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Household
Extrac- Construc- Manufac- expendi-
Industry tion tion turing Trade Services tures
(1) (2) (3) (4) (5) (6)
Extraction (1) 10.9 1.2 4.2 0.1 0.6 0.6
Construction (2) 0.8 0.0 0.3 0.3 2.6 0.0
Manufacturing (3) 8.5 16.4 9.8 2.3 3.1 8.0
Trade (4) 3.1 8.9 3.7 1.5 2.3 16.2
Services (5) 6.1 8.8 6.1 11.6 17.5 26.9
Households (6) 35.5 26.4 26.1 49.5 40.6 0.6
Figure 6.1 The activity effect of $100 sale to final demand by the
manufacturing sector
100
90
80
Households
70
Services
60
Trade
50
Manufacturing
40
Construction
30
Extraction
20
10
0
(0)
(1)
(2)
(3)
(4)
(5)
(6)
Round of spending
Figure 6.2 The multiplier effect of $100 sale to final demand by the
manufacturing sector
100
90
80
70 Services
60 Trade
50 Manufacturing
40 Construction
30 Extraction
20
10
0
(0)
(1)
(2)
(3)
(4)
(5)
(6)
Round of spending
100
90
80
70
60
Dollars
50 Round 0
Round 1
40
C Round 2
30
Round 3
20
Round 4
10
Round 5
0
Round 6
Households
Manufacturing
Services
Trade
Extraction
Construction
The tracing of these rounds in Table impact vector (Round 0) through survey
6.2 can also be presented in three or assumption and then sets the iterative
dimensions with a spreadsheet program process in motion on a desktop
(I used Excel.). Figure 6.3 shows once computer. He can see clearly the paths
again the multiplier effects (now it might taken by indirect rounds of spending and
be proper to join the newspapers in can perform a check both on his direct
discussing the "ripple effect") of a $100 impact vector and on the input-output
export sale of manufacturing goods by model itself. Further, he has the material
our economy. Notice the large flow available to make a graphic presentation
through households, especially in round of his results which is easily understood
1, and note how quickly circulation falls by a reader.
off. This economy is pretty leaky! Before the advent of microcomputers,
This process has several advantages to the typical input-output study included
recommend it over the inversion lengthy sets of inverse matrices and
solution. The analyst builds a direct multiplier tables in which the analyst
Table 6.3 Output, employment, income, and local and state government
revenue multipliers for hypothetical economy
Indust r y t i t l e A gr i c, Cons- Manu- Tr ade Ser v i ce House-
mi ni ng t r uct i on f act ur i ng hol ds
1 2 3 4 5 6
P a r t i a l Out put M ul t i pl i e r s ( e l e m e nt s of i nv e r s e )
A gr i cul t ur e, mi ni ng 1 1 .1 3 9 0 .0 3 3 0 .0 6 2 0 .0 1 5 0 .0 2 3 0 .0 2 1
Const r uct i on 2 0 .0 1 9 1 .0 1 1 0 .0 1 2 0 .0 1 5 0 .0 4 0 0 .0 1 4
Manuf act ur i ng 3 0 .1 8 4 0 .2 5 3 1 .1 7 3 0 .0 9 2 0 .1 2 8 0 .1 4 6
Tr ade 4 0 .1 6 5 0 .2 0 7 0 .1 3 8 1 .1 5 9 0 .1 6 6 0 .2 4 5
Ser v i ce 5 0 .3 4 6 0 .3 5 1 0 .2 8 0 0 .4 2 8 1 .4 9 4 0 .4 9 8
Househol ds 6 0 .6 8 4 0 .5 9 3 0 .5 1 6 0 .7 8 5 0 .7 4 5 1 .3 8 1
Out put m ul t i pl i e r s
Di r ect out put 1 .0 0 0 1 .0 0 0 1 .0 0 0 1 .0 0 0 1 .0 0 0 1 .0 0 0
Indust r i al act i v i t y 1 .8 5 3 1 .8 5 5 1 .6 6 4 1 .7 0 8 1 .8 5 0 0 .9 2 4
Ind & househol ds 2 .5 3 8 2 .4 4 8 2 .1 8 0 2 .4 9 4 2 .5 9 5 2 .3 0 5
I nc om e m ul t i pl i e r s
Di r ect i ncome 0 .3 5 5 0 .2 6 4 0 .2 6 1 0 .4 9 5 0 .4 0 6 0 .0 0 6
Tot al i ncome 0 .6 8 4 0 .5 9 3 0 .5 1 6 0 .7 8 5 0 .7 4 5 0 .3 8 1
Em pl oy m e nt ( pe r $ m i l l i on)
Di r ect empl oy ment 30 12 16 30 25 5
Tot al empl oy ment 54 35 34 51 49 30
Loc a l gov e r nm e nt
Di r ect r ev enue 0 .0 2 0 0 .0 1 0 0 .0 0 9 0 .0 1 4 0 .0 2 4 0 .0 2 3
Tot al r ev enue 0 .0 5 1 0 .0 3 8 0 .0 3 2 0 .0 4 6 0 .0 5 7 0 .0 4 9
S t a t e gov e r nm e nt
Di r ect r ev enue 0 .0 0 1 0 .0 0 4 0 .0 0 8 0 .1 2 0 0 .0 1 6 0 .0 2 1
Tot al r ev enue 0 .0 4 2 0 .0 4 9 0 .0 4 1 0 .1 6 3 0 .0 6 1 0 .0 6 8
and can be restated in matrix we could magically get more stuff out of
terminology for all industries as an economy than we put in, and it led
sophisticated audiences into disbelief in
EMULT = nq^ -1(I - A)-1. the analyst's results. Income multipliers
where n is now a vector of industry report the money that drops into the
employment, q^ is a diagonal matrix hands of owners of resources as income.
