Models Leontief

Models Leontief

Models Leontief has devised input-output models which have both micro-economic and macro-economic features and show the sources of the inputs of different industries and the destinations of their output. They are intended to help the detailed investigation of the effects of general changes, such as the reduction in total Government expenditure following disarmament. They have so far been constructed only for groups of industries, and for inputs and outputs related by constant proportions.

Both micro-economic and macro-economic models may be subdivided into 'equilibrium' and 'process' models. Equilibrium models specify the conditions under which the 'variables' they incorporate would have no tendency to change; but they are used to analyse change. First, they sometimes indicate the direction which adjustments will take in design equilibrium conditions. Secondly, comparison of equilibria with initial conditions differing in a single respect may indicate the ultimate effect of the single difference. An important distinction in the case of micro-economic models is between general and partial equilibrium models. General equilibrium models embrace all the variables of the whole economy; their main purpose is to provide a summary chart of the interrelationships between all parts of the economic system. Partial equilibrium models select a few

markedly interrelated 'variables' (e.g. the price of a single commodity and the quantity of it demanded), and work out the mutual inter. dependence of these few against a background of assumed fixed values for all other 'variables'.

Equilibrium models ignore the difficulty of tracing the way in which movement is made towards the equilibrium position. But the equilibrium itself may be affected by the path followed and the speed with which different variables change. Process models trace out such paths of adjustment, indicating the conditions under which steady movement, oscillation and rebounds from 'ceilings' and 'floors' are o be expected.

A Farther distinction may be made between models which incorporate expectations as determinants of behaviour from those which do not. Non-expectational models work mechanically, expectational models allow for the fact that economic activity takes place in a world of imperfect knowledge. 'Stochastic' models incorporate probabilities of events happening. {x

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