# Ch. 5b Linear Models & Matrix Ch.

5b Linear Models & Matrix
Algebra Algebra
5.5 5.5 Cramer's Rule Cramer's Rule
5.6 5.6 Application to Market and National Application to Market and National--Income Models Income Models
5.7 5.7 Leontief Input Leontief Input--Output Models Output Models
5.8 5.8 Limitations of Static Analysis Limitations of Static Analysis
1
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5.2 Evaluating a third 5.2 Evaluating a third- -order determinant order determinant
Evaluating a 3rd order determinant by Laplace Evaluating a 3rd order determinant by Laplace
expansion expansion
2
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ij
j i
ij
i
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A find Given
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21
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11
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Ch. 5a Linear Models and Matrix Algebra
5.1 - 5.4
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5.5 Deriving Cramer¶s Rule 5.5 Deriving Cramer¶s Rule (nxn) (nxn)
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Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 3
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5.5 Deriving Cramer¶s Rule 5.5 Deriving Cramer¶s Rule (3x3) (3x3)
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Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 4
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5.5 Deriving Cramer¶s Rule 5.5 Deriving Cramer¶s Rule (3x3) (3x3)
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 5
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x
i
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5.5 Deriving Cramer¶s Rule 5.5 Deriving Cramer¶s Rule (3x3) (3x3)
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 6
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5.5 Deriving Cramer¶s Rule 5.5 Deriving Cramer¶s Rule (3x3) (3x3)
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 7
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a a a
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x
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i i
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5.5 Deriving Cramer¶s Rule 5.5 Deriving Cramer¶s Rule (nxn) (nxn)
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 8
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5.5 Deriving Cramer¶s Rule 5.5 Deriving Cramer¶s Rule (nxn) (nxn)
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 9
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5.5 Deriving Cramer¶s Rule 5.5 Deriving Cramer¶s Rule (nxn) (nxn)
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Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 10
5.6 5.6 Applications to Market and National Applications to Market and National--income Models: income Models:
Matrix Inversions Matrix Inversions
6 5 z 3; 1 y ; 2 1
3
4
4
3 1 2 -
6 10 14 -
3 - 3 - 6
6
1
z
y
x
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3 - 3 - 6
6
1
A
3
4
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Rule s Cramer'
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Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 11
5.6 Macro model 5.6 Macro model
Section 3.5, Exercise 3.5 Section 3.5, Exercise 3.5- -2 (a 2 (a- -d), p. 47 and d), p. 47 and
Section 5.6, Exercise 5.6 Section 5.6, Exercise 5.6- -2 (a 2 (a- -b), p. 111 b), p. 111
Given the following model Given the following model
(a) Identify the endogenous variables (a) Identify the endogenous variables
(b) Give the economic meaning of the parameter g (b) Give the economic meaning of the parameter g
(c) ind the equilibrium national income (substitution) (c) ind the equilibrium national income (substitution)
(d) What restriction on the parameters is needed for a (d) What restriction on the parameters is needed for a
solution to exist? solution to exist?
ind Y, C, G by (a) matrix inversion (b) Cramer¶s rule ind Y, C, G by (a) matrix inversion (b) Cramer¶s rule
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 12
5.6 The macro model 5.6 The macro model (3.5 (3.5- -2, p. 47) 2, p. 47)
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 13
0 1 0
0 1
1 1 1
form Standard
) 1 0 ( *
) 1 0 , 0 ( ) ( *
model The
0
0
0
0
= + +
= + +
=
· · =
· · > + =
+ + =
G C gY
bT a G C bY
I G C Y
g Y g G
b a T Y b a C
G I C Y
5.6 The macro model 5.6 The macro model (3.5 (3.5- -2, p. 47) 2, p. 47)
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 14
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5.6 Application to Market & National 5.6 Application to Market & National
Income Models: Cramer¶s rule (3.5 Income Models: Cramer¶s rule (3.5- -2, p. 2, p.
