Assignment

You are a statistical consultant for the treasury department. You have been tasked to provide an input-output analysis on the Australian sector. In particular, you are to analyse the interdependence of 32 industries based on the Leontief Input-Output model. The data required for this problem can be found in the ‘Assignment Data' excel file[1]. Generally round solutions to 2 to 3 decimal places (unless otherwise specified).

You have been tasked with the following questions: Assume for questions a) to d) that all production is consumed by the industries inside this economy (this is known as a closed economy). Also assume total consumption equals total production.

a) Calculate and present the technology matrix. You will need to use the industry codes (under the sheet ‘Extra data') in order to fit the whole table on one page.

b) What is the total production (or consumption) and expenditure in dollars for the ‘Transport and storage' industry? Comment on whether this industry is making a profit or a loss.

c) Which industry has the worst profit margins (including negatives and presented as a %), and which industry has the best profit margins? What assumption are we making when calculating these figures? Hint: do you think this an accurate way to calculate profit?

d) In percentage terms, which industry has the highest consumption of its own resources, as well as display a significant dependency to the other industries? Explain this finding and its consequences to the economy (in general), if this industry was to experience poor performance.

For the remaining questions assume this economy is now ‘open' and thus has an external demand (e.g. from the government) of the following dollar amounts for each respective industry (this information can be found under the sheet ‘Extra data'). Also assume the technology matrix developed in the prior section applies for the remaining questions.

e) Write the equation to represent the internal and external demands for ‘Renting of machinery and equipment'. In this equation do not include industries with zero dependency (when rounded off to 1 decimal place).

f) How much output does each industry need to produce in order to satisfy the external demands as described? Which industry has the highest dollar output? Which industry has the lowest dollar output? Present all solutions for each respective industry in a table.

g) In the latest budget the government has declared significant cuts to the ‘Hotels and restaurants' industry. In fact, they have decided to cut the external demand of this industry by half! Calculate the new output for this industry. Which industry outside ‘Hotels and restaurants' will be most heavily impacted by this change? Express this change both in dollars and percentage.