reflecting the vector q, and the other In this case, the owners happen to be
symbols are as defined previously. workers.
"total" came from their employment the Mississippi study by Carden and
multiplier.) But we could not recall any Whittington (1964) and used the term to
distinguish our multiplier from the one seen in
instance in which the Department of the literature as late as 1973. (p. 67)
Planning and Economic Development or
Davis (1968, p. 33) makes the importance of
any other agency had been asked to
this distinction clear. Two old-style income
show the total effect on household multipliers may have exactly the same values
incomes of a specified direct income but may differ substantially in terms of income
change due to exogenous forces on an change per unit change in final demand. He
industry. People asked about the impact suggests that an emphasis on absolute changes
... rather than on relative changes, as in Moore
of new plant investment (a problem for
and Petersen, be made to avoid the confusion.
which no convenient multipliers have The caution was also expressed by Miernyk
been constructed) and about the impact (1967, p. 101) in his Boulder study, which
of export sales, but none would ask reported old-style income multipliers.
about the effect of a payroll increase. So But despite these problems, the old-
we added an "income coefficient," style income multipliers live on. Two
showing the total income effect not-too-distant uses are in the Delaware
associated with a unit change in export model produced by Sharon Brucker and
sales. The format of the table was Steve Hastings (1984) and in the 1984
Hirsch's (1959, p. 366), with a total Nova Scotia Study, where the term
column added. 'income-generated multiplier' substitutes
In documenting the 1970 Georgia for the above-recommended 'household-
input-output model, (Schaffer 1976), the income multiplier' and 'income
traditional definition became "... multipliers' are defined in the original
awkward and inconsistent with the way.
approach taken in most interpretations. Other income multipliers
Therefore, we ... defined the 'household-
income multiplier' for industry j to be the It became obvious early that other
addition to household incomes in the multipliers reflecting the total impact of
economy due to a one-unit increase in changes in final demand on incomes
final demand for the output of industry could be generated.
j." The footnote explaining this move is The documentation of the 1963
a clear summary of the twisted path Washington input-output (Bourque and
described thus far: others 1967) reports only one multiplier,
The notion of an income multiplier as first the regional income multiplier, which
introduced to the regional literature by Moore includes the change in total state income
and Petersen (1955) was used to describe per $100,000 change in final demand.
additional household income attributable to The 1972 Washington study (Bourque
unit change in household income in the
industry in question. This definition is far
and Conway 1977), in one of the clearest
removed from the exogenous changes which expositions of multiplier development
precipitate additional income changes, and it yet written, defines type I and type II
forces its user to unnecessary trouble in value added multipliers, along with
determining, e.g., the importance of an labor-income multipliers, and jobs
industry to its community. We have therefore
switched ... . Although a similar concept
multipliers. In each case, the multiplier
appeared in Moore and Petersen, ... our point is calculated as "... a simple
is that the label is confusing. We first saw this transformation of the output multipliers
concept discussed as 'income coefficients' in given in the inverse matrix ... ." Thus:
7 INTERREGIONAL MODELS
Now we can easily combine the Review of one-region models
economic-base and interindustry The one-region models are the
concepts to yield a quick feeling for Keynesian and economic-base models.
multi-regional models. While we stop Their distinguishing characteristic is that
with this introduction, extensions to the value of income is determined by
include transactions between industries some autonomous activity out there. It
in different regions are immediately may be investor behavior, as in the
obvious. In fact, a considerable Keynesian model, or it may be purchases
literature has developed on interregional by consumers outside the region, as in
interindustry models and efforts have the economic-base model.
even been made to relate such models to
“other worlds” such as the environment Closed economy, no external trade
delineating the interactions of the human Assumptions:
economy with the highly interactive
elements of our land, sea, and air E = E(Y) = eY
“economies.” A = A0