin xn
Cx =
Dem.fromsec.itoproducex
.
.
. .
cn1 x1 + ..... + cnn xn Dem.fromsec.ntoproducex
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Demand vector
d1
.
.
The vector d =
d i
tells how many units the open sector
.
.
dn
demands from each sector s1, s2 ...sn. The vector d is called the
final demand vector
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x = Cx + d
where,
x = Total production
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Ix = Cx + d
Ix − Cx = d
(I − C )x = d
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Theorem
If C and d have non-negative entries and the column sum in C are
all < 1 (i.e if every sector is profitable),then(I − C ) must be
invertible. Therefore, there must be unique production vector
satisfying the equation(I − C )x = d, namely x = (I − C )−1 d
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0.50 0.40 0.20
C = 0.20 0.30 0.10
0.10 0.10 0.30
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0.50 0.40 0.20
C = 0.20 0.30 0.10
0.10 0.10 0.30
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0.50 0.40 0.20
C = 0.20 0.30 0.10
0.10 0.10 0.30
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Remark
An economic interpretation for the columns of (I − C )−1
(
x = production vector that satisfies a final demand d
(*)
4x = production vector that satisfies a different final demand 4 d
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Remark
An economic interpretation for the columns of (I − C )−1
Then by (*)
x = Cx + d
4x = C 4 x + 4d
Adding the equations and rearranging, we get
x + 4x = C (x + 4x) + (d + 4d)
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Remark
An economic interpretation for the columns of (I − C )−1
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Remark
An economic interpretation for the columns of (I − C )−1
Since
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Remark
An economic interpretation for the columns of (I − C )−1
col 1 col 2 col n
= 1. of + 0. of + ... + 0. of
(I − C ) −1 (I − C ) −1 (I − C ) −1
col 1
= of
(I − C ) −1
1
0
So the 4x corresponding to 4d =
. is the first column of
.
0
(I − C )−1 .
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Remark
An economic interpretation for the columns of (I − C )−1
Similarly, you can see that a change of one unit in the demand of
sector S2 causes a change in production vector 4x = the second
column of (I − C )−1 ;etc.
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Remark
An economic interpretation for the columns of (I − C )−1
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