THE EFFECTS OF REAL MULTIPLIER VERSUS RELATIVE PRICE CHANGES ON OUTPUT AND INCOME GENERATION IN INPUT-OUTPUT MODELS

When using input-output analysis to measure the effect of exogenous changes in the value of final demand, it is important to identify the degree to which the change in value is due to changes in prices or to changes in the volume of demand. A modified input-output model is presented to incorporate changes in prices as well as changes in the volume of final demand. The empirical results demonstrate that changes in the volume of final demand stimulate output and income directly, while changes in price have no effect on output but do influence income levels.