The Leontief Input Output Model and the Linear Algebra Behind It
Samantha Faruzzi ’21, Mundelein, Illinois
We will explore the Mathematics behind the infamous Leontief Input Output Model, most commonly used in Economics. The model, or the production equation, is given as x = Cx + d or (I-C)x = d, where x is the amount produced, C is the consumption matrix among the producers in an economy, Cx is the intermediate demand or demand from producers, and d is final demand or output demand.
While focusing on a small scale economy, we will see how this can be applied to a more realistic large scale economy to determine its required inputs for the two types of outputs, the intermediate demand and the final demand.