Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Leontief Input-Output Model Leontief's input-output model is one of the economic models used to analyze interactions between economic sectors within a country. This model was developed by an economist from the United States named Wassily Leontief in 1936. In Leontief's input-output model, a country's economy is considered to consist of a number of production sectors that are interconnected. Each sector has input needs from other sectors in its production process. By taking into account the relationship between these sectors, this model can estimate the impact of changes in one sector on other sectors. This model has several assumptions, such as that production technology is fixed and economic policies do not change in the short term. This model also assumes that the inputoutput price level is constant in the short run. Leontief's input-output model can be used to analyze the impact of economic policies on certain sectors within a country, as well as to estimate the domino effect of changes in one sector on other sectors. This model can also be used to estimate the effect of external changes, such as increased imports or decreased exports, on economic sectors within a country. To better understand the concept of Leontief's input-output model, here is an example of its use: Suppose there are four sectors in an economy, namely agriculture, manufacturing, services, and trade. In addition, there are inputs needed by each sector in the production process, such as labor, raw materials and capital. Each sector also has the output it produces. The following is the input-output table for the economy: Sector/Output Agriculture Manufacture Service Trading Agriculture 0.2 0.1 0.3 0.2 Manufacture 0.2 0.3 0.2 0.1 Service 0.1 0.1 0.4 0.1 Trading 0.1 0.2 | 0.1 0.2 The table above shows the percentage of output produced by each sector and used by other sectors as input. For example, the agricultural sector produces 20% of the output needed by the agricultural sector itself, 10% by the manufacturing sector, 30% by the service sector, and 20% by the trade sector. By using the input-output table, we can calculate the impact of changes in the agricultural sector on other sectors. For example, if there is an increase in agricultural production by 10%, it will affect other sectors that require input from the agricultural sector, such as the manufacturing, services and trade sectors. The impact of these changes can be calculated using the percentage of output produced by each sector, as shown in the table above. Leontief's input-output model can be used to construct different economic policy scenarios and estimate their impact on economic sectors within a country. This model can also help in understanding the complexity of inter-sectoral relationships and interactions between sectors in an economy. In addition, Leontief's input-output model can be used to identify sectors that have a large influence on a country's economy and sectors that are most vulnerable to economic changes. In the example above, it can be seen that the service sector has a considerable influence on other sectors, because it requires input from other sectors in its production process. Conversely, the trade sector has less influence on other sectors, because it requires only a small amount of input from other sectors. Leontief's input-output model can also be used for environmental and energy impact analysis on the economy. By taking into account the energy input and output used by each sector in the production process, we can identify sectors that use energy efficiently and sectors that are more vulnerable to rising energy prices. However, keep in mind that Leontief's input-output model has certain assumptions, such as the assumption that technology and input-output ratio do not change over a certain period of time. Therefore, this model should be used as an aid in economic analysis and policy planning, not as the sole basis for making economic decisions. In addition, Leontief's input-output model can also be used to perform a sensitivity analysis to changes in input and output in certain sectors. By changing the input or output value in a particular sector, we can predict the impact on other sectors in the economy. This is very useful in planning economic policies and developing business strategies. In its use, Leontief's input-output model requires input-output data of a country or region. This data includes information on the output of each sector, inputs from each sector used to produce goods and services, and inputs from other sectors used by each sector. In addition, this model also requires estimation of the level of use of inputs and outputs by each sector. To produce accurate results, the input-output data used in this model must be taken from reliable sources and updated regularly. In addition, in interpreting the results of the analysis, it is also necessary to pay attention to the assumptions used in the model and other limitations. Overall, Leontief's input-output model is a useful tool in economic analysis and policy planning. By taking into account the limitations and assumptions used in the model, we can make good use of it to gain a better understanding of the relationship between sectors in the economy and the impact of economic changes on these sectors.