1.123 |
0.015 |
0 |
0.003 |
0.009 |
0.048 | |
0.012 |
1.004 |
0 |
0.007 |
0.032 |
0.006 | |
B-1 = |
0 |
0 |
0 |
0 |
0 |
1 |
0.039 |
0.094 |
0 |
1.019 |
0.031 |
0.041 | |
0.090 |
0.121 |
0 |
0.144 |
1.221 |
0.084 | |
0.101 |
0.172 |
1 |
0.029 |
0.045 |
- 0.893 |
In turn, the (output) multipliers for restricted model are calculated as follows
"1.123 |
0.015 |
0 |
0.003 |
0.009 |
0.048 | ||
0.012 |
1.004 |
0 |
0.007 |
0.032 |
0.006 | ||
α = [i',0]B-1 = [11111 |
0] |
0 |
0 |
0 |
0 |
0 |
1 |
0.039 |
0.094 |
0 |
1.019 |
0.031 |
0.041 | ||
0.090 |
0.121 |
0 |
0.144 |
1.221 |
0.084 | ||
-0.101 |
0.172 |
1 |
0.029 |
0.045 |
- 0.893 | ||
= [1.264 1.234 |
0 |
1.172 |
1.293 |
1.179] |
Note that the original multipliers are α = [1.397
1.461 1.320 1.211 1.353].
There are two things should be addressed here. First, the modified multiplier for
the restricted sector is zero (in the short-run). This is because the final demand should
decrease proportionally to reductions in production. Until then increases in final demand
doesn’t have any effect. Second, the last element in α vector, α6 = 1.179, is the marginal
value of restriction. If the exogenous restriction on the production decreases by $1,
which means production increases by $1, overall economic impact would be $1.179. In
other words, if manufacturing sector has $1 more restriction, overall economy will lose
$1.179.
If there are 10% reduction in production from manufacturing sector, the whole
economy will lose $1,869 (= $1,416x1.32). Suppose that the central government try to
recover this loss by increasing government expenditure or investing service sector. The
11