47) 47)
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 15
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5.6 Application to Market & National Income 5.6 Application to Market & National Income
Models: Matrix Inversion (3.5 Models: Matrix Inversion (3.5- -2, p. 47) 2, p. 47)
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 16
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5.6 Application to Market & National Income 5.6 Application to Market & National Income
Models: Matrix Inversion (3.5 Models: Matrix Inversion (3.5- -2, p. 47) 2, p. 47)
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 17
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Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 18
5.7 Leontief Input-Output Models
Miller and Blair 2-3, Table 2-3,
p 15 Economic Flows (\$ millions)
Inputs (col·s) Inputs (col·s)
Outputs (rows) Outputs (rows)
Sector 1 Sector 1
(z (z
i1 i1
))
Sector 2 Sector 2
(z (z
i2 i2
))
Final demand Final demand
(d (d
i i
))
Total gross Total gross
output output
(x (x
i i
))
Intermediate Intermediate
inputs: Sector 1 inputs: Sector 1
150 150 500 500 350 350 1000 1000
Intermediate Intermediate
inputs: Sector 2 inputs: Sector 2
200 200 100 100 1700 1700 2000 2000
Primary inputs Primary inputs
(w (w
i i
))
650 650 1400 1400 1100 1100 3150 3150
Total outlays Total outlays
(x (x
i i
))
1000 1000 2000 2000 3150 3150 6150 6150
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 19
5.7 Leontief Input-Output Models
Miller and Blair 2-3, Table 2-3,
p 15 Inter-industry flows as factor shares
Inputs (col·s) Inputs (col·s)
Outputs (rows) Outputs (rows)
Sector 1 Sector 1
(z (z
i1 i1
/x /x
11
=a =a
i1 i1
))
Sector 2 Sector 2
(z (z
i2 i2
/x /x
22
=a =a
i2 i2
))
Final demand Final demand
(d (d
i i
))
Total output Total output
(x (x
i i
))
Intermediate Intermediate
inputs: Sector 1 inputs: Sector 1
0.15 0.15 0.25 0.25 350 350 1000 1000
Intermediate Intermediate
inputs: Sector 2 inputs: Sector 2
0.20 0.20 0.05 0.05 1700 1700 2000 2000
Primary inputs Primary inputs
(w (w
i i
/x /x
i i
))
0.65 0.65 0.70 0.70 1100 1100 3150 3150
Total outlays Total outlays
(x (x
i i
/x /x
i i
))
1.00 1.00 1.00 1.00 3150 3150 6150 6150
5.7 Leontief Input 5.7 Leontief Input--Output Models Output Models
Structure of an input Structure of an input- -output model output model
n n nn n n n
n n
n n
d x a x a x a x
d x a x a x a x
d x a x a x a x
+ + + + =
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+ + + + =
.
/ / / / /
.
.
2 2 1 1
2 2 2 22 1 21 2
1 1 2 12 1 11 1
model The
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 20
1700 2000 * 05 . 0 1000 * 20 . 0 2000 2 sector
350 2000 * 25 . 0 1000 * 15 . 0 1000 1 sector
d a a x
2 i2 1 i1 i
+ + =
+ + =
+ + = x x
5.7 Leontief Input 5.7 Leontief Input--Output Models Output Models
Structure of an input Structure of an input- -output model output model
n n nn n n n
n n
n n
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orm standard The
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 21
1700 2000 * 05 . 0 1000 * 20 . 0 2000 2 sector
350 2000 * 25 . 0 1000 * 15 . 0 1000 1 sector
d a a x
2 i2 1 i1 i
=
=
= x x
5.7 Leontief Input 5.7 Leontief Input--Output Models Output Models
Structure of an input Structure of an input- -output model output model
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 22
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5.7 Leontief Input 5.7 Leontief Input--Output Models Output Models
Structure of an input Structure of an input- -output model output model
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 23
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Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 24
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2
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5.7 Leontief Input 5.7 Leontief Input- -Output Models Output Models
Structure of an input Structure of an input--output model output model
Miller & Blair, p. 102 Miller & Blair, p. 102
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 25
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2000
1000
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1700
350
2000
1000
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simplified form Matrix
d x A I
5.7 Leontief Input 5.7 Leontief Input- -Output Models Output Models
Structure of an input Structure of an input--output model output model
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 26
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1700
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2000
1000
matrix the Inverting
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1
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d A I x
5.7 Leontief Input 5.7 Leontief Input- -Output Models Output Models
Structure of an input Structure of an input--output model output model
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 27
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output base 1000 561 89 350
2000 1700 * 1221 . 1 350 * 2640 . 0
1000 1700 * 3300 . 0 350 * 2541 . 1
1700
350
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inversion matrix with results the Checking
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1
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5.7 Leontief Input 5.7 Leontief Input- -Output Models Output Models
Structure of an input Structure of an input--output model output model
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 28
5.7 Leontief Input 5.7 Leontief Input- -Output Models Output Models
Structure of an input Structure of an input--output model output model
2000
7575 . 0
1515
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1700 20 . 0
350 85 . 0
1000
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25 . 0 350
7575 . 0 ;
1700
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Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 29
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5.7 Leontief Input 5.7 Leontief Input- -Output Models Output Models
Structure of an input Structure of an input--output model output model
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 30
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Structure of an input Structure of an input--output model output model
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 31
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Structure of an input Structure of an input--output model output model
5.8 5.8 Limitations of Static Limitations of Static
Analysis Analysis
Static analysis solves for the endogenous Static analysis solves for the endogenous
variables for one equilibrium variables for one equilibrium
Comparative statics show the shifts Comparative statics show the shifts
between equilibriums between equilibriums
Dynamics analysis looks at the Dynamics analysis looks at the
attainability and stability of the attainability and stability of the
equilibrium equilibrium
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 32
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5.6 Application to Market and National 5.6 Application to Market and National--Income Models Income Models
Market model Market model
National National- -income model income model
Matrix algebra vs. elimination of variables Matrix algebra vs. elimination of variables
Why use matrix method at all? Why use matrix method at all?
Compact notation Compact notation
Test existence of a unique solution Test existence of a unique solution
Handy solution expressions sub ect to Handy solution expressions sub ect to
manipulation manipulation
Ch. 5b Linear Models and Matrix Algebra
5.5 - 5.8 33
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