Understanding The Input-output Model
An understanding of the economy as consisting of linked sectors goes back to the French economist François Quesnay, but was developed in full generality by Léon Walras in 1874. Leontief's contribution was to state the model in such a way as to make computation feasible. He used a matrix representation of a nation's (or a region's) economy. His model depicts inter-industry relations of an economy. It shows how the output of one industry is an input to each other industry. Leontief put forward the display of this information in the form of a matrix. A given input is typically enumerated in the column of an industry and its outputs are enumerated in its corresponding row. This format, therefore, shows how dependent each industry is on all others in the economy both as customer of their outputs and as supplier of their inputs. Each column of the input-output matrix reports the monetary value of an industry's inputs and each row represents the value of an industry's outputs.
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